Will Biden deliver for rural America? The promise of the American Rescue Plan
Despite having carried the vote in only 10 percent of rural counties and 15 percent of rural counties that are in economic distress, President Biden has publicly made it a priority to rebuild rural America. For political observers, this may reflect political savvy—cutting losses in just a few rural counties will be key to statewide races, whether to win the electoral college, Senate seats, or state government offices—or tangible evidence that the president is serious about unifying the country. For policy wonks, it is a recognition that the fortunes of rural Americans are inextricably intertwined with key administration priorities, such as addressing climate change and the legacy of racism. Over 50 percent of rural Black residents and 45 percent of rural Native Americans live in economically distressed counties, persistent poverty counties are over 85 percent rural, and rural places will play a central role in transitioning to a clean energy economy. and rural places will play a central role in transitioning to a clean energy economy.
The administration is intent on following through with policy and resources: Susan Rice, director of the Domestic Policy Council, has suggested that the American Rescue Plan, approved and signed into law on March 11, and the proposed American Jobs Plan, the administration’s basis for the current negotiations with Congress on infrastructure, will represent “historic levels of public investment” in rural America.
Grants to local governments: A step forward
Designed as both relief and stimulus, a significant portion of the already approved $1.9 trillion American Rescue Plan represents a one-time injection into the country’s social safety net programs. These include direct payments to families, unemployment benefits, child tax credits, and assistance for housing and health care. By definition, these programs do not offer special treatment to rural Americans, but the amount that will reach rural people will be significant. Some rural regions may ultimately benefit at higher rates because of disproportionate levels of poverty and unemployment.
At the community level, the $350 billion relief fund for states and local governments offers rural places a chance to mitigate the effects of the pandemic while laying the groundwork for future development efforts. Of the $65.1 billion set aside for counties, $15.33 billion—over 23 percent—will go to non-metropolitan counties.
Rural towns, municipalities, and townships will not fare as well as out of the other $65.1 billion directly committed to city governments and local jurisdictions. While $19.5 billion is reserved for smaller jurisdictions—that is, non-county governments with a population less than 50,000—most of these will be within the boundary of a metropolitan area.
Nonetheless, the flexibility of these grants represents a step forward. Our recent analysis of federal assistance highlighted the void in this type of community investment for equitable rural development. This funding will allow local leaders the ability to make their own decisions within a set of broad parameters.
Many will seek to fill fiscal holes left by the pandemic and other economic transitions (as a group, rural areas still had not returned to pre-2008 levels of labor rate participation by the time the pandemic hit). The grants also offer an opportunity to enable locally-led strategies and get local solutions underway that could have a lasting effect. However, while the overall federal investment through this fund is substantial, the grants themselves are unlikely to be large enough to cover the types of cornerstone projects that local leaders have in mind. Many communities will also feel the need to strengthen their capacity with people, expertise, and more robust organizations to be successful with such efforts.
Increasing the return on investment for equitable rural development: A three-point plan
These dynamics highlight the importance of making sure that other resources within the administration’s legislative actions and proposals are friendly, or even intentionally designed, to meet the unique needs of rural communities, especially those in persistent poverty counties or experiencing significant economic distress. Improving the effectiveness of this federal aid and increasing its development “return on investment” will be important if these resources are to have lasting, meaningful consequences for rural communities over the long term.
Since quick action was a top priority when putting the American Rescue Plan together, it depends upon existing programs and mechanisms to funnel the resources. Not all programs have the discretion or flexibility to intentionally target and enable equitable rural development, but several—such as the $4 billion to support local food systems, the $1 billion to offer technical assistance and capacity building to socially disadvantaged farmers, and the over $7 billion for broadband access—have rural built in.
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Another major opportunity lies in the $3 billion appropriated for the Economic Adjustment Assistance grants managed by the Economic Development Administration (EDA), which represents a ten-fold increase over EDA’s typical annual appropriation. This is EDA’s most flexible program, but it is unlikely to reach the rural communities that would benefit most without shaping its uses accordingly. The commitment of $10 billion of financing for the State Small Business Credit Initiative (SSBCI) could also be transformational, since small businesses make up about 90 percent of the businesses in rural areas.
Several key principles can enable the administration to maximize the impact of these resources and make good on the pledge to advance equitable rural prosperity:
1. Rural-conscious rulemaking: As we pointed out in our earlier analysis, rural areas are often faced with eligibility requirements, scoring criteria, or other program parameters that unintentionally result in a structural urbanism that disadvantages less densely populated places.
Making the resources in the American Rescue Plan meaningful for rural may mean making modifications. For EDA, for example, it would be helpful to reduce the typical 20 percent funding match required by recipients down to zero at certain levels of distress or size, especially since many rural areas—especially those in persistent poverty or with majority-minority communities—have limited access to other types of resources such as philanthropic funding. USDA can maximize its food systems funding by seeking to achieve multiple objectives, such as strengthening local food hubs and regional markets while increasing the supply of food assistance to those economically affected by COVID-19.
Greater flexibility will be important to address other critical issues such as housing and respond to other social concerns, like dealing with substance abuse within workforce training and development programs.
2. Strategic follow-on: While the American Rescue Plan represents significant investment overall, for many underserved rural places determined to strengthen their long-term resilience and remake their economies, it will simply be a start. Much can be done to optimize the outcomes through the specific resources made available by the American Rescue Plan; nonetheless, it will be crucial for the administration to recognize the importance of following it with further intentionality.
The proposals in the American Jobs Plan currently under discussion thus loom large. For example, it contains a suggestion to create the $5 billion Rural Partnership Program, which specifically seeks to meet rural communities where they are at and offer flexible support to build their capacity and consistency to successfully carry out locally-led strategies and solutions.
Other actions such as President Biden’s executive order on equity will also be important to maintain a focus on underserved communities. As part of its implementation, OMB recently issued a request for information for tools that can enable departments and offices to improve their effectiveness and reach by changing their program design and parameters.
3. Transparency: While it seems basic, merely updating data regularly about the financing flowing from the American Rescue Plan and making it public, easily accessible, and easily mapped geographically will be critical to understanding its effectiveness. For example, while EDA often states that 60 percent of its funding reaches rural areas, there is no easy way to verify this, nor identify which rural places it served and what effect it purportedly had. While approximately 15 percent of the original iteration of SSBCI landed in rural areas overall, differentiating among rural areas shows that the program struggled to reach places with fewer financing options, such as those in persistent poverty. Getting the program parameters right depends on having good data and responding to subsequent accountability nudges.
USASpending.gov, the website created by Treasury to meet the mandate of the Federal Funding Accountability and Transparency Act of 2006 (FFATA) and the Digital Accountability and Transparency Act of 2014 (DATA), has created a special COVID-19 site to follow the implementation of the CARES Act and the American Rescue Plan. While the site has a map for users to drill down to the county or Congressional district, the mapping function does not allow users to differentiate among programs. The map also does not distinguish between the CARES Act and American Rescue Plan funding, nor differentiate between rural and urban. It should be as easy for U.S. taxpayers to view this information for domestic programs as it is for them to view U.S. investments made internationally—especially since this money is being spent in their own backyard.
A key objective: Clarifying national rural policy
Ultimately, creating a national rural strategy would enhance the effectiveness of federal resources as they start to reach rural, enabling the kind of sustained attention that will be necessary to generate widespread progress in rural communities across the country. Establishing clear and coherent policy priorities for rural resilience, priorities unambiguously understood and taken seriously across the federal government, would increase the chances of success as federal resources are deployed. This is a major opportunity for the administration over the next four years, to pursue systemic reforms and improvements in how federal investments are made and outcomes achieved in rural America.
While still early, the administration is off to a good start, pursuing concrete actions that could translate into investments useful to everyday people and local efforts. Spending the political capital to stay on course will be critical in the coming months.
What does a common agenda for global public goods in education look like?
Last July, the U.N. secretary-general called for a focus on delivering more global public goods. Yet, 15 years after the International Task Force on Global Public Goods wrote its summary report, much work remains to shape debate and action in the education sector on this. Is education so heterogenous that each government must develop bespoke solutions? Or could some standards and systems be created globally and tailored for national and local implementation?
In 2016, the Education Commission found that only 3 percent of overseas development assistance for education was being spent on global public goods, compared with a full fifth in the health sector.
And yet the case for investment is strong. The global learning crisis is severe and expensive, and COVID-19 has exacerbated existing issues. Last year we estimated global losses in students’ future earnings as a result of school closures, finding they will impact those most in low-income countries. The World Bank has predicted a triple funding shock for investment in the sector as a result of the pandemic. Many school systems, particularly those in settings with limited connectivity and access to data and devices, have struggled to harness basic tech effectively in the last year. And the most vulnerable students, even in high-income countries, are least likely to benefit from online learning when they do have access to it.
We also know the sector can work toward meeting common global goals. For example, concerted government and NGO efforts for girls’ education has led to steady (if uneven) progress toward gender parity. Global and regional standards and assessment systems are increasingly strengthening our collective understanding of what learning looks like. And global research programs and groups like the Global Education Evidence Advisory Panel are now emerging with a focus on global public goods. Last year the Save Our Future Coalition explicitly called for donors to invest in public goods that can support and leverage reforms at the country level.
Current lack of investment—and the need to work collectively in the wake of a seismic shock for education—has inspired us to consider what a common agenda for global public goods in education might look like. We offer three foundational principles and a set of possible actions as a starting point for international education institutions, multilateral and bilateral donors, foundations, and corporations with global reach—all of whom should see this as part of their core business:
1. Put children, parents, and the education workforce at the center. Learning is about people, not institutions. Global public goods will have most impact when they put children at the center of an ecosystem of learning opportunities.
Making the shift from talking about the right to education, coined over 70 years ago, to the right to learn will help us focus on what matters most. We could put children at the center by creating unique learner identities (that they can access), allowing us to create personal learning records. Access to open-source tools—harnessing technology increasingly to personalize these—could transform foundational literacy and numeracy levels, as well as deliver stronger, better tailored teacher professional development. And a global qualification or standard could be used to recognize and celebrate excellence in novice teachers.
2. Provide digital platforms for education systems. While global businesses rely on an ecosystem of digital platforms to run increasingly complex supply chains (tailored but seldom developed in-house), education systems are still largely built from scratch. Open-source digital platforms could help countries strengthen governance, cut waste, improve interoperability, and drive up standards.
Actions in this area might include access to an open-source information management system that meets a global benchmark for providing the data needed to make evidence-based decisions. Meanwhile, a shared global standard to assess whether children are learning foundational skills would help systems target children at risk of being left behind with specialized interventions. And teachers will continue to need quality-assured lesson plans, instructional materials, coaching, and other support to help them.
3. Create a new compact with technology companies. The sector has profited significantly during the pandemic and played an increasingly important role in the provision of education. But companies’ support for learning can be piecemeal and seldom benefits the children who need it most. A global ed-tech compact could increase basic connectivity, drive up standards, and plow a share of private revenues into children’s learning.
Any such compact should include investment in universal connectivity, given the sector’s responsibility under the “Contract for the Web.” In the short term, the private sector should commit to working with governments to connect every school to the internet. At the same time, it will be important to create quality assurance for the growing number of platforms that offer search and distribution of digital educational resources.
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Finally, we call for the establishment of a global ed-tech fund, with Gavi as its inspiration. By investing in a model, technology companies could help transform access to quality tech-enabled learning for children who would otherwise be excluded. At the same time, the sector would be involved in shaping markets so that they work for the people who need them the most.
We offer these ideas to set out a possible common agenda for global public goods in education. As the U.N. secretary-general prepares to launch his priorities for a second term of office, we call on the education and technology sectors in particular to work closely together to shape, invest in, and deliver to the benefit of learners worldwide.
Charting a new course in US-Africa relations: The importance of learning from others’ mistakes
This is an exciting time for Africa. In early January 2021, the first shipments traded under Africa Continental Free Trade Area (AfCFTA) preferences left Ghana bound for Guinea and South Africa. Since its signing in March 2018, the rapid implementation of the agreement raises hopes of a more inclusive and prosperous future for the continent. How global trading partners support this project could set the tone of relationships for decades to come.
New times require a fresh approach…
The Biden administration is applying a healthy dose of fresh thinking to a number of Africa-relevant policy areas, from global taxation to intellectual property. In terms of trade, United States Trade Representative Ambassador Katherine Tai has already signaled a welcome new direction, stressing multilateral solutions over bilateral ones and emphasizing the importance of incorporating climate action in discussions on trade policy.
When it comes to U.S. trade with Africa, two linked items are on the agenda:
The administration has inherited plans to negotiate a stand-alone free trade agreement (FTA) with Kenya. The new Biden administration initially announced a review of all trade negotiations started under President Trump, and, in April 2021, Secretary of State Antony Blinken confirmed that talks with Kenya would proceed.
The Kenya agreement was conceived (by the Trump administration) as a blueprint for an FTA initiative designed to succeed the African Growth and Opportunity Act (AGOA), a trade preference scheme that has offered enhanced market access to qualifying African countries since 2000 but is due to expire in 2025.
For both geostrategic and economic reasons, the United States has a vested interest in ensuring the success of the AfCFTA and should avoid moves that might hinder that success. As the U.S. trade team weighs its options and fleshes out a new approach toward the African continent, we argue that, in light of the AfCFTA, bilateral FTAs with African countries should be reconsidered in favor of a continental approach. This recommendation chimes with the Biden administration’s preference for multilateralism and will, in turn, have implications for the future of AGOA.
For both geostrategic and economic reasons, the United States has a vested interest in ensuring the success of the AfCFTA and should avoid moves that might hinder that success.
The underlying problem with FTAs between African and high-income countries
The European Union’s and United Kingdom’s experiences of trying to negotiate FTAs with countries or regions in Africa offer some useful lessons for the United States to consider.
The EU has been trying to secure economic partnership agreements (EPAs) with Africa for over two decades. In principle, these agreements were supposed to be signed on a regional basis, but because of disparate economic interests within regional blocks and concerns in Africa over the ability to compete with firms in the EU on a level playing field, the process was met with considerable reluctance by African partners. The EPAs offered no additional market access for least developed countries (LDCs)—and simply obliged those countries (albeit over a generous timeframe) to open their markets to the EU.
As a consequence, beyond a handful of single-country deals (Cameroon, Côte d’Ivoire, Ghana), just two regional deals were signed—one with East and southern Africa in 2009 and one with southern Africa in 2016. None of this messy patchwork of deals coincided with existing regional economic communities. The seed was thus sown for considerable difficulties in implementation. The EU itself has gradually shifted the discussion toward a different, arguably more accommodating, framework: the Africa-EU partnership.
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To many commentators’ surprise, given the country’s post-Brexit political rhetoric, the U.K. missed a golden opportunity to chart a new course. Instead, for reasons of expediency and the desire to sign up quickly as many new trade deals as possible, it opted to roll over the unpopular EPA deals. This exercise has not proven at all straightforward and the newly inked U.K.-Kenya FTA faced hurdles in both the U.K. House of Lords as well as the Kenyan parliament. A legal case brought by small-scale farmers in Kenya is still pending.
On the part of African partners, bilateral deals have been seen as the product of necessity rather than forward-looking policy design. If we take the example of the U.K.’s deals with Kenya and Ghana, both countries are classified as “non-LDCs” and so, unlike neighboring countries in the East African Community (EAC) or Economic Community of West African States (ECOWAS), they do not qualify for the generous Everything But Arms preference scheme. The deals were signed not because they were seen as a gateway to accelerated export growth or diversification, but rather to protect existing market access for a handful of traditional, largely low value-add exports (flowers and vegetables for Kenya, bananas and tuna for Ghana).
FTAs between countries at vastly different levels of development are risky
In a well-argued piece, Brodo and Opalo (2021) recently claimed that the U.S. should make deals with Africa’s regional economic communities (RECs), an intermediate solution between bilateral trade agreements and a U.S.-Africa continental trade agreement. This approach is certainly preferable to signing bilateral FTAs, but also presumes that all countries within a REC feel both ready and prepared to enter into an FTA with the world’s preeminent high-income, high-productivity economy. Arguably, this presumption was the underlying mistake made by the EU when it embarked on EPAs with the African continent nearly two decades ago.
In reality, Africa’s RECs contain countries with different economic priorities, interests, and levels of development. LDCs across the continent have been extremely reluctant to sign FTAs with developed economies for fear that their nascent domestic industries will not be able to survive the competition—particularly in sectors like agriculture where levels of domestic support in developed countries are high. The majority of countries on the continent already have to sustain major structural trade imbalances with high-income countries, and signing FTAs, even if the liberalization is gradual, is only likely to exacerbate those imbalances, entrenching patterns of dependence on low-value commodity exports.
In considering its new policy toward the African continent, the U.S. administration should also take fully on board the lessons to be learned from the Free Trade Area of the Americas (FTAA), a megaregional trade agreement over a broad range of countries with very different levels of development and economic structures, which ended ignominiously without agreement in 2005 after over a decade of negotiations (Herreros, 2019).
FTAs with single countries undermine regional customs unions and create headaches for ACFTA implementation
Bilateral FTAs may be allowed under the terms of the AfCFTA, but this does not mean they are without cost. Regional-level customs unions such as that of the EAC and ECOWAS are extremely important building blocks toward wider continental trade integration. The practice of signing side deals with individual member states—especially if it becomes common practice—could undermine their common external tariffs and exacerbate division and tension.
Such side deals also complicate the implementation of the AfCFTA, which would lead to a heavy reliance on rules of origin to prevent trade deflection. It is also noteworthy that, as soon as its own customs union was formed in 1968, the EU no longer allowed member states to negotiate with third parties. Instead, in order to maintain internal coherence, the EU Commission took “exclusive competence” of external trade policy (Baldwin and Wyplosz, 2015).
The continental route—the preferred African option
Looking to the future, countries like Ghana and Kenya seeking to grow their industrial bases and increase their share of manufactures in exports may consider pivoting away from a reliance on these oversaturated and mature developed-country markets that are often fickle and already dominated by powerful multinational companies.
Instead, they should prioritize trade with the African continent through the AfCFTA, which, as UNECA Executive Secretary (and AGI Nonresident Senior Fellow) Vera Songwe (2019) observes, is much more likely to stimulate industrialization and much-needed creation of quality jobs. Despite the existence of preferential schemes to high-income markets like AGOA and the EU’s Everything But Arms, over the last two decades intra-African exports in manufactured goods have expanded by a factor of more than 5, much more rapidly than extra-African manufactured exports (Figure 1). By removing tariffs and reducing nontariff barriers on intra-African trade, the AfCFTA will provide a new impetus to this already ongoing process.
Toward a new US approach to trade relations with Africa
Rosa Whittaker, one of the architects behind AGOA, has recently claimed that:
“There is no appetite in Washington for AGOA’s unilateral trade benefits. In preparation for its 2025 expiration, AGOA needs to be renewed with smart trade reciprocity—pillar one. Some sectors have matured in specific countries thanks to AGOA and should, therefore, be considered for graduation from duty-free treatment.”
We beg to differ. AGOA has certainly proven to be an imperfect trade instrument: Outside fuels and minerals, the bulk of the export gains have accrued only to a small minority of countries, in a small range of industries—principally textiles. Nonetheless, at this juncture, that is no reason to adopt a “throw out the baby with the bathwater” approach and shift to fully reciprocal trade deals with Africa. The risk is that such policies will meet with the same resistance and opposition as the EU’s EPAs.
Instead of replicating the EU’s or U.K.’s flawed approaches, we argue that the Biden administration’s priorities would be better served by working with the African Union to design a fresh, forward-looking comprehensive partnership arrangement. An intermediate position would to be to start by addressing some of the flaws in existing AGOA market access (Laurence, 2013), and improving upon it—in other words, an updated, AGOA-style trade preference scheme made more predictable and with full continental cumulation in support of the AfCFTA. This policy would provide the necessary “breathing room” for Africa to consolidate its own process of regional integration first, after which a U.S.-Africa FTA could be explored.
This trade pillar could be embedded in a wider, new U.S.-African trade and development partnership that could include joint commitments on climate change and foreign and security policy, as well as ensure U.S. development support is coherent with Africa’s Agenda 2063 plans.
Reversing the retrenchment of US economic interests on the African continent
Finally, the U.S. has a long-term strategic interest in making sure that the AfCFTA is a success. The U.S. is a major investor on the African continent, and although foreign direct investment (FDI) stocks have been declining in recent years (principally because of low mineral and fuel prices globally, which have led to a degree of divestment in these sectors), in 2018, U.S. firms still held more than $44.4 billion in FDI stock in Africa, controlling assets worth $370 billion, making sales of $116.3 billion, and employing 370,000 people across the continent (U.S. Department of Commerce, 2021) (Figure 2). Yet, in recent years, China has been the most active investment partner, accounting for around double the estimated FDI flows to Africa compared with the United States (Madden, 2019).
The AfCFTA represents an opportunity to turn this trend around. Reflecting the vibrancy of the U.S. investor community on the continent, the U.S. has an extended system of chambers of commerce and business associations across 21 countries on the continent. Much as they did in Europe in the postwar period (Mold, 2000), U.S. firms could help act as cheerleaders to the AfCFTA, integrating their operations across borders and shifting the focus of their activities away from the extractive sector and toward higher-value added activities in services and manufacturing. Ford’s recent decision to invest $1 billion in its operations in South Africa is a sign of the confidence in the continental market. In aligning both its trade and investment policies toward Africa with the AfCFTA, the United States thus has a unique opportunity to support African unity and economic prosperity. It is an opportunity that should be seized.
Digital currencies are transforming the future of money
Digital currencies like Bitcoin often make headlines for the massive swings in their value, but beyond the intrigue of skyrocketing and plummeting prices the rising popularity of cryptocurrencies poses serious questions for financial institutions and monetary policy. Eswar Prasad joins David Dollar for a conversation on the digitalization of money and what digital currencies could mean for the future of cash, international payments, and the strength of the U.S. dollar. Prasad also explains why some central banks have hesitated to introduce digital currencies while others have embraced them.
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Eswar Prasad
Senior Fellow – Global Economy and Development
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David Dollar
Senior Fellow – Foreign Policy, Global Economy and Development, John L. Thornton China Center
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Africa in the news: COVID-19, Côte d’Ivoire, and energy updates
COVID-19 cases surge in Africa, and Tanzania takes steps to join COVAX
Reported COVID-19 cases are surging across Africa, with more than 20 countries experiencing an increase in week-over-week case count by over 20 percent. On June 17, the World Health Organization’s (WHO) regional director for Africa attributed the spike in cases to a third wave of the virus sweeping across the continent and warned about increased risk of overwhelming Africa’s underdeveloped health care system. Five countries—South Africa, Namibia, Uganda, Tunisia, and Zambia—now account for 76 percent of the continent’s confirmed new cases. Efforts to accelerate inoculations are slow, and only 0.79 percent of Africans are fully vaccinated, as the continent’s access to vaccines has slowed due to financing and competition for vaccine supplies with wealthier nations.
In related news, on Thursday, Tanzania, which remains 1 of 4 African countries to not yet begin a national vaccination drive, announced it is seeking to join COVAX—the global vaccine-sharing initiative hosted by the WHO, the European Commission, and France. Since the death of Tanzanian President John Magufuli, who had firmly denied the spread of the virus in the country, the government has instituted measures to contain the pandemic . Joining the COVAX initiative promises to bring COVID-19 vaccines to Tanzania in the coming weeks. However, international agreements to supply COVAX with vaccines have fallen short, as India, a major manufacturer and supplier of the immunization, prioritized inoculating its population as it battled a brutal second wave of the pandemic.
Gbagbo returns to Côte d’Ivoire; US Supreme Court dismisses lawsuit
On Thursday, former Côte d’Ivoire President Laurent Gbagbo returned to the country for the first time since his arrest 10 years ago. The former president, who had been in power for nearly a decade, was arrested in 2011 and sent to The Hague to await trial in the International Criminal Court (ICC) after 3,000 people were killed in the aftermath of his 2010 electoral defeat. Gbagbo, the first head of state to be tried by the ICC, was charged with war crimes and crimes against humanity, but the ICC acquitted him in 2019—a ruling that was upheld in March of this year. Although some of his former opponents argue Gbagbo should be imprisoned in Côte d’Ivoire, the government has welcomed his return, citing the need for reconciliation in a country not far removed from a civil war.
In other Ivorian news, the U.S. Supreme Court threw out a lawsuit on Thursday that accused Cargill Inc and Nestle of knowingly helping perpetuate slavery at cocoa farms in Côte d’Ivoire. According to Reuters, the Supreme Court’s 8-1 ruling reversed a lower court decision that allowed the lawsuit brought on behalf of child slaves from Mali who worked on said farms. The Supreme Court indicated that the case lacked evidence that the defendants committed the alleged wrongdoings on U.S. soil.
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Study finds that solar and wind can help mitigate GERD conflict in northeast Africa
As disagreements continue among Ethiopia, Sudan, and Egypt over the Grand Ethiopian Renaissance Dam (GERD), a recent study in Nature Report shows that reliance on the facility can be alleviated by expanding solar and wind power within the region. Integrating these energy sources within the same grid as GERD could help create a “win-win situation” where power can be supplied while maintaining the river’s natural flow and navigating seasonal changes, according to experts. The dispute stems from Egypt’s concern over how Ethiopia’s decision to begin filling the reservoir will affect the flow of the Egyptian Nile River—the lifeforce of Egyptian agriculture.
The study comes at the introduction of Sudan’s first wind turbine, which is expected to provide power to 14,000 people. It took 19 days and seven vehicles to transport the turbine from the Netherlands to Port Sudan and then to a future windfarm facility in Sudan’s northern state of Dongola. Construction and maintenance of the turbine will also provide training and job opportunities for equipment engineers within the region. Sudan does not have many energy alternatives as the country does not have an oil or gas reserve and, like others in the region, depends on hydroelectric power for the majority of its energy generation, but that source is vulnerable to climate change given the reliance on rainfall patterns.
Ensuring the durability of local commitments to the SDGs
The long-term horizon of the Sustainable Development Goals (SDGs) poses a challenge to any elected government since their achievement depends on sustained efforts across multiple election cycles. While municipal governments and mayors across the world voluntarily demonstrate significant leadership on sustainable development, they face special challenges in advancing progress, as their policy choices are often more constrained and their internal capacity more limited than national counterparts. As a result, for example, many U.S. cities have made limited progress on their climate change pledges. The expectations for a quick and sure economic recovery from COVID-19 add additional pressure to rebalance local priorities in favor of short-term growth at the expense of considering long-term consequences.
As cities seek to consolidate and institutionalize longer-term commitments to the SDGs, several common approaches are beginning to emerge.
1. Some cities are turning to resolutions and other political mandates to secure the SDG agenda across political cycles.
In some instances, mutually reinforcing policy objectives between the national and local governments normalize aspirations, enabling them to persist. In Mexico City, consistent sustainability objectives have been mainstreamed over 20 years in the city’s development plans, reinforced by the country’s constitutional mandate to “foster sustainable development.”
More commonly, however, local elected officials are turning to their legislative power to set a long-term footprint. Based on a local law, New York institutionalized the creation of a city strategy with mandates for regular public reporting. In 2015, it aligned that strategy, OneNYC, to the SDGs, and now its reporting—through the Voluntary Local Reviews (VLRs) that it pioneered—has become integrated with that mandate.
While they do not constitute a similarly strong accountability tool, a nonbinding resolution voted by the city council can provide several degrees of long-term credibility. Such resolutions signal to constituents and partners an alignment among city council members on key aspirations and priorities. They also provide “political cover” and an opportunity for civil servants to pursue more targeted strategies and integrate the considerations of the SDGs more fully into their work. Civil servants working on the SDGs often develop a city council strategy to get a vote on a resolution. In Madrid, a useful approach to secure this political buy-in while avoiding over-politicization has been to combine internal efforts within the city council with an acknowledgement of the benefits of integrating the city’s SDG strategy with the national recovery and spending plans.
These nonbinding resolutions also offer an entry point to securing wider buy-in from different partners and stakeholders in the community. The more partners co-brand these goals, the more “culturally appropriate” they become. For instance, Orlando’s updated sustainability and resilience plan (Green Works CSAP) co-branded with the SDGs, and was the first attempt to align the global goals with local priorities and take advantage of existing local awareness. It led to a 2018 resolution with specific clauses linking to the SDGs. The leadership of the city government helped create momentum, with other local institutions incorporating or referencing the SDGs in their strategies and activities: local universities (UCF GEEO center), neighboring city and county governments (Regional Resilience Collaborative), and a local philanthropic foundation (Thrive Central Florida). In other cases, nongovernment actors demonstrate more advanced leadership than the local governments, and their efforts catalyze and inspire municipal action, creating new norms and expectations.
2. New models of governance spurred by the SDGs can create “facts on the ground” that make it more likely to sustain efforts over time.
Cities use structures of governance as a means of institutionalizing the SDGs. Through the Bristol OneCity governance structure, city leaders have formed habits and created partnerships across sectors to strategize and lead together on city priorities. Regular stakeholder gatherings using the SDG framework led to city structures that facilitate collaboration, communication, and information-sharing on a collective set of priorities. While the city’s SDG plan remains associated with the mayor’s priorities, the system of strategy development and implementation, which has included the creation and leadership of six multistakeholder City Boards to drive the achievement of the local goals, will be harder to deconstruct. As the SDGs permeate local partnerships among local organizations and enable the leadership and contributions of this influential set of local stakeholders, a succeeding mayor will face political risk in dismantling these governance structures.
Demonstrating the nonpartisan dimension of equity and sustainability goals can help maintain them. In Bogota, the integration of the SDGs and climate goals by key government offices allowed the incumbent administration to maintain previous plans and efforts. Meanwhile, Pittsburgh has aligned its OnePGH city plan to the SDGs, reinforcing its long-term commitment to equity through the establishment of equity indicators measuring progress and securing investment commitments from local nonprofits to advance its initiatives. These arrangements will soon face a stress test as their mayor transitions.
3. Integrating the SDGs into regular city decisionmaking processes, such as the budgetary process, can also enable consistency.
The process by which cities make decisions on allocating their resources and public spending is a powerful tool to advance progress on the SDGs and make them an integral function of the city’s action. During and exiting the COVID-19 crisis, decisions over priorities will have important effects on the recovery. Within their budget constraints, they need to balance excellence in delivering basic services with their long-term aspirations and priorities. In particular, investing in an equitable and sustainable recovery from the COVID-19 crisis requires rethinking the process of budget formulation and decisionmaking.
By mapping budgets to the SDGs, cities reinforce the durability of their efforts to achieve them. For instance, Malmo developed a process to integrate the city’s SDGs objectives and planning into the city’s budgeting decisions: The budget cycle includes a strategic dialogue between specialists from the economic and sustainability units at the City Office to ensure budget aligns with the city’s commitment to the SDGs. Analyzing the development in Malmö with the SDGs has become an integral part of defining the city’s budget goals for each cycle. The city of Strasbourg has aligned in detail its annual budget and expenditures to the SDGs, identifying the main and secondary SDG targets related to each budget line, while Sardinia has developed a financial tracking tool to transparently show how financial expenditures align against the SDGs.
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4. Cities can promote citizen participation to secure long-term buy-in.
Using the SDGs in a participatory way helps create accountability that extends beyond an elected government. In Mannheim, the city government involved its citizens through a participatory planning process to define the city’s strategy, using surveys, focus groups, and public engagement. Democratizing the process connects residents in a tangible way to the local sustainability objectives, and the hope is that this may increase its resistance to political turnover. Even creating a widespread public campaign that encourages citizen contributions toward the SDGs, such as in Utrecht, can facilitate a shift in community mindset or norms that persists beyond one particular administration or elected leader.
Participatory budgeting has also successfully used the common language of the SDGs, helping facilitate citizen voice during the city’s allocation of resources in their communities. In Mexico City and Paris, legislation allocates a percentage of public resources to participatory budgeting. Helsinki and Mannheim have also implemented participatory budgeting. This has provided an additional platform for building public support for policies that prioritize the objectives reflected in their commitment to the SDGs. The devil can be in the details, as there can be challenges ensuring representative participation (e.g., digital representation), and the influence of the citizen input is not always clear. But this is a good example of a governance tool that shares synergies with a sustainable development agenda and can be mutually reinforcing.
Conclusion
The aspirations and principles of the SDGs will become durable at the local level when expectations and behavior change across community norms, governance structures, and policymaking. Building an SDG-oriented culture, both within and beyond city government, can create a sense of shared momentum and similar priorities among all stakeholders. What is perhaps most powerful is that the SDGs are providing a common language and framework that forward-thinking localities are using to enable such shifts. Whether or not future elected administrations continue to use SDG branding, there are indications that commitments to equity and sustainability can be mainstreamed into city processes, and that the expectations of external stakeholders and citizens can shift to ensure continued political attention. This may be the lasting legacy of the “SDG effect.”
Figure of the week: Increasing access to electricity in sub-Saharan Africa
This month, the custodian agencies of Sustainable Development Goal (SDG) 7 released a joint report, “Tracking SDG 7: The Energy Progress Report,” which examines the progress made toward the achievement of SDG 7, “ensure access to affordable, reliable, sustainable and modern energy for all” by 2030. While progress has been made toward increasing electricity access globally—441 million more people have electricity in 2019 compared to 2010—the report highlights how the world is not on track to achieve any of the targets under SDG 7. According to the authors, the trajectory has been further diverted due to the COVID-19 pandemic that places additional burden on supply chains and consumer’s income, and is set to increase the deficit of electricity access in 2020. Moreover, write the authors, the pandemic highlighted the importance of access to reliable electricity in facilitating the delivery of vaccination doses that rely on ultracold storage and in the general success of public health programs.
The key targets of SDG 7 include ensuring universal access to electricity and clean cooking solutions, increasing the share of renewable energy, improving energy efficiency, and, finally, increasing international collaboration to support clean and renewable energy efforts.
According to the report, the overall number of people without electricity access has steadily dropped worldwide, largely driven by the shrinking deficits in Central and Southern Asian countries. Notably, as seen in Figure 1, the 20 countries that comprise the smallest share of population with access to electricity in 2019 are all located in sub-Saharan Africa. At 7 percent, South Sudan had the lowest access to electricity in 2019, and countries like Chad, Burundi, and Malawi had slightly greater access. Figure 1 also shows improvements in access over 2010-2019 within this group of 20 countries. Uganda has the greatest access to electricity at 41 percent and experienced the greatest improvement in electrification, with an average annual growth of more than 3 percent. While all 20 countries are far below the world average of 90 percent for electricity access, half of them had much greater overall annual growth than the world average.
Figure 1. Electricity access in the 20 least-electrified countries, 2010–2019
Source: “Tracking SDG 7: The Energy Progress Report,” 2021.
Overall, sub-Saharan Africa accounts for 75 percent of the world’s population without access to electricity, and, as seen in Figure 2, the region’s access deficit has increased from 556 million people in 2010 to 570 million people in 2019. Importantly, though, while the number of people without access to electricity has overall increased within sub-Saharan Africa, from 33 percent in 2010 to 46 percent in 2019, the share has actually dropped due to rapid population growth. Such a trend indicates that electrification is lagging behind population growth in many places, particularly in countries like the Democratic Republic of the Congo, Nigeria, and Malawi. However, in countries like Kenya and Mali, advances in electrification outpaced their annual growth in population.
Figure 2. Regional access deficits (in millions of people without access) for 2010, 2017, and 2019
Source: “Tracking SDG 7: The Energy Progress Report,” 2021.
The authors highlight the importance that policy and regulatory framework has in enabling such large improvements in electrification in countries like Liberia and Guinea-Bissau, and even in countries like Cameroon that have faced conflict and violence within the time period. The authors argue that support for electrification is an imperative component of recovery packages and should particularly focus on mini-grid and off-grid electrical sources that play a key role in achieving universal access—even in rural, conflict-prone areas of Africa. Such developments depend mostly on startups and small-to-medium-sized businesses that have suffered under pandemic-related lockdown provisions and disruptions in their supply chains.
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Same shock, different impacts: The impact of COVID-19 on firms in Central Europe
Slam in sales, but signs of recovery
What was COVID-19’s damage in Bulgaria, Poland, and Romania? The first six months of the pandemic claimed a quarter of total sales on average (Figure 1). Firms reported a major drop in sales during the first wave averaging between 21 percent in Poland to 31 percent in Bulgaria. Some of the losses were recovered by the end of 2020 and early 2021 (Figure 1), but will this nascent rebound be sustained and how long will it take to bounce back to pre-pandemic levels? Upcoming survey waves will provide insights on this but there are reasons to be cautious about the recovery given that the second wave indicates firms were reverting to their pre-pandemic trajectories.
Who suffered most? Looking at countries and sectors, we find (Figure 2) firms that experienced the highest drop in sales in the first phase of the pandemic were also the ones that recovered most as the crisis unfolded, once the short-term shock and initial lockdowns receded (Figure 2). This pattern is consistent across the three countries. However, comparing across countries, we find that Polish firms recovered faster than ones in Bulgaria and Romania for every level of initial sales drop (Figure 2 the yellow line representing the results of Polish firms lies above the lines of Romania and Bulgaria). This inverse relationship between recovery and sales losses is preserved when comparing firms by sector (Figure 3). The lockdown clearly affected businesses in different sectors heterogeneously, with those in the hospitality sector being especially affected versus professional services that could continue with work being done from home. The service sector stands out as being both the most affected but also the sector experiencing the highest rebound during the second wave (almost 13 percentage points vs. 7 percentage points for retail and manufacturing).
Watch the small and young firms
Going beyond aggregate analysis, at a country and sectoral level, we find that there are some firms that were especially affected. We find that firms of all sizes suffered significant losses in sales, but the magnitude of the shock changes linearly with size: The drop for micro-firms (0-4 employees) was twice as large as the drop for the largest firms (100+ employees) . Similarly, we find significant differences correlated with the age of firms. The youngest firms underwent the biggest drop in sales (40 percent) while established firms (10 years or older) shared a similar drop in sales, around 26 percent. We also find that these two dimensions are correlated but independent in explaining firms’ exposure to the COVID-19 shock, i.e., the smallest and youngest firms were the most critically affected by the pandemic.
Monetary meld
During the COVID-19 pandemic advanced economies have tapped their central banks for extensive liquidity support to their economies and to stave off an even deeper global economic crisis. African countries called for a $100 billion stimulus to respond to the pandemic but lacked the tools to finance such an injection of capital. Would strong regional central banks or even a continental central bank have helped? The regional experience of the Economic Community of West African States (ECOWAS) gives a glimpse of what is needed to accomplish monetary integration. But it also highlights the limits of such an approach, the difficulties the continent faces, and some fundamental issues that must be resolved to promote resilience in the region and foster alternative avenues to regional integration.
The leaders of the 15 ECOWAS member countries aimed to achieve a monetary and currency union by the end of 2020 but abandoned that timetable because the group was not ready. They were far from the macroeconomic convergence—especially similar levels of inflation and sufficiently low public-debt-to-GDP ratios—necessary for such a union to function well. The emergence of the COVID-19 pandemic, with its massive economic and health consequences, has pushed any proposed union to the back burner for countries in the 46-year-old ECOWAS.
Still, a monetary union for the region remains an aspiration with myriad potential benefits. An ECOWAS currency union could improve trade and investment flows in the region, bring added discipline to the macroeconomic and structural policies of member countries, and enhance stability against external shocks. A currency union with a strong central bank could have helped the region better weather the damaging economic effects of the COVID-19 pandemic. It could also serve as an anchor for inflation expectations within the area and as a catalyst for beneficial labor and product market reforms. In addition, a currency union can exert external discipline on fiscal policies.
A single ECOWAS currency would be a major and ambitious undertaking, with many potential benefits.
The desire for a monetary union also speaks to a deep-seated desire for greater economic integration among the countries in the region and, indeed, for the continent as a whole—as evidenced by the advent of the African Continental Free Trade Area (AfCFTA). Whatever the timing, and perhaps even the outcome, of the monetary union project, there are many other elements to integration on which these countries could make progress, and for a few there is already progress to report.
Impediments to integration
The closer economies are in areas such as growth and inflation, the more appropriate a common monetary policy. In ECOWAS many differences present major obstacles to uniting 15 countries under a common currency—differences in their levels of development, the size of their economies, population, and economic structure, among others.
Six of the fifteen can be classified as middle-income countries (with annual per capita income of at least $1,000, based on market exchange rates); the others are low-income countries.
The disparity in the size of the economies is enormous. Nigeria, the continent’s largest economy, accounts for about 67 percent of the ECOWAS GDP, while the five smallest members together total less than 2 percent.
Population differences are only slightly less pronounced. Three countries—Nigeria, Ghana, and Côte d’Ivoire—constitute about 67 percent of the 350 million people in ECOWAS, while six countries, each with fewer than 10 million people, together represent 7 percent of the ECOWAS population.
Economies in the region are structured differently too. There are oil exporters and oil importers. Many countries rely heavily on agriculture and extractive industries for most of their GDP and exports, while some have a manufacturing component.
Because of these differences, GDP growth and inflation do not move simultaneously across countries. Changes in the relative prices of exports and imports account for a significant share of the variation in GDP growth and inflation in ECOWAS countries, but these so-called terms-of-trade shocks are not symmetric across the region. For example, the effect of a change in petroleum prices on oil exporter Nigeria is very different from the effect on oil importers.
These disparities pose important technical and governance challenges to a unified currency among the 15 countries. Because member countries have different production and economic structures, the loss of an adjustment mechanism—that is, an independent currency and monetary policy—puts a significant burden on tax and spending policies to maintain stability. Shocks such as the COVID-19 pandemic that put varying stresses on economies in the region point to the difficulties posed by the loss of a key policy instrument. Nigeria, for instance, suffered far more than others from plunging oil prices in the early stages of the pandemic.
Moreover, eight ECOWAS countries, largely francophone, are already members of a currency union—Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. These members of the West African Economic and Monetary Union (WAEMU) share a monetary policy and a currency, the CFA franc, which is linked to the euro. That currency union has worked well, in part because its members have a similar economic structure and, because they are all small, they benefit from a common central bank.
The countries in ECOWAS are more disparate, adding a number of technical, operational, and political obstacles to a well-functioning and durable monetary union that can deliver economic benefits to the ECOWAS community. There have been some calls for a broader, pan-African monetary union. These obstacles would be magnified in such an arrangement because disparities would be even greater.
At the same time, it should be recognized that the countries of the ECOWAS region are already integrating through flows of people, goods, and services. Another perspective on the issues discussed earlier is that they are about ways to build on and intensify this integration.
Tightening linkages
The AfCFTA—formally ratified by 36 of the 54 signatory countries as of February 2021—substantially reduces tariff and nontariff barriers to the free movement of commodities, goods, and services across Africa. It gives Africa a common voice on global trade policy issues in multilateral forums. The AfCFTA will promote integration among ECOWAS countries and strengthen their trade ties with other countries on the continent.
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ECOWAS has also taken steps to promote trade integration among its members, including the ECOWAS Trade Liberalization Scheme and the common external tariff, introduced in 2015. But there are still some barriers—countries apply tariffs in an uneven manner and leave in place other restrictions on trade across their borders. There has been progress: national authorities have taken measures at the country level—complemented by ongoing work at the regional level—to remove obstacles to trade flows. But more needs to be done to remove explicit and implicit barriers to trade within the region.
Such integration would benefit the region by reducing impediments to cross-border flows of goods, capital, and labor and would help prepare the region for a possible monetary union. Of course, freer flows have costs. They can complicate domestic policymaking. Unfettered financial flows within a region can contribute to boom-bust cycles in property and other asset markets in certain countries. Moreover, workers moving from one ECOWAS country to another in search of better opportunities can cause social and political tension.
Steps to greater integration
ECOWAS leaders must decide what level of economic union is necessary to promote the stability of a monetary union. There are important lessons for both ECOWAS and the rest of Africa from the experiences of the euro area. Large net fiscal transfers to economically weaker countries, particularly during and after the euro area debt crisis, generated enormous political and economic stress that threatened to tear the monetary union apart. Because banking regulations differed across euro area countries, financial system problems in some of the countries with high borrowing spreads added to system-wide stress.
Full economic union is certainly not essential for the successful operation of a monetary union. But without macroeconomic convergence and strong institutional frameworks, a partial union could generate enormous stress. Differences in productivity growth between countries, for instance, could require fiscal transfers that in turn generate political tension if other adjustment mechanisms, such as equilibrating flows of capital and labor, do not compensate. Tension in the euro area between core and stressed economies highlights this problem.
There are other issues that affect both the strength and sustainability of growth in the ECOWAS region and the equitability of its distribution, regardless of whether there is a monetary union. These include regional financial market development and integration, especially as it relates to markets for government and corporate bonds and money markets. Making financial services available to more people (financial inclusion) through traditional and new technologies—such as mobile banking—is also important. Coordinated regulation of financial markets—including banks and nonbank financial institutions, which have become more closely linked in the region—is beneficial as well.
A strong institutional framework is needed at the regional level. A key element is the uniformity of regulations on current account and capital account transactions to facilitate the freer flow of goods, services, and capital. A regional payment system that is well integrated with domestic and global payment systems and that expedites settlement of cross-border transactions would facilitate commerce across the region. Harmonized banking supervision and regulation that takes into account both institution-specific and systemic risks are also top-priority.
An effective regional mechanism for gathering macroeconomic and financial data, along with multilateral surveillance that cross-checks the policy stances of ECOWAS countries, could help countries maintain good discipline even in the face of domestic pressure for looser policies. A risk-pooling mechanism among members to deal with external shocks (such as commodity price shocks and even unique events such as the COVID-19 pandemic) that affect some countries more than others would be worthwhile.
Alternative approaches
Alternative approaches that generate greater regional trade and financial integration are also worth considering. For instance, Asian countries have an extensive set of trade and financial arrangements, but each retains monetary policy autonomy. Regional risk-sharing mechanisms such as the Chiang Mai Initiative, which includes some pooling of foreign exchange reserves among the participating countries, have taken on some of the proposed functions of a currency union.
Whether such regional trade and financial agreements would be as beneficial as a currency union when it comes to trade flows and broader economic integration is an open question. But the experience of Europe—where the currency union has benefited trade and investment flows but also fostered economic and political tension among euro area countries—cautions against moving hastily toward a currency union. Moreover, in light of Asia’s approach and the progress on the AfCFTA, it is worth considering whether a set of arrangements to promote trade and financial integration would serve as a useful—and perhaps even necessary—precursor to a more durable and resilient ECOWAS currency union.
The path forward
ECOWAS leaders must consider carefully the significant costs, operational issues, and transitional risks of a currency union. Member countries’ different production and economic structures mean that the loss of an independent currency and monetary policy puts a significant burden on other policies in each country.
The recent experience of the euro area suggests that a currency zone would be fortified by a broader economic union—including a banking union, a unified financial regulatory system, and harmonized institutions that underpin the functioning of labor and product markets. These are long-term considerations for ECOWAS leaders. Robust and sustainable growth and spreading the benefits of growth more evenly in the ECOWAS region also call for regional financial market development and integration and increased financial inclusion through traditional and new technologies.
A single ECOWAS currency would be a major and ambitious undertaking, with many potential benefits. If leaders commit to building resilient policy and institutional frameworks that can create positive benefit-risk trade-offs, it could boost the economic well-being and prosperity of ECOWAS countries.
The COVID-19 pandemic has reignited discussion across Africa about monetary instruments to deal with the crisis and is likely to generate renewed interest in the African Monetary Fund. The lessons of the ECOWAS experience will be invaluable if such an agency becomes a reality.
This article draws extensively on a forthcoming book by the authors, “A Single Currency for West Africa: A Driver of Regional Integration?” Brookings Institution Press, July 2021.
What can the G-7 learn from China’s transition to climate-smart growth?
As the leaders of the G-7 gathered for their summit in the U.K., the elephant was not in the room: China and its transition to a climate-smart growth. Over the last decade, China’s CO2 emissions rose by 25 percent to 14.1 billion tons and on a per capita basis increased to 10.1 billion tons a year, just below the OECD average.
While China’s emissions are very high, the country has also made notable progress in industrial restructuring, energy use efficiency, renewables in its energy mix, greenfield industries, and pilots for a carbon market. President Xi Jinping has said that China will achieve carbon emissions peak ahead of its 2030 target and would aim for net-zero emissions by 2060. More importantly, he also said that it is for China’s “own need to secure sustainable development.”
Since 2005, manufacturing and heavy industries have lowered their share of the GDP from 47 percent in 2005 to 41 percent in 2015, while services increased from 41 percent to 50 percent. This industrial transformation led to improvements in energy use efficiency. Coal consumption decreased to produce thermal power, cement, and steel (Figure 1).
Figure 1. Energy efficiency improvements in coal thermal plant, cement, and steel
Source: The People’s Republic of China Third National Communication on Climate Change (2019).
Energy consumption per unit of transport workload also decreased from 2005 to 2015. For instance, it dropped by 28 percent in railways as China built more energy efficient high-speed railways, 20 percent in waterways, 16 percent in highways, 14 percent for road transport, and 14 percent in aviation. Today, China is the world leader in electric vehicles. China is already ahead of most G-7 countries in transport energy efficiency.
China’s energy consumption mix has also been changing (Figure 2). Coal and oil are still significant but the share of nonfossil energy in primary energy consumption has increased in the last decade.
Figure 2. Growth of renewables in China’s energy mix
China has introduced a raft of market and nonmarket policy instruments—phasing out of inefficient and energy-intensive industries, energy targets in renewables and electric vehicles, tiered electricity pricing, abolition of consumption tax on low-emission vehicles, and introduction of preferential taxes on clean production and circular economy green bonds. China also mandated a reduction in energy-use targets in state-owned heavy industries, buildings, transportation, agriculture, commercial enterprises and households, and public institutions. Today, 100 percent of new buildings and towns in China are covered by energy conservation standards.
China has also been investing heavily in advanced semiconductors, robots, additive manufacturing, intelligent systems, new-generation aviation equipment, integrated service system for space technologies, intelligent transportation, precision medicine, efficient energy storage and distributed energy system, intelligent materials, circular economy, virtual reality, and interactive film and television. China also has plans to develop aerospace and marine technology, information network, life sciences and nuclear technology. In 2019, these new technologies accounted for about 19 percent of China’s GDP.
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In 2011, China launched seven pilot projects on carbon emissions trading. By end of 2015, the pilots managed to cover 20 industries, at least 2,600 key emission discharging units, and an annual emission allowance of about 1,240 metric tons of CO2 eq. In 2017, China launched a national pilot on CO2 emissions trading, starting with the power generation sector. If successful, this will be a significant milestone in laying the foundations for emissions trading in China.
An important benefit of the carbon tax is the additional revenue generated. At a base price of $40 per metric ton of CO2 (per ton of CO2 emitted), at full operation, China could raise $285 billion in additional revenues from domestic carbon taxes or about 8.5 percent of its total revenues in 2018. This conservative amount could increase to $570 billion by 2050 when carbon prices rise to $80 per ton. This additional source of revenue is especially crucial for China’s heavily indebted local governments, which have very limited fiscal space. Domestic carbon taxes are easier and less controversial to impose compared to property taxes.
While China’s CO2 emissions have seen dramatic increases in recent years, the country has also made significant progress to achieve carbon peak by 2030 and hopefully reach its commitment of net-zero emissions much earlier than 2060. If there is one aspect of U.S.-China rivalry that the rest of the world would welcome, it is that the race to the top—the competition for climate smart growth—could help limit global warming to 1.5 degrees Celsius.