Asian economies must go green to keep their competitive edge

Increasingly, new cross-border environmental regulations like the EU’s carbon tax will leave countries such as Bangladesh and Cambodia little choice but to play catch up or risk losing out on global trade
Asian markets can embrace sustainability through artificial intelligence, clean energy investments and more collaboration among industries

Sonja Cheung

Published: 5:30pm, 19 Mar 2024

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As the global landscape shifts towards a greener and more equitable future, sustainable practices are increasingly in the spotlight. Some developed nations have been swifter to pivot and incorporate these critical values into their economic and social frameworks. Now, many of Asia’s burgeoning economies need to play catch up or risk being left behind in global trade.

Many Asian countries have relatively more lenient carbon emission rules compared to stricter standards in Western nations, making Asia generally more attractive to manufacturing industries seeking lower operational costs, including those related to environmental compliance.

Meanwhile, the developed world is prioritising international climate agreements and more stringent environmental policies, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), to deter carbon-intensive production.

Asian countries which are unable to comply with such regulations may struggle to partake in international trade. At worst, this could impede their gross domestic product growth and economic trajectory.

India, Indonesia, Vietnam and Bangladesh have significantly stepped up their manufacturing over the years, particularly in sectors such as textiles and garments, electronics, automobiles and heavy industries like steel and cement, which are both labour- and energy-intensive.

Bangladesh is a prime example of an Asian country that must address gaps in its sustainability to remain an attractive trading partner, particularly with the EU, an important market for Bangladesh. Last year, the volume of the EU’s clothing imports from Bangladesh exceeded those from China. Bangladesh became the top knitwear exporter in the EU for the first time.

Employees work at a garment factory in Gazipur, Bangladesh on April 16, 2023. Photo: Bloomberg

Bangladesh’s textile and garment exports may come under pressure due to the CBAM, which comprises an imposed tax on imports that generate greenhouse gases during their production. This measure will increase the cost of selling textiles and garments in the EU market for exporters like Bangladesh that will need to cover the tax associated with carbon emissions.

Having started last October, the CBAM will be gradually phased in over the next several years. The transitional phase currently applies to certain sectors including iron, steel, cement, aluminium and electricity. But the coverage of goods subject to the border tax is likely to expand progressively upon review.

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CBAM’s ultimate objective is to protect EU industries from competition by foreign entities with higher pollution levels and ensure a competitive environment for European businesses. Asian exporters, like those from Bangladesh, will face a tougher market amid likely lower demand for their goods in the EU, especially if they have to ramp up prices to compensate for the tax on associated carbon emissions.

Moreover, manufacturing workers in these exporting nations could lose their jobs as a result. Exporters of textiles and garments from developing countries in Asia are also concerned the EU might use the border tax as a protective measure, further challenging their ability to compete with European companies even as they continue to implement emission reduction initiatives.

To avoid significant costs associated with CBAM, Asian countries must accelerate their transitions to clean energy as energy-use significantly contributes to manufacturing emissions. Looking to go greener, Bangladesh is aiming to produce at least 40 per cent of its electricity from renewables by 2040.

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Due to land and grid constraints, Bangladesh is focusing on rooftop solar and wind power, alongside net metering and decentralised renewable energy solutions. With support from abundant water resources, floating solar is another option for Bangladesh, although it’s still in the early stages of development.

Additionally, decreasing transport emissions will support responsible production. For instance, Bangladesh is shortening its supply chain by manufacturing yarn domestically to streamline the production process.

Strengthening collaboration is also essential for expanding technology use, reducing consumption and enhancing waste management. Initiatives like the Circular Fashion Partnership in Bangladesh and Cambodia support that kind of collaboration between garment makers, aiming to increase recycling and reintroduce waste materials back into fashion products.

Asian manufacturers looking to become more sustainable should also adopt the application of artificial intelligence technology. For instance, using AI and advanced algorithms to analyse customer data such as previous purchases and fashion trends can play a crucial role in reducing return rates and minimising transport emissions.

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Some emerging Asian countries may not have the financial resources or technical know-how to implement and promote AI usage across industries. In such cases, countries need to offer job training and encourage tertiary education to ensure their workers are able to use such advanced technology, or else face being left behind in a more cutting-edge world.

For now, clothing companies H&M and Zara are good examples of retailers which use AI to make their operations more efficient, by helping them stay on top of future trends, monitor inventory levels and study consumer data.

The challenge of adhering to stricter global environmental standards offers emerging Asian markets an opportunity to innovate and adapt, urging these nations to speed up clean energy transitions, streamline supply chains and leverage technology for more efficient production.

By embracing sustainable practices, enhancing their digital and technological infrastructure and fostering industry-wide collaboration, Asia will not only comply with international demands, but also secure a competitive edge in the global market.

Sonja Cheung is editorial director at the Asia Business Council