This Econographic is part of our Next Gen Fellowship which aims to cultivate a new generation of young economists to rethink the pillars of economic global governance. These undergraduate Fellows researched governance of the international financial system with the Bretton Woods 2.0 Project in Summer 2023.
Digitalization, understood as the utilization of digital technologies to transform services or businesses, presents an opportunity for countries across the world to advance carbon-neutral goals. Digitalization can increase connectivity between people, governments, and businesses during crises, offering nations, especially those in the Global South, a novel opportunity to build climate resilience if properly supported by the Bretton Woods Institutions (BWI).
In 2021, the top 10 percent of emitters per capita were responsible for about half of global CO2 emissions whereas the bottom 10 percent only produced 0.2 percent. 85 percent of these top 10 percent of emitters are located in advanced economies like the United States, Australia, and EU nations, as well as oil-producing nations with smaller populations such as Qatar. Countries in the Global South, who comprise the majority of the bottom 10 percent of emitters, face the disproportionate burden of climate change perpetuated by advanced economies to the detriment of their citizens and economies. In 2017, Hurricane Maria caused more than a 200 percent loss of GDP in Dominica—a country that only produced 1.56 tons of CO2 per capita that year.
While major emitters should aim to reduce per capita emissions, developing nations can also adapt their practices to mitigate climate effects. The World Economic Forum estimates that digital technologies could reduce emissions by up to 20 percent if scaled across the energy, transportation, and industrial sectors, thus boosting these sectors’ long-term sustainability.
Developing economies could apply digitalization in a variety of ways to the energy, transportation, and industrial sectors. In the energy sector, real-time pricing and web-controlled appliances can create flexible energy demand thus helping to stabilize grids. Blockchain-based trading mechanisms can also assist with distributed energy generation, facilitating the buying and selling process and promoting the localization of energy generation. With respect to the transportation sector, 5G and big data analytics will advance the safety, efficiency, and reliability of electric and driverless vehicles. Additionally, Internet of Things (IoT) and geo-location technology can help drive system decision-making for the transportation industry, enhancing the accessibility and efficiency of transportation systems. Finally, in the industrial sector, artificial intelligence (AI) can spur the development of ultra-low-carbon materials, and network technologies can increase precision in manufacturing thus saving critical energy and materials.
While digital technology is only one plank of the necessary energy transition, it presents multiple opportunities for countries in the Global South. First, in some cases it could allow them to “leapfrog” more developed economies by skipping dated infrastructure. Second, while energy infrastructure with digital capabilities may be more expensive up front, it is also an investment in those countries’ technical capabilities. Policymakers in the Global South may rightly be wary about adopting Western technologies in such a key sector. But if done correctly, investment in digital solutions may be able to simultaneously generate competitive industries while combating climate change.
Ending barriers to global implementation
However, the implementation of digital solutions will face various barriers as it is scaled globally. The energy sector is subject to a multitude of institutional constraints and differing levels of data availability among nations. Similarly, the transportation sector is subject to high capital costs and a lock-in of existing vehicle stock. Finally, with respect to industry, many countries lack strong policies to implement digital solutions and face insufficient demand for change from customers. These challenges will likely manifest at different magnitudes depending on the preparedness of sectors to digitalize and the status of climate-resilient strategies. In the face of these challenges, the BWIs are uniquely poised to develop a framework for gradual implementation, help involve stakeholders, and present the potential benefits of digitalization.
Many governments and private entities in the Global South are ill-equipped to leverage digital technology for a low-carbon transition as many countries have low resilience and high exposure. Countries with a low resilience (closer to one) will face difficulties adjusting to large structural transitions. Countries with high exposure (closer to one) remain highly reliant on fossil fuels or carbon-intensive exports. Many of these nations also spend a small percentage of their GDP on climate change expenditures—another measure illustrating low preparedness.
Moreover, the Global South presently lags behind in national digitalization and connectivity, as the majority of the 2.9 billion people offline globally are located within these nations. Many nations also face a lack of infrastructure and dedicated government offices. To handle these challenges, countries must establish digital infrastructure resilience. Citizens must also be able to readily access digital tools. Additionally, industries must promote digital inclusion, data sharing, and standardization practices.
The mounting concerns about climate change and the barriers to digitalization present an opportunity for BWIs to assist with establishing a strong foundation for climate resilience in developing economies. BWIs must collaborate with local governments to evaluate the efficacy of the current processes and technologies. In 2020, the World Bank published a set of strategies to aid countries combat climate change by investing in trained human capital, implementing efficient monitoring practices, and anticipating macro and micro-economic shocks.
Collaboration facilitated by the BWIs could unite private and public stakeholders, donors, and climate funds to uncover potential funding sources. For example, the United Nations Environment Programme works with partners to discover technology to advance environmental sustainability, climate action, and pollution prevention. BWIs must also continue to act as policy analysts to assess the efficacy of current strategies and provide governments with strategic insights, as exemplified by the Climate Change Policy Assessments. These initiatives demonstrate that BWIs ought to support climate resilience within the Global South by equipping nations with the information, financial support, and guidance necessary to implement digitalization. However, they must be true partnerships to ensure that countries adopting these solutions are also building domestic industries and acquiring technical expertise.
Digital technology provides the opportunity to assist a low-carbon transition as it can reduce emissions while enabling countries in both the developed and developing world to foresee adverse climate impacts and bolster their responses. It may also strengthen access to public opportunities and social protections, decrease the technology gap, and spur widespread economic activities. With the BWIs acting as the main coordinators, the Global North may be spurred to reduce emissions, and many emerging nations may see a positive impact on infrastructure, health, and economic growth.
Camilla Valente is a former Next Gen Bretton Woods 2.0 Fellow at the Atlantic Council GeoEconomics Center. She is a junior at the University of Pennsylvania studying Philosophy, Politics and Economics and minoring in Economics, and East Asian Languages and Civilizations.
Saffiyah Coker is a former Next Gen Bretton Woods 2.0 Fellow at the Atlantic Council GeoEconomics Center. She is a senior at Tufts University studying Economics and International Relations.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.