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The Greening of Global Value Chains

The COVID-19 pandemic has highlighted the importance of global value chains for the world economy, as well as for low- and middle-income countries' growth prospects. But the crisis has also highlighted the role GVCs can play in accelerating the net-zero transition.

BEIJING – Clogged ports, long shipping delays, and skyrocketing transportation costs are all evidence of the havoc COVID-19 is continuing to wreak with global value chains (GVCs). Firms are reconsidering where to locate (or relocate) production, whether and how much redundancy their operations need, and which inventories to hold as a buffer against future shocks. The effects are rippling through the global economy, creating additional uncertainty and slowing the recovery. Moreover, with policymakers currently in Glasgow for the United Nations Climate Change Conference (COP26), there is increasing pressure to decarbonize production and transportation along GVCs.

How quickly this happens is of great importance. GVCs account for half of global exports, and emerging and developing economies’ share of these production networks has increased significantly since the 2008 global financial crisis. For example, a low- or middle-income economy no longer needs to produce a whole car to enter the global automobile supply chain; it is enough to specialize in one small component.

Against this backdrop, a recent report from the Asian Infrastructure Investment Bank examines the pandemic’s impact on GVCs and shows how they can now become tools for achieving the 2015 Paris climate agreement’s goal of limiting global warming to 1.5º Celsius, relative to preindustrial levels.

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