Climateworks recently brought together an expert panel to discuss the outlook for ASEAN nations, given their key trading partners have all pledged to net-zero by mid-century. Their conversation uncovered some compelling truths about ASEAN motivations to decarbonise, and the pressure to adapt in the face of an imminent shift in global economic direction and investment.
ASEAN is playing an increasingly important role in the global race to decarbonise. At the same time, member states are, economically speaking, on the move. It is estimated that developing Southeast Asia’s green economy could provide up to $1 trillion in annual economic opportunities by 2030. Recent research by the Asian Development Bank (ADB) also finds that every $1 million spent on renewable energy and energy efficiency can create 7.5-7.7 full-time jobs. This is significantly more than the 2.7 jobs generated from the same amount of investment in fossil fuels (ADB Brief – March 2021 No 173).
And as guest speaker Professor Wing Woo pointed out, there’s another reason to ‘watch this space’: though ASEAN’s collective economy is currently smaller than the GDP of Germany, its population is 50 per cent higher than all of the EU. What is rarely recognised, is ASEAN’s economic potential, were it to catch up.
The countries of Southeast Asia founded their economies on trade with the world. Thus embedded, trade continues to be a key pillar for growth – and now, one key driver of the region’s low carbon transformation. Professor Woo spoke to this pressure when he pointed to the EU’s Green Deal, which explicitly states that trading partners must have explicit net zero pathways, to avoid impending border adjustment tariffs. ‘This would hurt ASEAN,’ he confirmed.
In the two years since the signing of the EU Green Deal, there has been increasing realisation across the region on the urgency to act. While the commitment is now firm, pathways to net zero are not yet well or widely understood. Organisations like SDSN and Climateworks are among several now supporting ASEAN countries to study their decarbonisation options and then quantify the costs and benefits of net zero actions. What is increasingly clear, is that it may be cheaper and faster for ASEAN to decarbonise by working together, rather than taking a country-by-country approach.
Emissions per capita of ASEAN member states are far lower than those of countries with high income economies (for example, Indonesia’s annual emissions per capita are around 2 tonnes, while Australians generate around 17 tonnes of CO2e emissions per person, each year). The lion’s share of historical emissions have also been contributed by the developed world. Therefore, there are differing levels of responsibility among countries to address climate change, defined as ‘common but differentiated responsibilities’ in the Paris Agreement. However, as a region with some of the fastest growing emissions in the world as well as high vulnerability to climate impacts, ASEAN countries have an important role to play in the global effort to solve climate change. As Professor Woo said, ‘We know of the dangers, and we also know that this is a global problem that needs collective action by everybody.’
So what do high income countries, such as Australia, need to do to support ASEAN decarbonisation?
Professor Woo suggested it’s in the long-term interests of the developed world to extend both technical and financial support to countries with fewer economic resources. This must be strategic and coordinated, as it isn’t simply a matter of transforming ASEAN member states’ energy sectors: it will require a whole-of-society transformation. Green technology will need a newly skilled workforce, for example, so education plays a critical role. Not only in upskilling, but also in educating populations about the benefits and opportunities of action and the risks of ongoing climate change. Like all societies, those of Southeast Asia clearly see the damage to the environment and human lives caused by excessive pollution and extreme weather events. Professor Woo refers to an ‘enlightened self-interest’, where people will support the net zero transformation when they understand the implications of doing nothing or too little.
For Vietnam, the risks of climate change are ever present, according to Dr Thu-Ba Huynh. She points to the country’s exposure to sea level rise, given its extensive coastline and reliance on river systems. This is partly why, in a country of some 85 million people, there has already been significant momentum towards net zero. In just the past two years, Vietnam has seen a one hundred fold increase in solar capacity. Dr Thu-Ba noted that, in the face of surging electricity demand due to factors like the growth of multinationals opening in the country, this embrace of solar was actually driven by a struggle for Vietnam’s utilities to get loans for new coal power plants.
This offers a template for other ASEAN countries looking at power generation capacity. ‘This solar boom shows how much capacity you can build in a short period of time,’ Dr Thu-Ba pointed out. It also sends a powerful signal to global investors that ASEAN offers huge potential in the global energy transition. Not only could this translate to economic growth, it offers an enormous and as yet untapped, employment market.
There are, of course, lessons here for all ASEAN member states. As the private sector steps up, willing to take on the risks associated with renewable energy investment in Southeast Asian countries, governments have the opportunity to ramp up their decarbonisation targets. Thanks to such investments in Vietnam, they have already passed their 2025 solar target.
But there are also lessons in the challenges this presents: Can government policy and structures keep up with the pace of green investing? How will existing infrastructure in ASEAN member states hold up, especially where grid access is highly uneven? With a significant percentage of populations located remotely, many yet to access any electricity, can renewable energy address inequity as well? There’s also the reskilling emergency: How to supply a good quality labour force to educate and train to meet the many millions of green jobs expected to open up? While there are many questions yet to answer and a need for support in terms of climate finance technology transfer and capacity building, Vietnam is now moving fast to ensure net zero success.
So what of Indonesia as Southeast Asia’s largest economy and now, stepping into the role of G20 Chair? With heavy reliance on coal, Indonesia was one of only five countries to begin new coal plant construction in 2020. And like Australia, it is also a significant exporter of coal. On the other hand, in the last year, Indonesian climate policy has made significant strides forward, committing to net zero emissions by 2060 or sooner, and no new coal fired power plants after 2023. Indonesia’s net zero ambition is amplified by its goal to become a developed nation by 2045.
According to Guntur Sutiyono, Indonesia recognises climate change action as essential to achieving this, on many levels not least of which is the need to create a resilient economy. He says ‘Accelerating net zero also means opening up opportunities for massive investment in green technology, because the world is already moving away from investing in brown tech.’ Guntur adds, ‘China’s announcement to stop financing coal is a sign that the world’s appetite has significantly moved … Emissions intensive industries will soon have to follow as investors are demanding sustainability standards linked to one and a half degree target.’
Indonesia has made progress across other sectors including reducing forestry and deforestation – with forests on track to be carbon sinks by 2030, investments in renewable energy including a battery industry, and the implementation of a carbon tax expected next year. Vitally, this is all framed around what a just and affordable transition looks like. Indonesia is working out what the full cost of transition will be, beyond retiring old assets. It is exploring interlinkages to avoid income disparity, as this threatens to ripple throughout other regions, asking what investments are needed to compensate impacts on those regions, taking into account all factors from population to infrastructure, energy supply and regional interactions.
As Chair of the G20, Indonesia sees an opportunity to champion the interests of emerging and developing economies in demanding that developed countries keep their climate promises. It is pushing for an equitable economic recovery to ensure global financial stability, noting for example, that Africa – a major trading partner for ASEAN – currently has only 5 per cent of its population vaccinated against COVID19, compared with 37 per cent of the world population. Indonesia also seeks to strengthen the resilience of the global financial sector, especially noting the risks of climate change and the fact that the budgets of many developing countries are being stretched through addressing climate change issues from natural disasters to net zero transition costs. It flags the need for international tax reform as an equalising mechanism, such as seen with Ireland agreeing to a global treaty on corporate tax minimums. And Indonesia will also use the Chair to champion some of its own climate initiatives, such as the move to pricing carbon. It sees this as an opportunity to lead by example and raise climate ambition through a lens of opportunity rather than burden.
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