SE Asia can’t afford a climate relapse

IN THEORY, a European war that has driven up the price of oil, gas and coal — thereby exposing the fiscal and security risk of depending too heavily on grimy imports — should be setting off warning lights in climate-vulnerable South-East Asia. Reality has proven far more complicated.

Exposure to the upheaval in global commodities markets since Russia’s invasion of Ukraine varies across this region of nearly 700 million people, but the basic dilemma is similar.

Governments are juggling short-term price oscillations and the strain on households, while also attempting to reduce reliance on polluting fuels in general, and on coal in particular.

Consider resource-rich Indonesia, with green manufacturing ambitions, but where coal is also the largest component of the energy mix, a significant export and, directly and indirectly, a hefty employer. 

Climate-friendly energy supply would put greenhouse gas emission targets within reach, while allowing countries to become less reliant on costly overseas purchases. The Philippines, for example, imports some 80% of the coal its power generation relies on, while Thailand is a major buyer of coal, oil and even gas from overseas, as its own fields age. 

For Indonesia, the International Energy Agency says that come 2030, the country could lower oil import bills by a third relative to the business-as-usual scenario, if it sticks to its pathway to hit net zero by 2060 —  effectively covering the cost of transition.

A clean-up would also underpin regional manufacturing ambitions, and particularly plans to build green mineral, battery and electric-vehicle (EV) hubs. That’s Vietnam, Thailand but especially Indonesia, which wants to use nickel and other mineral deposits to move up the EV chain. That’s hard to do if you’re using coal in the energy-consuming process of turning Indonesian laterite ore into battery-ready material.

That’s the goal. And yet, compounding crises over almost three years have left South-East Asia wavering on its green commitments.

During the pandemic, stimulus spending in most countries went to urgent financial assistance, as panicked governments saw almost exclusively near-term needs. Understandable, but one study found that the six largest South-East Asian economies allocated none of their recovery spending to the environment.

That’s despite larger and more persistent multiplier effects from green spending. The focus on the short term remains far too prominent and the outcome inconsistent.

Indonesia may have been forced by ballooning costs to raise some fuel prices, but has also pushed back the introduction of a very modest carbon tax. Meanwhile, coal exports are on the rise as it races to fill the gap left by sanctioned Russia and Jakarta’s plan to accelerate coal closures still leaves room for plants to be built under certain conditions. 

The Philippines has introduced (targeted) fuel support, while Vietnam has slashed an environmental tax on fossil fuels. Its long-awaited Power Development Plan 8 — the primary framing instrument for the next decade and beyond, and likely an improvement, with coal projects reduced — is still a work in progress. 

Certainly, Europe turning to coal to help cope with the sudden absence of Russian gas doesn’t help promote the cause. Nor does the fact that developed nations continue to fail to provide the cash needed to support green industrial infrastructure and more. 

But wavering commitment to a speedy shift to cleaner energy will not encourage private capital to pour into multibillion-dollar efforts like the Asian Development Bank’s Energy Transition Mechanism, that seeks to wean the region off coal by buying out plants that would otherwise stay in service for decades. And there are elections — likely in the coming months for Thailand and Malaysia, and in early 2024 for Indonesia, muddying the picture. 

But backsliding isn’t inevitable.

Governments can start by promoting energy efficiency far more enthusiastically, especially as demand for appliances like air conditioners surges — and to do so as part of a broader effort to rationalise subsidies. 

Similarly, they can embrace the electrification of transport — Thailand and others have introduced incentives, and Indonesia’s president has just instructed government departments to increase the use of EVs, a still-vague but helpful signal. The trend is there — BloombergNEF estimates passenger EV sales in the region could double this year from 2021 — but even larger numbers are needed. 

Authorities should then boost renewables by increasing transparency on tariffs and simplifying rules and regulation that too often remain onerous. That’s only just beginning.

South-East Asia’s nations can also help themselves by finally cracking on with a regional grid — something like the Nordic power market, which would also increase the attractiveness of some renewable projects. It’s been in discussion for two decades and remains tangled in politics.

Finally, they can also use the upcoming COP27 climate shindig and a Group of 20 meeting in Indonesia next month to press the case for more generous support from rich countries to help the shift away from hydrocarbons, a transition that requires billions of annual investment to support everything from closing coal-fired power plants to carbon capture projects and hydrogen infrastructure. 

There’s never been a better time to ask, given just how important it is to cut off Russia’s ability to fund its war with hydrocarbon sales to the east. Similarly, there’s every reason for the collective West, eyeing China, to back alternative sources of strategic minerals and new processing hubs.

The timing is urgent. And the energy trilemma — security, affordability, sustainability — points only one way. — Bloomberg / Pic by Bloomberg