Towards Net Zero – Accelerating the energy transition in ASEAN
As the ASEAN region pushes towards its shared goals for net zero emissions by midway through this century, it is clear that doing so will require a spirit of shared collaboration, global expertise, and the flexibility to find solutions that can work within a unique local context.
So agreed those at the forefront of ASEAN’s energy transition, speaking at Standard Chartered’s luncheon, held on the side-lines of the ASEAN Indo-Pacific Forum, a key event of the ASEAN Business Week 2023 in Jakarta.
Bridging the gap
To date, nine out of the 10 countries from the Association of Southeast Asian Nations (ASEAN) have voiced their commitment to net zero emissions targets by around the mid-century1. Yet in order to witness a sea change in terms of its energy transition process, the parties involved must bridge a number of challenging gaps.
For starters, ASEAN has noted that the infrastructure financing gap in Southeast Asia sits estimated at around $150 billion a year2. “There’s a huge financing gap,” agrees Rino Donosepoetro, Vice Chairman, ASEAN for Standard Chartered. Recognising this need, Standard Chartered has committed to provide USD300 billion in sustainable financing globally by 2030, of which a significant share will be dedicated to emerging markets like ASEAN3.
Large-scale solutions
Naturally, no challenge of this scale can be dealt with by a single financial institution. Donosepoetro believes that blended finance mechanisms and public-private partnerships like the Just Energy Transition Partnerships (JETP) can serve as a key enabler to mobilise capital at scale. Announced in early 2023, Indonesia and Vietnam have become the latest countries to join the JETP4.
Indonesia’s JETP agreement calls for renewable energy to comprise 34 per cent of its power generation by 2030. To this end, Indonesia will receive an initial USD20 billion over the next three to five years to help phase out coal energy and invest in renewable energy infrastructure5. Vietnam meantime will receive USD15.5 billion to help cap the power sector’s CO2 emissions at 170 million tons by 20306.
Private sector financing for the JETP will be coordinated by the Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition of leading financial institutions. Standard Chartered is a founding member of GFANZ7.
While the price of addressing the energy transition challenge may appear high, the cost of standing still could be much worse. According to the Asian Development Bank, inaction could result in economic losses from climate change that reduce regional gross domestic product by up to 11% by 21008.
Likewise, ASEAN estimates that six out of the 20 most vulnerable countries to climate change in the world are from the 10-country bloc9. “We know that ASEAN as a region is at the forefront of the impact of climate change if we don’t get this right”, says Alice Carr, Executive Director Public Policy and JETPs at GFANZ.
Yet with risk comes potential reward too. Get it right, and the scale of investment needed,
which Carr rightfully describes as “pretty eye-watering numbers”, could see ASEAN become both transformed and future-proofed. “It’s a huge opportunity to generate growth in the region, to develop new comparative advantages, both in energy supply, but also the technologies that drive changes in consumer behaviour around our use of energy, such as electric vehicles. So, there’s a lot that this region can benefit from.”
In total, 650 financial institutions globally have committed to net zero by 205010, notes Carr. “There’s huge demand for finance. And there is a huge supply of finance. And what we’re trying to do is make sure they meet in an appropriate way and at the right price for countries in the region.”
Local context is key
As part of its 2030 National Determined Contribution (NDC) target, Indonesia has committed to a 500 million tonne carbon emission reduction from its forestry industry, and a 369 million tonne carbon emission reduction from its Energy and Transportation sector by 203011.
Yet steering a path towards these targets within a vast and rapidly industrialising economy, is far from simple. “There is no one-size-fits-all solution for Indonesia,” reiterates Rachmat Kaimuddin, Deputy Coordinating Minister of Maritime Affairs and Investment for Infrastructure and Transportation, Republic of Indonesia. “In terms of electricity and GDP, we need Indonesia to grow. We also need to recognise that Indonesia has limited fiscal capabilities, compared to say, G7 countries,” notes Rachmat.
He stresses that for the energy transition discussion to work for Indonesia, solutions must be tailored to fit the archipelago’s unique circumstances. “We need to make sure that all possible angles are explored, without being too dogmatic too early. Yet always keeping that common goal in mind, which is emissions.”
Solutions to complex problems
According to the International Monetary Fund, ASEAN’s greenhouse gas emissions have been low relative to those of advanced economies in per capita terms. Yet between 1990 and 2010, emissions of carbon dioxide increased faster in Southeast Asia than anywhere else12. As such, with ASEAN hosting 8.54%13 per cent of the global population, and 3.4% of the world’s GDP14, it has a key role to play in driving forward the world’s net zero agenda.
According to Ashwin Balasubramanian, Associate Partner for McKinsey Consulting in Singapore, to do so the regional bloc needs to consider further practical integration measures, such as the creation of common markets in fields ranging from technology solutions to carbon offsets. Likewise, implementing region-wide common standards will be critical to managing the risks and complexities involved in dealing with markets of contrasting nature and population need, for instance in the area of electric mobility, he affirms.
Based on Indonesia’s NDC document, it has increased its emission reduction goal from 29 per cent to almost 32 per cent unconditionally, as well as moving from 41% to 43.2% conditionally15. Dannif Danusaputro, CEO of PT Pertamina Power, is among those helping Indonesia to meet these goals.
As he says though, for a country that houses more than 278 million people16 with an economy growing at over 5% per year, moving away from hydrocarbons is not yet a truly viable option. “We are still going to produce and somewhat increase our hydrocarbon production output, because it’s needed for the development of the country,” says Danusaputro. “But we have a target to reduce the emissions while increasing that production.”
In order to address the key challenge of energy mobility, key players in the industry will attempt to explore and scale new innovations and adaptations around clean energy. such as increasing biofuel production for ethanol and molasses. PT Pertamina Power is actively pursuing pilot projects in promising areas such as carbon capture, carbon usage and storage (CCUS) as well as green hydrogen17.
Just in time
Of course, the challenge of energy transition is a global one, which will require a concerted effort on multiple fronts concurrently. As part of its ‘Just in Time’ report, Standard Chartered predicts that the world’s emerging markets need to invest an additional USD94.8 trillion, more than the world’s total annual economic output, to get to net zero by 205018.
To reach this goal, the challenge ahead is one of maintaining the critical momentum built during sessions such as these. “This global project is a chance of a lifetime, and one that will matter for generations to come,” affirmed Standard Chartered’s Donosepoetro. “While it may be hard work at times for both countries and companies alike, it is work that matters a great deal for the wellbeing of our planet.” On how ASEAN can capitalise on the opportunities in the region to further accelerate its net zero transition, Donosepoetro said, “Attracting the necessary capital from developed markets to aid emerging market transition will require a balanced collaboration between the public and private sectors, and Standard Chartered is proud to be able to play a critical role in this journey.”
1 https://www.irena.org/News/articles/2023/Feb/ASEANs-Dash-to-Net-Zero-Finishing-Line-Aided-by-IRENA
2 https://asean.org/asean2020/wp-content/uploads/2021/01/Financing.pdf
3 https://www.sc.com/en/insights/just-in-time/
4 https://www.aseanbriefing.com/news/indonesias-just-energy-transition-partnership/
5 https://www.aseanbriefing.com/news/indonesias-just-energy-transition-partnership/
6 https://www.reuters.com/business/energy/indonesia-vietnam-energy-transition-financing-under-jetp-2023-09-25/#:~:text=The%20JETP%20deal%20is%20expected,101%20million%20tons%20by%202050.
8 ADB (2015) ‘Southeast Asia and the economics of global climate stabilization’
9 https://environment.asean.org/awgcc/
11 https://unfccc.int/sites/default/files/NDC/2022-09/ENDC%20Indonesia.pdf
14 https://www.spglobal.com/marketintelligence/en/mi/research-analysis/ascent-of-apac-in-the-global-economy.html#:~:text=The%20ASEAN%20region%20comprising%2010,to%203.4%25%20of%20world%20GDP.
15 https://unfccc.int/sites/default/files/NDC/2022-09/23.09.2022_Enhanced%20NDC%20Indonesia.pdf
16 https://www.worldometers.info/world-population/indonesia-population/
18 https://www.sc.com/en/navigate-the-future/mobilising-capital-to-accelerate-net-zero/