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Southeast Asia’s green ambition

The region has much to lose if it does not act on its energy transition targets

Southeast Asia is one of the fastest growing regions in the world. It boasts a young, educated and dynamic population along with strong prospects of economic growth. Around 60% of the region’s total population, amounting to roughly 380 million people, are under the age of 35.

The region is the world’s third-largest labour force supplier, after China and India. Additionally, by 2030, its middle-class population will account for around 50% of its total population, which would be double the 2020 numbers.

A recent report from Bain states that the region will become the 4th largest economy by 2050, overtaking EU and Japan, but will be behind the US, China and India.

A growing region

Southeast Asia’s growth appears unstoppable. As the region’s population grows in numbers and spending, so will its demand for energy. But along with growing energy, the risk of rising carbon emissions will also need to be considered.

Exhibit 1: Rising energy demand and ensuing carbon emissions in Southeast Asia

The region has an important role to play in global climate adaptation and help global decarbonisation. It is the world’s 4th largest energy consumer. But the region relies on fossil fuel to fulfill 80% of its energy demands. The region contributes a staggering 70% to global emissions from its land use and forestry.

Southeast Asia has the potential to accelerate energy transition. Eight out of 10 Southeast Asian countries have renewable energy technical potential to meet their electricity demand, even as they are home to 15% of the world’s forestland.

Challenges exist

The region faces several challenges, making it difficult for it to achieve decarbonisation. The region is heavily dependent on fossil fuel for its energy requirements. Also, the region’s large economies require foreign investments to transition. And most economies in the region are facing difficulties in balancing the need for economic growth and decarbonisation.

The region’s countries also have different emissions profiles, making it complicated to chart out a collective decarbonisation pathway for the region.

Exhibit 2: Emission profiles across Southeast Asian countries

Efforts are underway

Nonetheless, critical stakeholders have enlisted decarbonisation initiatives and commitments. Four Southeast Asian countries have strengthened their decarbonisation commitments, while others are moving to price carbon.

Exhibit 3: Decarbonisation development across Southeast Asian countries

Then there are corporate commitments which are science-based target initiatives (SBTi) announced by various large Southeast Asian firms. These commitments and targets by private players have grown in numbers between 2021 and 2022.

Exhibit 4: Number of Southeast Asian firms with SBTi commitments

Investor focus has also shifted towards the developing green economy in the region. Commitments towards green portfolios in the region are increasing, but the capital being deployed is at a slower pace.

Exhibit 5: Green capital investments by governments and corporates as against capital spend trajectory

Furthermore, the region relies heavily on foreign investments to address its energy transition needs. Several issues are at play, such as the high cost of capital; immature innovation ecosystems; and limited green growth policies.

Recommendations for action

Efforts are underway, but if the region desires to go carbon neutral by 2030, more needs to be done. Governments will need to step up development of clear transition roadmaps by accelerating new grid and renewables infrastructure; incentivising protection and restoration of natural ecosystems; and enforcing standardised carbon regulations.

Similarly, the private sector will need to step up their ESG framework and reporting; form strategic partnerships with governments, NGOs and advocacy groups; and invest in proven solutions for decarbonisation. Meanwhile, investors should also lobby for more blended financing, while investing in decarbonisation technologies and providing advisory services to renewable energy developers to improve their project bankability.

Timely actions will help ensure that Southeast Asia will meet its NDC targets and realise socio-economic growth. Conversely, failing to act will present dire consequences for the region’s future.

Exhibit 6: Benefits for Southeast Asia in realising its NDC targets

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