Perhaps the most striking aspect of the International Energy Agency’s (IEA) new analysis of South-East Asia’s energy outlook is its revelation of the impressive pace of growth and emerging economic opportunities in this culturally rich and technologically cutting-edge region.
To take one headline figure: primary energy demand grew in ASEAN countries by 60 per cent between 2000 and 2015, and the region’s economy is expected to triple in size by 2040, reaching almost the same size as China’s galloping economy of today.
To achieve this staggering projected growth, while at the same time ensuring access to electricity for the 64 million people in the region who are still without it, the IEA says that nearly US$3 trillion dollars will need to be invested in power generation between now and 2040. That’s a big number, but it can produce very different outcomes depending on the choices made by the governments and investors working to build South-East Asia’s energy future.
One pathway is to pursue business-as-usual policies. To meet the projected 65 per cent increase in regional energy demand between now and 2040, current policies would see coal power plants accounting for 40 per cent of the growth, ahead of 30 per cent for renewables. Even using cutting edge technology coal generation, the maintenance of fossil fuels as the source for half of the region’s energy mix would produce a 75 per cent increase in energy-related CO2 emissions by 2040.
The other pathway is the pathway to which world leaders have committed on the international stage, but now need to put into practice at home. This pathway is the “climate safe” pathway, where we meet the Paris Agreement’s goal to limit global warming to “well below 2°C”, in the first instance by ensuring that we bend the global emissions curve downwards by 2020 – our climate turning point. If global emissions are not decreasing by the beginning of the next decade, our chances of success will likely fade away.
Herein lies the urgent opportunity. If decisions are taken in the next few years to lock-in more long-term, high-risk, coal-fired power plants, South-East Asia will be condemned for the foreseeable future to hotter days, stronger storms, polluted skies, choking cities and acidic oceans. If, on the other hand, we take the new path of cheaper, cleaner energy, we lay the foundations for clear skies, healthier people and sustainable livelihoods.
Embracing this change makes sense for many reasons.
First, the clean energy revolution is already underway, and it is unstoppable. Those who drag their heels will be left behind. In 2016, investment in ‘new renewables’ capacity globally was roughly double that invested in fossil fuel generation, and renewables accounted for two-thirds of new power generation installed. The US$69 billion of financing for renewables in South-East Asia between 2000 and 2015 made it the single largest tranche of investment in generation across the region. According to Bloomberg New Energy Finance, 72 per cent of investment in new power generation globally out to 2040 will go to renewables.
Second, recent political signals from China, India and Korea suggest a strong regional turn away from new coal, driven mostly by concerns about air pollution and the serious impact on public health. According to the Lancet medical journal, one out of every six premature deaths in the world in 2015 — about nine million — was attributed to disease from toxic exposure due to air pollution. In a sign of progress, the IEA’s latest data shows that final investment decisions taken on new coal plants fell in 2016 for the third consecutive year.
Third, it is not in South-East Asia’s interest to burn more coal, create more air pollution, and precipitate runaway climate change. This region is among the most vulnerable in the world to a warmer world. According to the Asian Development Bank, the Asia Pacific is home to 13 of the world’s top 20 cities already suffering losses from floods, including Bangkok, Jakarta and Ho Chi Minh City. And if the world continues on its current path to 4 degrees Celsius of warming, loss of coral reef systems and the rich fisheries they depend on would result in $58 billion of economic losses by mid-Century.
Finally, there is a growing recognition in the investment community that the age of dirty fossil fuels is coming to an end. The simple equation is that the cost of renewable technologies like solar and wind have declined to such an extent that fossil fuels can no longer compete.
This trend is a primary reason that the world’s largest asset manager, BlackRock, states bluntly that “coal is dead”, and why JP Morgan and Citibank have recently committed to together direct $300 billion towards clean energy, infrastructure and technology. It is also why new research commissioned by HSBC shows that 68 per cent of global investors currently intend to increase their low-carbon investments to accelerate the transition to a clean energy economy.
While all of this progress is encouraging, there is no time to waste. Investment decisions made in the asset management sector will be critical, in particular the allocation and direction of around US$2 trillion under management in both of Asia’s major financial hubs, Singapore and Hong Kong.
From Singapore, nearly 70 percent of assets managed are invested in the Asia Pacific region, and nearly half of that is in “alternative assets” that tend to drive technology development and energy-related investments. This is not only a question of fiduciary and moral duty to the next generation, but also a matter of business opportunity, improved long-term resilience, and thus a question of having a better risk-return profile for investments.
As the IEA says in its report, “the road ahead for Southeast Asia is not yet set in stone.” For the benefit our children and grandchildren, let’s take the safe road.
Christiana Figueres was Executive Director of the UNFCCC, and coordinator of negotiations that led to the Paris Climate Agreement. She is now Convener of Mission 2020, a collaborative initiative to accelerate action towards the 2020 climate turning point. She is visiting Singapore this week to help launch Singapore International Energy Week.