Last year’s UN Climate Change Conference in Dubai (COP28) concluded with a landmark agreement to shift away from fossil fuels and triple the world’s renewable-energy capacity. While this is a step in the right direction, how can we ensure that emerging economies have the necessary resources to achieve a just clean-energy transition?
That question has become a pressing one in Southeast Asia. In 2021, at COP26 in Glasgow, eight of the 10 ASEAN members — Brunei, Cambodia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam — unveiled their updated emissions-reduction plans, setting ambitious decarbonization targets for 2030 and pledging to achieve net zero emissions by 2050, a decade sooner than they originally planned.
However, the past two years have highlighted the massive investments required to build green infrastructure in these developing economies.
The International Renewable Energy Agency estimates that the bloc’s member states will require an average annual investment of US$210 billion up to 2050 to meet their climate goals.
It is now abundantly clear that no single country or bloc can achieve net zero emissions on its own and that a just energy transition will require robust public-private partnerships.
According to a report last year by the International Finance Corporation and the International Energy Agency, Southeast Asian countries need US$9 billion in concessional financing per year until 2031-2035 to mobilize the necessary private capital to decarbonize their economies.
Southeast Asia, with its numerous island communities and vast coastal areas, is one of the world’s most climate-vulnerable regions. Its carbon dioxide emissions doubled between 1990 and 2020, reflecting rapid economic growth, and energy demand is expected to triple by 2050, underscoring the need for innovative and cost-effective technological solutions.
At the same time, the growing frequency of extreme weather events, reduced agricultural yields, deteriorating health conditions and declining tourism underscore the devastating impact of climate change on Southeast Asian economies.
Recognizing the urgent need for climate action, several Southeast Asian countries have recently announced a series of climate partnerships with international organizations and investors. During COP28, for example, Perusahaan Listrik Negara, Indonesia’s state-owned electricity company, signed 14 strategic agreements to accelerate the integration of renewable energy into the country’s power grid, shut down coal-fired power plants and develop worker training programs.
Vietnam, acutely aware of its vulnerability to climate change, has taken steps to promote equitable climate solutions. In May last year, the country approved its new power development plan, PDP8, which aims to boost wind and gas capacity and reduce reliance on coal. It also joined the Coal Transition Accelerator, in which Indonesia, Malaysia and several Western countries share knowledge, develop new policies, and unlock public and private financing to facilitate its shift away from coal.
While Southeast Asian governments have endorsed numerous clean-energy initiatives on their own, a coordinated approach is the key to ensuring a just energy transition that stimulates economic growth. By fostering cooperation between the public and private sectors, ASEAN members could gain access to the capital and expertise necessary to mitigate perceived risks and transform capital-intensive projects into viable, investible ventures.
However, Southeast Asia’s shift to renewable energy requires a concerted global effort as well. By 2050, relatively energy-poor emerging economies are expected to account for 75 percent of global emissions. To meet the world’s climate targets, the international community must support these countries’ decarbonization efforts.
Historically, large corporations and state-owned enterprises have received the lion’s share of climate finance in Southeast Asia, but the clean-energy transition enables ASEAN members to redirect capital flows toward small and medium-size enterprises, thereby supporting the region’s burgeoning start-up ecosystem, creating green jobs and fostering sustainable prosperity.
Given that concessional capital is a finite resource, it is crucial to establish appropriate financing structures capable of mobilizing early-stage capital. Fortunately, this scarcity offers a unique opportunity to mobilize private-sector participation by leveraging philanthropic capital. Bridging the gap between philanthropy and investment could help promote the development of new technologies and business models that are on the cusp of commercial viability.
To be sure, this approach goes beyond philanthropy’s conventional scope, but by endorsing and structuring transactions that attract development finance, philanthropic funds could catalyze private financial flows.
The Southeast Asia Clean Energy Fund II is a prime example. In December last year, the Global Energy Alliance for People and Planet invested US$10 million in the fund, taking a junior equity position and agreeing to cover the first losses. With US$127 million in commitments, it is the first blended investment fund dedicated to providing early-stage, high-risk capital to clean-energy start-ups in Southeast Asia. Its innovative approach highlights the potential role of catalytic, risk-tolerant financing in advancing an inclusive net zero transition.
Closing the climate-financing gap is crucial to achieving net zero emissions and limiting global warming to 1.5°C above pre-industrial levels.
By adopting a radically collaborative investment approach, philanthropic funds, governments, financial institutions and private investors could foster an equitable and economically viable transition to clean energy — in Southeast Asia and around the world.
Kitty Bu is vice president for Asia (excluding India) at the Global Energy Alliance for People and Planet. Stefanie Fairholme is chief investment officer at the alliance.
Copyright: Project Syndicate
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