Energy Transition – An evolving journey

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Asia’s need for energy is growing rapidly, as a result of a growing middle class (by 2030, 3.5 billion Asians will be middle class), rapid urbanization (by 2050, Asia’s urbanization rate will be nearly 65%, up from 50% today), industrialization, and economic growth (by 2040, the Asia-Pacific region will represent 50% of global GDP; currently it represents 47%). At present, fossil fuels (coal, oil and natural gas) dominate the total primary energy supply in Asia, with Asia accounting for 80% of the world’s coal power consumption. As the economies of Asia develop, the demand for energy is rising. According to the International Energy Agency, the overall energy demand for Southeast Asia grew 80% since 2000. As Asia seeks to reduce its greenhouse gas emissions, the energy transition is critical.

The energy transition is a key phase in the ongoing fight against climate change and global warming where every country, including those in Asia, has a role to play.

Simply put by IRENA, “…the energy transition is a pathway toward transformation of the global energy sector from fossil-based to zero-carbon by the second half of this century. At its heart is the need to reduce energy-related (carbon dioxide) emissions to limit climate change.”

Even though Asian countries are at different stages of their energy transition journey, the 2021 United Nations Climate Change Conference (COP 26) fast-tracked climate action with more Asian governments and corporations committing to net-zero targets, piloting carbon taxes and considering sustainable solutions. The 2022 UN Climate Change Conference (COP 27) was marked by the historic announcement of the plan to create the Loss and Damage Fund aimed at “assisting developing countries that are particularly vulnerable to the adverse effects of climate change.” The idea is that the countries that are most impacted by the climate crisis, but which have contributed the least to its creation would be compensated. Although the scope of the fund, including the sources of funding and which countries would be eligible to receive aid, is yet to be determined, it is safe to assume that certain countries in Asia would be eligible to benefit from it. One such country mentioned by the UN Environment Program is Pakistan which “has suffered $30 billion in damages from severe flooding but emits less than 1% of global emissions.”

Another landmark announcement from COP 27 pertains to the Indonesia Just Energy Transition Plan (JETP). The JETP involves $20 billion in finance pledged by global lenders led by the U.S. and Japan over 3 to 5 years to facilitate Indonesia’s transition to lower carbon energy mixes. To accelerate the realization of financing commitments, Indonesia launched the investment proposal, known as the Comprehensive Investment Policy Plan (CIPP), on 21 November 2023.

The momentum around energy transition persisted through COP 28 which recently took place in Dubai. Over 120 nations (including Singapore, Japan, Malaysia, Republic of Korea and Thailand) signed the Global Renewables And Energy Efficiency Pledge. The pledge outlines a commitment to work together to triple the world’s installed renewable energy generation capacity to at least 11,000 GW by 2030 and collectively double the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 2030.

In addition, 63 countries signed a Global Cooling Pledge which seeks to cut cooling-related emissions across all sectors by at least 68% globally by 2050. These measures could pose significant difficulties for Southeast Asian signatories who are increasingly reliant on cooling technologies. COP 28 also saw the launch of the Climate Club – an initiative to tackle emissions from industry. Members (including Japan, Singapore, and South Korea) are to develop and share their assessments and best practices on climate mitigation policies and work towards a common understanding of the effectiveness and economic impact of such policies. The Club intends to help match countries with technical and financial support from private/public sources through its Global Matchmaking Platform.

Furthermore, COP 28 marked a groundbreaking agreement to shift away from fossil fuels. This marks the first time that the COP formally acknowledges and agrees to address the main cause of the climate crisis, signaling the end of the era of fossil fuel. This historic moment begs the question – who will pay for it and how do we get there?

In 2022, nearly 55% of global energy transition investment (of circa $546 billion) was made in China, Japan, Korea and India. This creates the right driver for increased levels of investment in the ‘Asian Green Economy’, the transition to which will impact multiple sectors, including healthcare, energy, agriculture and food industries.