net-zero

The 2023 United Nations 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 ten ASEAN countries – 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. But 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 $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 2023 report by the International Finance Corporation and the International Energy Agency, Southeast Asian countries need $9 billion in concessional financing per year until 2031-35 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. The Asian Development Bank projects that global warming could erode the region’s GDP by 11% by the end of the century, while Swiss Re estimates that GDP losses could be as high as 37%.

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 (PLN), 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 2023, 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 countries could gain access to the capital and expertise necessary to mitigate perceived risks and transform capital-intensive projects into viable, investible ventures.

But 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% 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 countries to redirect capital flows toward small and medium-size enterprises, thereby supporting the region’s burgeoning startup ecosystem, creating green jobs, and fostering sustainable prosperity.

Given that concessional capital is a finite resource, especially when it comes to funding energy-transition projects, 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.

Philanthropic investors with the ability to mobilize private capital have a crucial role to play in advancing Southeast Asia’s energy transition. Through blended finance, they could help demonstrate the viability of emerging technologies, businesses, and projects. 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 (SEACEF II) is a prime example. In December, the Global Energy Alliance for People and Planet invested $10 million in SEACEF II, taking a junior equity position and agreeing to cover the first losses. With $127 million in commitments, it is the first blended investment fund dedicated to providing early-stage, high-risk capital to clean-energy startups 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° Celsius above pre-industrial levels. A recent McKinsey report estimates that developing countries must invest roughly $2 trillion annually by 2030 to meet their climate targets. 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, Vice President for Asia (excluding India) at the Global Energy Alliance for People and Planet and Stefanie Fairholme, Chief Investment Officer at the Global Energy Alliance for People and Planet.

© Project Syndicate 1995–2024