Sustainable trade

International cooperation is critical to Southeast Asia’s clean energy transition

Thang Nam Do

Published 23 July 2024

With the world’s most-recently built coal plants, ASEAN faces an expense of at least US$277 billion to retire these plants early to meet the association’s renewable energy targets. While international assistance is crucial to achieving net-zero emissions, it must go beyond financial aid and extend to enhancing local capacity in policymaking, technical expertise, and public awareness.

Southeast Asia is facing a pivotal moment in its energy sector. With a 4% annual increase in energy demand and the challenge of reducing fossil fuel dependency, transitioning to clean energy is critical to meeting the region’s global climate goals.

The Association of Southeast Asian Nations (ASEAN) currently contributes about 5% of global emissions, and projections by the International Energy Agency suggest its carbon dioxide (CO2) emissions could rise to 2.4 gigatons by 2040—a 71% increase from 2018. The need for robust and immediate action in transitioning to sustainable energy sources is urgent and international collaboration is an essential element of the journey.

To meet the target of 23% renewable energy in its primary supply by 2025, ASEAN needs to invest around US$27 billion in capacity annually. With the world’s youngest coal fleet, averaging just 14 years old, the region faces an expense of at least US$277 billion to retire these plants early. Financial challenges will be especially severe for major coal economies like Indonesia, which requires around US$97 billion to meet its on-grid power sector emission reduction targets by 2030. There is also a critical shortage of the skilled professionals and robust institutions required to develop and enforce effective energy policies.

The message from the region is clear: it needs significant financial and technical support for the energy transition.

International cooperation is important as it can mobilize the power of collective action, it offers financial aid, and it fosters confidence among countries by reinforcing the idea that they are not alone in facing these challenges.

The Philippines, Indonesia, Thailand, and Vietnam have already included international support as a condition for achieving higher emission reduction targets in their Nationally Determined Contributions.

Preliminary efforts in international cooperation, such as the Southeast Asia Energy Transition Partnership, the Asia Zero Emissions Community, and the Asian Development Bank’s Energy Transition Mechanism, are in place. The Group of Seven (G7)-led Just Energy Transition Partnerships have announced initial funds of US$20 billion for Indonesia and US$15.5 billion for Vietnam. But further efforts are needed to accelerate the energy transition.

The region is rich in opportunities for further collaboration. Countries could boost bilateral cross-border electricity trade, with significant economic and environmental benefits, particularly when based on solar and wind power. The Asian Development Bank’s US$692 million financing for a 600-megawatt wind power project in Laos, aimed at exporting energy to Vietnam, is a prime example. The Laos–Thailand–Malaysia–Singapore Power Integration Project would also improve multilateral trade efforts.

Adopting successful policy frameworks from neighbors can advance renewable energy adoption. For instance, Vietnam’s increase in solar and wind energy—accounting for 13% of its electricity mix in 2022 and up from nearly zero in 2017—sets a commendable example.

With the introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM), it will be crucial to align this policy with broader energy transition strategies to adhere to global climate principles and mitigate potentially adverse impacts. ASEAN could benefit from a collective approach to negotiate with the EU, seeking more favorable CBAM conditions and support for the region’s carbon reduction efforts.

While implementing a common carbon tax or emission trading scheme across Southeast Asia may not be a feasible way to mitigate CBAM impacts, member countries would benefit from studying the approaches of peers like Singapore and Indonesia to develop their own domestic carbon pricing mechanisms.

The commitment to net-zero emissions is robust across the region, with Indonesia, Vietnam, the Philippines, Singapore, and Brunei aiming to phase out coal power by the 2040s. International assistance is crucial to achieving net-zero emissions. This assistance must go beyond financial assistance and extend to enhancing local capacity in policymaking, technical expertise, and public awareness. Countries can strengthen these efforts through bilateral cooperation and multilateral engagements, for example in ASEAN and by building on existing initiatives like the Southeast Asia Energy Transition Partnership and the Asia Zero Emissions Community.

The significant roles played by neighbors like Australia, China, and Japan, as well as global players like the EU and the United States, highlight the interconnectedness of trade, investment and geopolitics in energy transition.

These countries can contribute through exports of low-carbon products like green hydrogen, renewable energy technologies, solar panels, batteries, and electric vehicles—benefiting from Southeast Asia’s growing markets for electric vehicles and renewable technologies.

The benefits of engaging with Southeast Asia extend beyond trade. By deepening relationships with this economically and geopolitically important region, countries outside the region can also strengthen their geopolitical positions.

As Australian Senator Jenny McAllister noted in a speech at the Australia–Vietnam Green Economy Summit in Ho Chi Minh City in April 2024, ‘When our partners prosper, Australia prospers. And nowhere is this truer than in the clean energy transition’. This principle is applicable to other countries engaging in similar transitions. Australia is setting up a AU$2 billion (US$1.3 billion) investment financing facility aimed at boosting investment in Southeast Asia—part of a broader range of economic initiatives unveiled at the ASEAN–Australia Special Summit in Melbourne in March 2024. Energy transition projects are a priority investment interest.

The energy transition in Southeast Asia is part of a global endeavor that promises mutual benefits through enhanced international cooperation. Those who act first stand to gain the most.

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