PwC Net Zero Economy Index: Asia Pacific’s Transition

In 2021, the Asia Pacific region¹ is beating the world in its effort to decouple greenhouse gas emissions from economic growth while also facing more strenuous headwinds, PwC's Net Zero Economy Index 2022² reveals.

Encouragingly, the Asia Pacific region achieved a decarbonisation rate of 1.2% on average in 2021. This indicates that its energy-related CO2 emissions per unit of gross domestic product generated are falling.

In the same period the world’s overall decarbonisation effort was 0.5%, a massive gap towards the 15.2% decarbonisation rate required to limit global warming to 1.5°C above pre-industrial levels.

Figure 1: State of decarbonisation across different economic groups in 2021

Deeper cuts are needed against a tighter deadline

Opportunity for Asia Pacific to keep up with advanced economies to reduce carbon intensity

_{Note:

Economies covered in the Asia Pacific metrics: Australia, Bangladesh, China, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, South Korea, Thailand and Vietnam

E7: BRICS (Brazil, Russia, India and China), Indonesia and Turkey

G7: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States

Certain Asia Pacific economies are not included due to data source limitations}

Leaders and laggards

The index shows 9 out of 13 Asia Pacific economies reduced their carbon intensity in 2021, however only two – New Zealand and Vietnam – exceeded the decarbonisation rate targets implied by their National Determined Contributions (NDCs).

New Zealand reduced their carbon intensity the most at 6.7% in 2021, followed by Malaysia (4.0%), Vietnam (3.4%) and Australia (3.3%).

Figure 2: Actual, committed and required decarbonisation rates of Asia Pacific economies

Shortfalls in meeting the 1.5°C goal underscore the urgency to step up ambition and action

^{Sources: World Bank Data, Climate Resource, IMF World Economic Outlook, PwC Net Zero Economy Index

Certain Asia Pacific economies are not included due to data source limitations}

In contrast, four economies increased their carbon intensity in this year’s index, highlighting action gaps in meeting national ambitions. Pakistan registered the highest rise in carbon intensity of 3.5% in 2021 as demand for energy surged. India’s carbon intensity in 2021 grew by 2.9% largely due to its continued dependency on coal. India however has raised its commitment in 2022 to reduce emissions intensity by 45% by 2030, from 33-35% previously, implying a larger gap to bridge based on its 2021 performance. Japan and the Philippines increased their carbon intensity albeit at relatively modest levels.

Australia’s new Labor government passed plans to reduce greenhouse gas emissions by 43% below 2005 levels by 2030, a 15% increase in their commitment from the previous target. Despite owning the most ambitious NDC target decarbonisation rate to 2030 in Asia Pacific – Australia’s 7.2% is a far cry from the 15.2% required by all countries for a 1.5°C aligned pathway.

Climate pledges, including updated NDCs submitted in September 2022, would lead to global warming of around 2.5°C, albeit a step up on last year’s commitments³. As such, to meet the 1.5°C target, governments need to significantly strengthen their NDC goals for 2030 and beyond to prevent catastrophic climate change based on what is now widely accepted science. In Asia Pacific, step changes by some of its biggest emitters would help move the needle.

How fast is Asia Pacific transitioning to a net zero future?

The future success of Asia Pacific economies will depend on how quickly they can decouple greenhouse gas emissions from economic growth. Decarbonisation trajectories over the last two decades (Figure 3) exhibit changes across three dimensions: energy intensity (energy use per unit of GDP), fuel factor (emissions per unit of energy supply) and carbon intensity (energy-related CO₂ emissions per unit of GDP).

Figure 3: Energy intensity, fuel factor and carbon intensity of Asia Pacific economies for 2001, 2011 and 2021

Pathways Asia Pacific economies have taken to deliver emissions reduction – some are more consistent than others

Progressing

Economies aligned their actions with the destination: Australia, China, Malaysia, New Zealand and South Korea and to some extent Thailand. They showed encouraging progress in terms of direction and speed. Most are still carbon intensive, but the momentum is promising.

Detoured and stalled progress

Economies with inconsistent and slow progress towards a low-carbon economy in the last decade: India, Indonesia and Japan. With clearer ambition and determination, they have the potential to correct the course.

Coupled to coal

Economies moving away from the destination: Bangladesh, Philippines, Pakistan and Vietnam. These developing economies started with relatively lower carbon intensity. Their economic development in the last decade has been proportionately fueled by coal and they represent the strongest risks of being caught with stranded assets and exposed to climate impacts.

_{Note:

The Net Zero Economy Index calculates national and global carbon intensity (CO2 / GDP) and tracks the rate of change needed to limit warming to 1.5°C. The carbon intensity, or energy-related emissions per unit of GDP, is a product of:

- Fuel factor (CO2 / energy) measures how much CO2 is emitted per unit of energy consumed – how “green” the energy consumption is.

- Energy intensity (energy / GDP) measures the amount of energy consumed per unit of GDP generated – how energy-efficient the GDP is.

Certain Asia Pacific economies are not included due to data source limitations}

China is an example of an accelerated decarbonisation trajectory – in essence, moving towards the bottom left corner of the carbon intensity matrix. Over the last decade, China has increased its installation of solar and wind 13-fold on the back of falling technology costs and comprehensive renewables supply chains from design to manufacturing. It also launched energy conservation campaigns to cut down the energy intensity.

To get onto the right trajectory, Asia Pacific economies need to tackle both the energy intensity and fuel factor.

Ways to reduce the energy intensity of GDP through orchestrated economic transformation

Scale up more efficient and cleaner industrials and manufacturing processes

Create greater demand for energy efficiency products and services

Enhance the supply of technology improvements for demand management solutions

Encourage behavioural change to maximise energy savings

Speed up the electrification of transport, heat and industry

Leverage digitalisation to enable system-wide optimisation of energy use

Ways to reduce the fuel factor through systematic energy transition

Phase down and out of coal

Rapidly scale up renewable energy sources such as solar and wind to meet rising energy demand

Blend fossil fuel with renewable sources (such as waste-to-fuel and hydrogen) to smooth the transition

Mobilise investment into supporting infrastructure including battery storage, transmission and mini-grids

Ramp up investment in R&D to reduce the cost of technologies such as green hydrogen and carbon capture and storage

Increase regional collaboration to rapidly scale clean energy innovation and financing

Each of these solutions depends on the stage of economic development and requires behavioural change at public, corporate and individual levels.

The region must jump-start the energy transition now to avoid stalling progress by the end of this decade. Close to 50% of Asia Pacific’s energy needs were met by coal in 2021, double the world average. So planning needs to start in no time. Retiring coal plants, for example, is a multi-year effort involving a wide range of stakeholders, from governments to operators to financiers and through up and downstream supply chains, workforces and consumers.

Figure 4: Fuel factor (tCO₂ /energy) and energy mix of Asia Pacific, World and G7 in 2021

Asia Pacific relied heavily on coal to meet its energy needs

^{Sources: bp Statistical Review of World Energy 2022, PwC Net Zero Economy Index 2022}

Policy alignment and innovation needed for net zero vision

Global and national targets need to be translated into policy actions and Asia Pacific governments are putting some of these in place. There is no silver bullet to accelerating an economy's decarbonisation journey, so policies need to be deployed across multiple fronts. Figure 5 provides a summary of where governments have developed policies and communicated their policy intent.

The policies across the economies have different timeframes and levels of ambition. However, common gaps and levers unfold through a regional lens:

Renewable or clean energy targets are in place, but some economies still refrain from explicit commitments on fossil fuel-fired generation, likely driven out of concerns for energy security and affordability. Fuel switching through pairing renewable or clean energy targets with coal phase-out would ensure absolute emissions reduction while meeting energy needs.
Efforts to promote energy efficiency are prominent. Yet, they need to go together with electrification policies, such as accelerating the adoption of electric vehicles. Furthermore, green transportation requires coordination with other policies, such as urban design and the promotion of public transport.
Policies on carbon pricing are ramping up. Next, they can aim for improvement through innovation. For example, distributing the proceeds of carbon taxes to low-income households as carbon dividends helps support a socially just transition. In addition, the emergence of carbon markets in various jurisdictions creates the opportunity for regional connectivity to scale impacts.
Regulation for climate risk reporting and taxonomy defining “green” investment are growing fast. However, different maturity levels and rules across the economies pose compliance challenges for businesses with Asia Pacific portfolios. Harmonised policies would improve the efficiency and interoperability of reporting in the region.

Figure 5: Summary of climate pledges and policies in Asia Pacific

Policies and market instruments have sprung up in Asia Pacific to guide the net zero transition. Click here to view in PDF.

	Net Zero / Carbon Neutral	Coal-fired Generation Policy	Renewable (RE) or Clean Energy Target(i)	Energy Efficiency Target	Green Road Transport Policy	Carbon Tax ($ per ton)	Carbon Markets	TCFD Reporting	Climate-related Taxonomy
Australia	2050	N/A	RE: 82% by 2030	Energy productivity: 40% improvement by 2030 (vs 2015)	N/A	N/A	To launch Australia Carbon Exchange	Recommended but not mandatory	Developing Green Taxonomy
China	2060	Phase down coal from 2026	Clean energy: 20% by 2025; 80% by 2060.	Energy intensity: 13.5% cut by 2025 (vs 2020)	Phase out ICE private cars by 2035	N/A	Operational - Emission Trading System; to relaunch the voluntary programme	Plan to be mandatory (listed companies)	Issued Green Bond Endorsed Projects Catalogue
Hong Kong	2050	Phase out coal by 2035 (daily use)	RE: 7.5-10% by 2035	Building energy savings**(ii): 10%-20% by 2035; 20%-40% by 2050 (vs 2015)	No new private ICE cars by 2035	N/A	Launched HKEX Core Climate	Phasing in requirements; to be mandatory by 2025 (listed companies)	Plan to develop local green classification framework(ii)
India	2070	N/A	Clean electricity: 50% by 2030	Energy intensity: 45% cut by 2030 (vs 2005)	EV: 30% of private cars and 80% of 2 and 3-wheelers by 2030	No uniform system except for Clean Energy Cess (iv)	Established framework established; to operationalise	Not mandatory	Developing sustainable finance taxonomy
Indonesia	2060	Phase out coal by 2056	RE: 23% in 2025; 31% in 2030	Energy intensity: 1% cut per year until 2025	No new ICE motorcycles by 2040; and cars by 2050	Being finalised (IDR30,000/~USD2)	To operate in 2025	Not mandatory	Issued Indonesia Green Taxonomy
Japan	2050	Phase out inefficient coal plants by 2030	RE: 36-38% by 2030	Energy efficiency: 30% improvement by 2030 (vs 2003)	No new ICE cars by mid-2030s (considering)	JPY289 / ~USD2	Launched; to operate in 2025	Mandatory from 2022 (listed companies)	Issued Basic Guidelines on Climate Transition Finance
Malaysia	As early as 2050	No new coal plants	RE: 31% by 2025; 40% by 2035	Industrial and commercial energy efficiency: 11% improvement by 2040	N/A	Conducting feasibility study	To launch by end-2022	Mandatory from 2025 (listed companies)	Issued Climate Change and Principle-based Taxonomy for FIs
New Zealand	2050	Phase out coal by 2030	RE: 100% by 2035	N/A	EV: 30% of light vehicles by 2035	N/A	Operational - Emission Trading Scheme	Mandatory from 2023-24 reporting period (listed companies)	N/A
Philippines	N/A	Phase out coal (plan only)	RE: 35% by 2030; 50% by 2040	No specific target but benchmarked against regional target	N/A	Plan to implement	N/A	Not Mandatory	N/A
Singapore	Mid-century	Phase out coal by 2050	Clean energy imports: 30% by 2035	Energy intensity: 35% cut by 2030 (vs 2005)	Ban new ICE cars by 2040	SGD5 / ~USD4	Launched Climate Impact X	Mandatory from 2023 (listed companies)	Published Second consultation paper
South Korea	2050	Shut down 20 sites out of 57 by 2030	RE: 22% by 2030	Energy efficiency: 30% improvement by 2030 (vs BAU)	Plan to phase out ICE cars from 2035	N/A	Launched Korea Emission Trading Scheme	Not mandatory	Issued K-Taxonomy
Thailand	2065	Reduce coal share in energy mix	RE: 30% by 2037	Energy efficiency: 30% improvement in 2036 (vs 2010)	No new ICE cars by 2035	Plan to implement	Launched FTIX	Not mandatory	Developing Green Taxonomy
Taiwan	2050	No new coal plants by 2025(iii)	Renewable electricity: 20% by 2025; 60-70% by 2050	Energy intensity: 50% cut by 2025 (vs 2008)	EV: 100% of private cars and scooters (for new sales) by 2040	Proposed (~USD10)	N/A	Not mandatory	Developing Sustainability Taxonomy
Vietnam	2050	Phase out coal by 2040	RE: 15-20% in 2030; 25-30% in 2050	Energy consumption: 1.5-2.0% improvement (2021-2030)	Restrict manufacture and import of ICE cars from 2040(v)	Plan to implement	Plan to launch pilot in 2025	Not mandatory	Developing Green Taxonomy

^{Note: The information above is based on policy announcements and generally acknowledged commitments as of October 2022 and of general nature only.

It is not meant to be comprehensive and does not constitute professional advice.}

^{BAU: Business-as-usual

EV: Electric vehicles

ICE: Internal combustion engine

RE: Renewable energy, inclusive of wind, solar, hydro and other forms such as bioenergy, geothermal and marine energy.

TCFD: Task Force on Climate-Related Financial Disclosures

FI: Financial Institution}

^{(i) Clean energy: covers renewable energy and other forms of non-fossil fuel energy sources such as nuclear energy.

(ii) Hong Kong: Energy efficiency: Commercial and residential buildings have different targets within the target ranges. Climate-related Taxonomy: Evaluating the adoption of Common Ground Taxonomy

(iii) Taiwan: aims to install carbon capture, utilisation and storage (CCUS) in coal- and gas-fired power plants by 2040.

(iv) India: refers to Clean Energy Cess or Compensation Cess on coal production. State governments have imposed their own taxes to capture the costs of negative externalities, e.g., Green Cess, Eco Tax on vehicles.}(v) Vietnam: planning for full electrification of cars by 2050

A possible turning point for Asia Pacific

The region produces half of all carbon emissions globally, which makes Asia Pacific more exposed to transition risks and under significant pressure to cut its emissions. At the same time, half of the region’s population – about 2.4 billion people – live in low-lying coastal areas4 and at risk of more frequent extreme weather events.

The decarbonisation narrative is shifting from ambition to action. However, this year’s index shows significant gaps in both areas that must be acknowledged and addressed at COP27 and beyond. Closing the gaps would be a turning point for Asia Pacific to gain a competitive advantage in the global race to net zero.

Through The New Equation strategy, PwC continues to build trust and deliver sustained outcomes by working together with clients and stakeholders to accelerate net zero transformation and helping shape and accelerate the climate and policy agenda.

^Note:

^{[1] The territories focused on are individual Asia Pacific economies, as well as world totals. Asia Pacific includes Australia, Bangladesh, China, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, South Korea, Thailand and Vietnam. Certain Asia Pacific economies such as Hong Kong, Singapore, Taiwan arenot included due to data source limitations

[2] PwC Net Zero Economy Index tracks the decarbonisation of energy-related CO2 emissions. The analysis is underpinned by the bp Statistical Review of World Energy, which reflects carbon emissions based on the consumption of oil, gas and coal for combustion-related activities. The analysis does not consider emissions from other sectors such as Agriculture, Forestry and Other Land Use (AFOLU) or from any other greenhouse gases as well as any carbon that is sequestered. As a result, this data cannot be compared directly with national emissions inventories. For GDP data, the study draws on World Bank historical data.

[3] United Nations Framework Convention on Climate Change (UNFCCC), 2022, “Climate Plans Remain Insufficient: More Ambitious Action Needed Now"

[4] United Nations Development Programme (UNDP), 2019, “Climate change in Asia and the Pacific. What’s at stake?”}