Asia Pacific’s burning challenge: A just and orderly energy transition

Sean Purdie

Managing Director of Energy Transition, PwC Hong Kong

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*PwC lead for the 2022 B20 Energy, Sustainability & Climate Task Force


Energy is a key component of all human and economic activity. Ensuring a secure and affordable energy supply is crucial for global economic growth, which has raised millions out of poverty. However, this has come at a cost. The continuing dependence on fossil fuels for primary energy supply has resulted in a steady increase in carbon dioxide (CO2) emissions, contributing to global warming and climate change. 

Asia Pacific’s vulnerability to climate change has highlighted the need for acceleration of the transition to sustainable energy. Code Red - Asia Pacific’s Time To Go Green Red, a November 2021 report by PwC, found that, in 2020, decarbonisation in the region was 0.9% and that it needs to fast-track this process to limit global warming to 1.5°C, the goal set out by the Paris Agreement. 

According to August 2022 research from the World Bank, the region counts 13 of the 30 countries that are likely to be adversely impacted by extreme weather – from storms and floods to droughts and heatwaves. The consequences are set to ripple out across industries and communities, posing short and long-term threats to environmental and economic stability, equality and growth. 

Last year, the 2021 United Nations Climate Conference (COP26) represented a watershed moment for the climate crisis, with territories across Asia Pacific making different degrees of commitment to tackle global warming. For instance, India, the world’s third-largest emitter of carbon, vowed to reduce the emissions intensity of its gross domestic product to 45% below 2005 levels by 2030. Indonesia has committed to an unconditional 29% reduction from business-as-usual levels by 2030 and a conditional 41% reduction with international support. Close on the heels of the conference, Australia, under new leadership, passed a historic bill promising to cut emissions by 44% over the same period. 

These examples are promising – evidence that Asia Pacific territories are finally turning speculation around the environment into action - But they don’t entirely reflect shifts across the bulk of the region, where economic reliance on fossil fuels and slow progress on renewable energy investment have rendered the climate challenge more complex.

This is heightened by lagging investment in change implementation and institutional capacity building, as well as skills, technology and infrastructure development. It’s also exacerbated by mounting evidence that climate funding from developed countries to their developing counterparts is not flowing as fast as it needs to. This has created a barrier to a just and orderly transition toward sustainable energy use – with major consequences for the world’s ability to meet its global warming reduction targets.

Asia Pacific territories are shaped by diverse political and demographic contexts and levels of economic maturity. The conversation around energy transition in Java will differ from the dialogue in Singapore. Many less developed territories may not be operationally ready to absorb the huge amounts of funding required. But it’s essential to remember that the developed world has reaped the opportunity to grow their economies with fossil fuels. Developed countries with their higher per capita incomes, energy consumption and emissions, have a role to play in supporting developing countries in their energy transition journeys, particularly through providing access to financing, technology, and human capital.

The region is at the forefront of the many interconnected crises around climate. It’s also poised to play a defining role in the global effort towards energy transition. The success of this effort will hinge on how effectively developed and developing countries work together. Here’s how the region can rise to the climate challenge – and pave the way for a more sustainable future.


Decarbonisation versus growth: a delicate balance 

Economies such as India and China are driving significant demand for energy, utilities and resources. But net zero, the goal of negating the volume of greenhouse gas produced by human activity, has seen the energy sector attract mounting pressure to strike a balance between decarbonisation and growth. Across Asia Pacific, secure and affordable energy has been a catalyst for the economic development that has helped millions combat poverty and build better lives for themselves and their families. This is why there needs to be an emphasis on a transition to renewable energy that is just, orderly and affordable. This effort – however well-intentioned – shouldn’t reverse decades of economic and social progress, or create barriers to countries achieving their full economic potential. 

It’s important to protect energy access for lower-income countries that still heavily rely on fossil fuels and to ensure that, in the shift to renewable energy, the proportion of jobs gained is greater than jobs lost. It is crucial to account for the challenges when embarking on the delicate business of decarbonisation and growth, particularly in countries where fossil fuel generation and exports still form a large part of the economy and provide jobs and support livelihoods for many citizens. Most sources of renewable energy are intermittent, and many power grids across Asia Pacific are not designed for this variable energy supply. When balancing decarbonisation and growth, the potential risk to energy security – and the devastating impact on communities – should always be at the front of mind.

Transitioning to a sustainable energy ecosystem

There’s no denying that transition to sustainable energy is vital. But it is equally important that energy is distributed across territories as equitably and accessibly as possible. A just and orderly energy transition is one that doesn’t come at the expense of GDP growth in emerging markets, cause energy poverty or put energy security at risk. This means Asia Pacific-based territories need to be equipped with the institutional capacity to receive large amounts of funds and distribute them appropriately. There is also a growing imperative to focus on important end-use sectors such as industry, consumers, buildings, transport and cities, and invest in digital solutions and technology from the outset.

Of course, making sure that technology reaches developing markets at a reasonable price and that funds are received and allocated fairly calls for good governance. The political circumstances in Myanmar, for example, added logistical complexity to the process of setting up and modernising institutions. But in Vietnam, a country historically dependent on coal, a boom in solar and wind projects suggests a burgeoning transition to renewable energy.

It’s a move that’s encouraging, despite – as Al Jazeera reported in May 2022 increased pressure on the grid. Seamlessly transitioning to a sustainable energy ecosystem also means considering the role of energy storage. Intermittent technologies such as solar and wind need to involve back-ups and this cost should be factored into the price of generation. Investing in energy storage and diversifying sources beyond solar and wind – to include the likes of hydro and geothermal energy – can help ensure that energy transition unfolds as smoothly and equitably as possible.

Resourcing the energy transition also calls for the sustainable mining of critical minerals such as lithium, nickel and cobalt, resources that will help drive the low-emission energy systems we need to so urgently build.

Taking collective action on climate 

If the world is serious about meeting net zero targets, it is critical that the developed world joins forces with the developing world. The industrial world, it’s worth remembering, has had the powerful advantage of using fossil fuels to build its economic strength. Helping the developing world during the course of this transition is both a gesture of global solidarity and an ethical duty, part of a net zero transition that puts equity and fairness first. And even more than this, it is clear that without the acceleration of energy transition in the developing world, the globe, collectively, will not be able to avoid the continuing impacts of climate change.

When it comes to renewable initiatives, a major proportion of the funding will come from the private sector. But attracting secure long-term funding calls for clarity around the regulations over the lifecycle of a project. There is a directly proportional relationship between the strength of the regulatory environment and high levels of investor confidence. 

At a more practical level, territories must collaborate with each other to research and develop new technologies. Governments must roll out regulations and incentives. Businesses should align purpose and strategy while nurturing the kind of skills and talent equipped to tackle the energy transition down the track. Elsewhere, communities, especially those in countries that suffer energy inequity, must work together to enable off-grid solutions. The time has passed for the developed world to passively observe the energy crisis. Achieving net zero transition calls for a deep allegiance between the developed and developing world. When it comes to the climate, there has never been a better moment to take action.

To close the decarbonisation gap, all actors in the economy need to raise their game. Getting the energy transition right by executing the transition process at an accelerated pace without economic and social disruption and ensuring that no one is left behind is critical. It’s also the first phase of securing and maintaining the cultural and political appetite required for such a monumental change.

As noted in PwC’s Inventing Tomorrow’s Energy System, addressing energy transformation challenges will require strong state orchestration, at least in the early stages during the development of markets and strategic infrastructure. But, neither the government nor the private sector can manage the transition to net zero and the new energy landscape alone. What is needed is a collective response—the state and the market working together in new ways is crucial.

 

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. 
As part of the G20 Indonesia presidency this year, PwC Indonesia is the knowledge partner for two B20 task forces: (1) Energy, Sustainability & Climate, and (2) Finance & Infrastructure, with both task force policy papers highlighting the urgency of addressing the energy transition.
 
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