Is Asean ready to abandon coal?
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Is Asean ready to abandon coal?

Coal remains critical for providing secure and affordable energy, supporting economic growth, and enabling a just energy transition in the Association of Southeast Asian Nations (Asean). Scrapping coal without prudent energy planning could drag Asean member states (AMS) into a self-inflicted energy crisis.

Asean's energy demand had grown by 67% from 2005 to 2019, with coal's share reaching 19% by 2019, nearly double its 2005 level. Under each country's national target scenario (ATS), the region's primary energy supply is projected to triple from 2020 to 2050, with coal's share falling from 28% to below 13%. In power capacity, coal's share will drop from 32% to 21%, and its contribution to power generation will decrease from 44% to 21%.

Nevertheless, coal will remain vital for the industrial sector, with its use slightly outpacing overall energy demand growth. Coal is also essential for affordable energy, with advanced coal power plants remaining competitive against renewables until 2040 based on value-adjusted LCOE metrics. Besides, coal contributed significantly to the economy. More than 5% of Indonesia's GDP between 2017 and 2021 came from coal exports. Malaysia, the Philippines, and Thailand also rely on coal imports to sustain their economic activities.

While several AMS have committed to banning new coal power plants and phasing out coal, they have yet to be integrated into their national energy policies. In fact, as of 2023, there were 40,000 megawatts (MWs) of new coal power plant projects in Asean, with over half already under construction. Within the next three years, 84 coal power plants, totalling 29,000 MW, are expected to come online.

This potential coal lock-in raises questions about AMS's commitment to energy transition, especially as many advanced economies are phasing out coal to achieve carbon neutrality.

Consequently, a rapid coal retirement without considering AMS's diverse energy landscape might disrupt energy security and economic growth, creating a negative feedback loop that hampers energy transition. Asean can learn from the EU energy crisis, where high energy prices have led to a temporary halt in energy transition efforts. The EU had to take emergency measures to maintain energy supply and economic stability, including importing record amounts of LNG and restarting coal power plants. The crisis, largely due to the EU's over-reliance on Russian gas and lack of energy diversification, highlights the risks of a poorly managed transition aggravated by geopolitical instability.

Given coal's unique flexibility, availability, and infrastructure advantages, hastily dismissing coal could reduce reliable energy sources and heighten Asean's reliance on less secure options like natural gas. With regional natural gas production declining, Asean is projected to become a net importer by 2025. This dependency may worsen as demand for natural gas rises to replace coal, as seen in the EU.

Phasing out coal could also compromise energy affordability due to high system costs. For example, Indonesia would need about $37 billion (1.4 trillion baht) for coal power plant decommissioning, equivalent to 14% of the clean energy investment by emerging and developing economies in 2022 alone. Substantial investments are also required for clean energy deployment and power grid upgrades. Under the current policies scenario (STEPS), the IEA estimates that Asean would need $50 billion annually for renewable power and grid infrastructure between 2026 and 2030. While Asean has consistently urged developed countries to fulfil their $100 billion annual commitment to developing nations, the actual financial assistance falls short of this target.

Economic growth would also suffer from phasing out coal. Coal-related activities, including mining and power generation, significantly contribute to regional economies through private sector profits, government revenues, and employment. Massive coal power plant withdrawal would decrease coal demand, leading to substantial economic losses in countries with significant coal resources and established coal industries.

A coal phase-down is a better alternative for Asean's energy transition.

The Asean Centre for Energy (ACE) recently published a report titled "Assessment of the Role of Coal in the Asean Energy Transition and Coal Phase-Out," advocating for a coal phase-down rather than a phase-out for AMS.

In the report, ACE questions the assumptions about renewable energy used to develop the taxonomy, which are overly optimistic and neglect the cost and complexity of building transmission and storage infrastructure. ACE also argues that the 2040 coal phase-out deadline is unrealistic and economically undesirable, as most coal plants in Southeast Asia are relatively new. Furthermore, ACE believes that the emission intensity limit of 100 gCO2e per kWh for electricity generation is unattainable even for the most advanced coal plants with carbon capture technology, effectively excluding abated coal from green qualification.

Given the risks to energy supply and economic growth, ACE advocates for a more prudent energy transition strategy that does not compromise the security and affordability of energy supply and economic development. A coal phase-down buys Asean more time to promote renewable energy capacity, upgrade and expand power grids, adopt clean coal technologies to reduce emissions from existing coal power plants and optimise the available domestic coal to reduce import dependency and sustain revenues from domestic coal industries.

Chaedar Indra Pramana, Suwanto Suwanto, Shania Esmeralda Manaloe, & Beni Suryadi are energy analysts at the Asean Centre for Energy.

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