What can you do with US$300 billion (10.3 trillion baht)? For Southeast Asian nations trying to fund the construction of solar plants or wind farms, the answer is -- not that much. The recent conclusion of COP29 tells us that the region cannot wait for developed nations to raise that bar. Solutions need to come from within, and one possibility is policy.
At the 2024 UN Climate Change Conference -- better known as COP29 -- developed nations agreed on US$300 billion as a climate finance goal to help developing nations. The Asian Development Bank has estimated, however, that Southeast Asia alone needs US$210 billion annually to meet its renewable energy transition needs.
Investment in renewables is an urgent requirement because Southeast Asia's GDP growth is still incredibly carbon intensive. The region stands to lose out on growth opportunities as the likes of China and India incentivise their domestic green industries with pro-decarbonisation policies, and Southeast Asia risks being unable to respond to increasingly tough environmental requirements in Europe.
COP29 emphasised private capital solutions and individual country commitments to accelerate Southeast Asia's energy transition. Yet, private participation is contingent upon commerciality. Investment and financing decisions must be financially viable, which can happen only if regulatory policy creates a conducive environment.
The Southeast Asian urgency
Data compiled by the International Energy Agency shows that across many advanced economies, carbon emissions have been declining since 2007 -- even as GDP has continued to rise.
This decoupling of GDP from emissions is not as stark in the emerging economies, but is nonetheless clear. The size of China's economy is 14 times of what it was in 1990, but the country's emissions are only five times of what they were then. In Africa and Latin America, too, economic activity and emissions are on diverging pathways. In Southeast Asia, unfortunately, both GDP and emissions in the region have increased by almost the same factor.
Energy is the biggest contributor to carbon emissions, so Southeast Asia's decoupling requires rapid adoption of renewable energy. Yet, capacity build-out on the renewable energy front has been insufficient to meet demand. Coal continues to be the region's dominant energy source.
The stakes may be known, but perhaps bear reiterating. The Association of Southeast Asian Nations is looking at a potential 11% loss of GDP by the year 2100 from climate change risks. Flood-risk zones house 87 million people. Five of the 20 countries in the world that will be most affected by extreme weather events are in this region.
Commonly cited reasons for continued reliance on fossil fuels include energy security and job security; but these factors also need to be balanced against longer-term risks of climate change -- including floods, drought and heat -- which also threaten food security and public safety.
Why must policy come first?
While private capital has a role to play in the energy transition, it cannot be expected to bear this burden alone. Climate change is a collective problem and needs a collective solution.
Meanwhile, positive socioeconomic developments have always been driven by policy and regulation. This is the case for health, workplace safety, education and equality. Markets with successful decoupling of economic growth and emissions have achieved this with a combination of compulsory regulation, economic incentives, voluntary action, taxation and government services.
Returning to the example of China, we find mandatory requirements for the energy, transportation, building and industrial sectors. The country is also adding renewable energy capacity at a world-beating pace while slowing the pace of its thermal energy expansion. In the first half of this year, 133.3 gigawatts (GW) of renewable capacity was added -- representing a 25% increase. In comparison, fossil fuel capacity added was 18.3 GW -- representing a decrease of 30%.
China also subsidises renewable energy production and electric vehicle purchases, and offers preferential tax treatments to encourage the development of renewable energy capacity. There are taxes on fossil fuels, as well as both mandatory and voluntary carbon markets.
China's successful energy transition has made it the focus of much study and analysis, all of which point to the power of ecosystem coordination possible through policy and planning.
Taking stock
There are many ways to measure progress on climate change. We can look at carbon emissions and how they are changing annually. We can tally spending on mitigation and adaptation or on renewable energy capacity. We can measure sea levels, rainfall, temperatures and the number of extreme weather events. All of these are important markers of progress, and they will continue to matter. They are, however, lagging indicators that merely tell us the extent to which our actions are producing results.
The leading indicator -- and perhaps the most important progress marker -- is the policy framework we put in place to induce action among both individuals and institutions.
From this perspective, most countries around the world -- including Southeast Asia -- are behind. The Climate Action Tracker, an independent scientific project that tracks government measures, shows a significant gap between stated intentions and policies or actions. Many developing and developed countries' policies are rated "insufficient" and "critically insufficient" to achieve net zero targets. There is an urgent need to close the gap between intention and action.
At this year's COP, we continued to hear a deep focus on energy transition -- the need to grow renewables, upgrade and improve transmission and distribution, and improve end-use energy efficiency.
This energy transition requires significant investment, but with the $300 billion financing agreement coming out of COP29 falling short of the estimated $1.3 trillion required on an annual basis to hit net zero targets, we need to think about how to leverage our efforts and drive additional private capital into this space.
Some investments in energy transition infrastructure will require large domestic and government-to-government interventions, but many can also be driven by real-economy decarbonisation efforts.
As we have seen, the right policy environment can support accelerated investment in the real economy -- in existing technologies and solutions that can support our efforts to limit global warming to 1.5C -- while not limiting our economic growth.
As we look towards COP30, where countries are expected to announce more ambitious and aligned goals and plans, the groundwork needs to be put in place for us to accelerate our progress and catch up on what we have already missed.
Melissa Moi is Head of Sustainable Business, Group Corporate Sustainability Office, UOB.