By Manon Stravens
Fossil fuels will continue to dominate energy consumption in Asia in the coming decade. This creates a huge challenge for the region to align with the Paris Agreement: the global consensus to limit the global temperature rise to 1.5 ºC at max. While wind, solar, and geothermal energy production are growing in some countries, the production of fossil fuel power is still increasing as well. How can Asia overcome the barriers for a Just Energy Transition?
How ready is the region to achieve a Just Energy Transition? A new report, commissioned by Fair Finance Asia (FFA) and Stockholm Environment Institute to Profundo and Philippine research organization SDRI, analyses the different barriers for a Just Energy Transition: a fair and equitable process of moving towards a post-carbon society. Conclusion: the challenges are enormous. But there is potential to turn the tide, and financial institutions have a role to play.
With some exceptions, Asian financial institutions at present are not at all using their financial leverage to further the required transition. An extensive analysis of energy sector financing and investments by Asian financial institutions in the period 2016-2022 shows that renewable energy accounted for only 14% of Asian banks’ energy financing during the period.
Climate policies across Asia are partially to blame for this. Case studies of thirteen Asian countries reveal that climate commitments are insufficiently aligned with a 1.5 ºC scenario in all counties. All countries are still planning to add new fossil fuel-based power plants, in many cases coal-fired power plants. In this context, the simultaneous growth of renewable energy production leads to an energy addition rather than an energy transition, and GHG emissions will not reduce.
Fossil fuel subsidies
Other policies and interests hamper the transition in Asia. For example, fossil fuel subsidies in nine Asian countries are difficult to abolish because of the vested interests in the fossil fuel sector. And because politicians fear losing popular support. This is especially the case in countries with a large coal mining industry such as China, India, and Indonesia.
Furthermore, national electricity companies control access to the grid and can almost unilaterally determine power procurement plans. As a consequence, no Asian country - apart from India and the Philippines - offers attractive conditions to independent power producers to develop renewable energy projects. Where carbon taxes are adopted, they are much too low to have a meaningful impact. Carbon trading schemes have not been well-developed yet and carbon prices are too low.
And last but not least, there is also a widespread belief in Asian government circles that a larger share of renewable energy will lead to higher electricity prices and to a less reliable electricity supply.
Taxonomies fall short
Asian financial institutions could play an important role in supporting a Just Energy Transition, but only few have committed concretely to stop financing coal and implement a net-zero strategy. Related to that, the taxonomies of Asian financial regulators fall short of labelling investments in coal as non-sustainable. When and how other fossil fuel investments should be phased out is not indicated.
While the pressure to reduce or abolish fossil fuel subsidies is growing, alternative policies which compensate consumers and other fossil fuel dependents still need to be developed. Government policies considering gendered impacts and impacts on vulnerable groups of the energy transition process are largely absent. And little attention is paid to the potential consequences of renewable energy production for, for example, water usage, land rights, and food security.
To accelerate the Just Energy Transition in Asia, the study therefore formulates clear recommendations for governments, companies, financial regulators, and financial institutions, grouped around nine principles:
1. No financing for new coal projects for electricity generation and phasing out existing coal-based power generation. For example, national scenarios should include a ban on all new coal projects and a detailed phase out-plan for existing coal-based power generation.
2. Development of a time-bound transition away from other fossil fuels for electricity generation. Fossil fuel subsidies should be abolished and a high carbon tax introduced. Energy companies should close, not sell, fossil fuel infrastructure and engage in responsible decommissioning as part of a just transition.
3. Active investment in renewable energy generation. Financial institutions should take a proactive approach to support renewable energy projects get off the ground. Some Chinese and Singaporean banks and some investors from China and the Philippines are transitioning towards renewable energy. This trend should point the way for other financial institutions across Asia, especially in Japan, China, and India, which are still funding fossil fuels massively.
4. Long-term planning and strategies to mitigate the adverse environmental and social impacts of renewables. This includes the exploration of strategic land use options and technologies for less land-intensive deployment of renewable energy, such as offshore wind projects and solar energy projects combined with agriculture. A social dialogue to foster accountability along the development process is required too.
5. Respect for land rights and Free, Prior and Informed Consent (FPIC), and clear policies for community participation, gender sensitivity and consultation with civil society organizations (CSOs) in large energy projects. Land should be acquired in a just manner, compensations must be adequate, and the adverse impacts on communities and the environment should be minimized. Communities should be strengthened to ensure full, meaningful and effective participation throughout the whole project.
6. Protection of the rights of workers and mainstreaming of Human Rights Due Diligence (HRDD) during the energy transition. Governments and energy companies should provide employment services and vocational training for workers to be transitioned to other sectors. Decent jobs need to be created, with equal opportunities for women, youth, and minorities. Financial institutions should embed human rights due diligence in their funding decision processes on energy transition programs and plans, both of governments and companies.
7. Safeguarding the health, livelihoods, culture and heritage of communities impacted by the continued use of fossil fuels. Governments should require environmental and social impact analyses for energy project applications.
8. Active and meaningful engagement and participation of women in the energy transition. National climate and energy policies should be sensitive to women’s rights, and create opportunities to build the skills of women. Energy companies should increase gender diversity.
9. Investments in access to electricity for all. This entails the establishment of new mechanisms to compensate low-income households which spend a significantly higher proportion of their income on energy, promote off-the-grid renewable energy solutions and subsidize access to renewable energy where needed.
This expert view is written by Manon Stravens, based on the report “Financing the Just Energy Transition in Asia - Actions by key actors to address the challenges” published in December 2022. This report was researched and written by Jan Willem van Gelder, Angie Zafra, Lernie Shayne Garcia, Krityavara Wongsa and Arthur Rempel, with contributions of Yu Chen and John Arvin Bernabe. The study was published by Fair Finance Asia (FFA) and Stockholm Environment Institute (SEI). It was supported by the Swedish International Development Cooperation Agency (SIDA) through the Embassy of Sweden in Bangkok, Thailand. For more information on the report please contact Jan Willem van Gelder.
About Fair Finance Asia
Fair Finance Asia (FFA) is a five-year program funded by the Swedish Government through the Swedish Embassy in Bangkok, Thailand. This network of civil society organizations in Asia works to ensure that financial institutions operating in Asia are transparent and accountable to Environmental, Social and Governance (ESG) criteria in their business activities and investment decisions.
FFA aspires to reduce inequality in Asia by creating an enabling policy environment for integration of social and environmental considerations among financial institutions (FIs) and regulators in the region and ensuring that FIs advance the interests and needs of local communities towards their well-being.
Currently, FFA is operational at the regional level and in eight countries across Asia, namely - Cambodia, India, Indonesia, Japan, Pakistan, Philippines, Thailand, and Vietnam. FFA’s regional Executive Team is stationed in Phnom Penh, Cambodia. More information: www.fairfinanceasia.org