The Ongoing Debate About the Role of the Most Polluting Fossil Fuel in Southeast Asia
The conversation surrounding coal, the most polluting fossil fuel, is intensifying in Southeast Asia as countries grapple with their energy needs and commitments to decarbonization. The region’s diverse economic landscape presents unique challenges in creating a unified framework for sustainable finance, particularly as nations find themselves at different stages of development and energy transition. This article delves into the complexities of Southeast Asia’s approach to coal, the implications of its taxonomy, and the broader context of sustainable finance in the region.
The ASEAN Taxonomy: A Unique Approach
In November 2021, the Association of Southeast Asian Nations (ASEAN) introduced its sustainable finance taxonomy, which stands apart from similar frameworks in other regions. Unlike the European Union’s stringent regulations, the ASEAN taxonomy is voluntary, not overseen by a regulatory body, and aligns with the current energy mix of the region. This flexibility extends to coal, which is treated with more leniency than in other taxonomies.
A recent report from the ASEAN Centre for Energy has further fueled the debate by suggesting a relaxation of the taxonomy’s stance on coal. The report argues that the International Energy Agency’s net-zero pathway is "overly ambitious" for Southeast Asia, citing concerns about the reliability of renewable energy sources like solar and wind, as well as the costs associated with upgrading grid infrastructure. Instead of a complete phase-out, the report advocates for a gradual phase-down of coal, reflecting the region’s ongoing reliance on this energy source.
Concerns Over the Future of Coal in the Region
The potential for a more lenient approach to coal within the ASEAN taxonomy has raised alarms among environmental advocates and investors. Christina Ng, managing director of the Energy Shift Institute, warns that extending coal power’s acceptance would undermine the region’s credibility in the eyes of international Environmental, Social, and Governance (ESG) investors. "These complaints are just a distraction," she states, emphasizing the need to focus on retiring coal, the most polluting fuel, rather than debating timelines.
The Challenge of Unifying Diverse Economies
The ongoing debate highlights the inherent difficulty of creating a cohesive framework for a region as economically diverse as Southeast Asia. Ramnath Iyer, Asia sustainable finance lead at the Institute for Energy Economics and Financial Analysis, points out that the region includes both affluent nations like Singapore and Brunei and less developed countries such as Laos and Cambodia. This economic disparity complicates efforts to establish a common taxonomy, often resulting in a diluted document that fails to meet the aspirations of all member states.
The ASEAN taxonomy was designed to be a living document, adaptable to new evidence and changing circumstances. However, any amendments would require public consultation, allowing stakeholders, including non-governmental organizations, to voice their concerns and push back against further relaxation of coal-related policies.
The Divergence of National Taxonomies
While the ASEAN taxonomy provides a regional framework, individual countries have their own national taxonomies that may diverge significantly. For instance, Indonesia remains heavily reliant on coal, with coal accounting for over 61% of its electricity generation in 2023. The country’s national taxonomy is even more lenient regarding coal plant retirement deadlines than the ASEAN framework, raising concerns about the interoperability of these taxonomies with the EU’s version.
Iyer emphasizes that the real risk lies not only in the potential dilution of the ASEAN taxonomy but also in the already lax standards of national taxonomies, particularly Indonesia’s. Without interoperability, the region may struggle to attract sustainable finance flows, which are essential for transitioning to cleaner energy sources.
The Role of Just Energy Transition Partnerships (JETPs)
Just Energy Transition Partnerships (JETPs) have emerged as international financing mechanisms aimed at helping developing countries reduce their dependence on coal. However, these initiatives have faced criticism for their slow implementation and inability to address the comprehensive changes needed for a successful transition. Despite the challenges, some experts argue that JETPs are essential for altering the baseline trajectory of countries with lower economic development.
The Rockefeller Foundation, while not directly funding JETPs, is working to mobilize capital for these initiatives. They are also exploring a "country platform" model, which would allow national governments to take ownership of the investment planning process, ensuring that it aligns with local needs and conditions.
Conclusion: Navigating the Path Forward
The debate surrounding coal’s role in Southeast Asia’s energy transition underscores the complexities of balancing economic development with environmental sustainability. As countries navigate their unique challenges, the ASEAN taxonomy and national frameworks will play a crucial role in shaping the region’s energy future.
The ongoing discussions about coal highlight the need for a thoughtful approach that considers both the immediate energy needs of Southeast Asian nations and their long-term commitments to decarbonization. As the region continues to evolve, the challenge will be to create a sustainable finance framework that reflects its diverse realities while promoting a cleaner, more sustainable energy future.