SINGAPORE: Southeast Asia’s decarbonisation efforts are falling short, despite more countries in the region committing to net-zero emissions, according to a report by Bain & Company, Temasek, with input from Microsoft.
After accounting for marginal improvements in emission levels based on the latest Nationally Determined Contributions (NDCs) and planned policies projections, the report found that no country in the region is expected to reach the emission reduction compatible with the 1.5 degrees Celsius scenario by 2030.
To meet that goal, countries would need to cut carbon dioxide emissions by at least 45 per cent by 2030 from 2010 levels, said the report, which was launched on Tuesday (Jun 7).
As the report outlined, the region still has a large emissions gap of 3 Gt (gigatonnes) CO2 - the equivalent of taking around 647 million cars off the road for a year.
This is despite eight out of 10 countries now having net-zero targets, up from just two countries a year ago.
"Southeast Asia is ... well short of where it needs to be on carbon and investment to reach 2030 goals," the report read.
Meanwhile, climate financing remains insufficient to spur further decarbonisation efforts and meet countries’ unconditional NDCs, the 108-page report found.
Current investment levels are at less than US$20 billion, far from the estimated US$1 trillion to US$3 trillion required to close the emissions gap.
While green, social, and sustainability bonds have grown rapidly in Southeast Asia - the value of bonds issued last year reached nearly US$19 billion - the report said the volume needs to increase 15 to 20 times in order to cover the investment gap by 2030.
"SEA (Southeast Asia) needs to move from promises to action and bridging the gap between opportunities and results will be a key milestone," said Dale Hardcastle, Partner and Director of the Global Sustainability Innovation Center (GSIC) at Bain & Company.
"We remain bullish on the US$1 trillion economic opportunities in SEA, but we need to step up as a region to strengthen the investable market and increase green capital flows,” said Dale Hardcastle, partner and director of the Global Sustainability Innovation Center (GSIC) at Bain & Company.
The report highlighted the need for updated roadmaps on national and key sector levels such as energy, as well as clear policies and incentives for fossil fuel phase-out to align with the new ambitions.
It pointed to Indonesia as an example, which is expected to implement a carbon tax for coal power in July. At the current level of 30,000 rupiah (US$2.08), the report said this remains insufficient to incentivise the transition.
The report also cited several challenges impeding greater investments and climate action in the region. These include a lack of incentives for needle-moving decarbonisation levers to scale quickly, insufficient focus on proven low-risk solutions, and a lack of clarity on system costs for energy transition.
Since 2020, US$15 billion in cumulative investments have been deployed with the majority going to renewables and built environment, the report said.
To bridge the gap and accelerate green investment, the report suggested adopting a more holistic decarbonisation program. It also proposed clarifying the full costs on transiting to renewable sources of energy, and defining funding sources and mechanisms to attract new investments.
To strengthen green financing, the report proposed that countries in the region leverage the financial services sector to develop abatement investment products that lower the cost of capital for businesses to transition.
Meanwhile, regional collaboration can be scaled up to unlock new potential and risk mitigation.
Speaking to CNA on Asia First, Temasek's chief sustainability officer Dr Steve Howard said that there are currently "5 billion years of sun reserves”.
“So if you can tap the sun and the wind, people realise renewables give you tremendous energy security," he said.
“And many areas, many countries are doubling down on renewables.”
Dr Howard added that it took about 70 years to generate the first trillion watts of solar power, but the next trillion will come in the next four years.
“The pace of change is incredible,” he said. “And the cheapest form of new energy is clean energy now. So investors are looking at that, businesses are, and governments are.”
With energy and agriculture being major sources of carbon emissions in Southeast Asia, the report outlined priority levers which could offer “concrete” investible opportunities today that will drive 60 per cent of the region’s carbon abatement potential.
This includes forest conservation, which is the largest carbon abatement lever in the region and will represent a US$20 billion opportunity by 2030, the report said.
Meanwhile, solar and wind represent a US$30 billion opportunity by 2030, with solar accounting for two-thirds of that. Corporate investment in renewable energy solutions is accelerating in the region and accounted for at least US$6.6 billion in corporate green investment since 2020, the report said.
They are forest conservation, renewable energy sources, electric mobility, sustainable farming and the built environment.