In 2023, Southeast Asia spent around US$130 billion on oil imports – nearly four times what it spent on clean energy investments, according to the International Energy Agency (IEA)’s latest report, published on Tuesday.
As the region’s declining oil output makes it more reliant on foreign supply, its oil import expenditure could exceed US$200 billion by 2050 – which poses not only a “significant economic burden” to Southeast Asian nations, but exposes them to fuel price volatility risks “on a scale much greater than seen during the recent global energy crisis,” said the IEA.
Under existing national policies, Southeast Asia’s growing gas imports could also add another US$50 billion to the import bill by 2050.
Sparked off by the world’s largest oil and gas exporter Russia’s invasion of Ukraine in 2022, the global energy crisis has led to spikes in fossil fuel prices. While prices have since come down significantly, heightened geopolitical tensions in Europe and the Middle East – the source of 60 per cent of Southeast Asia’s oil imports – makes the region vulnerable to fuel price shocks.
During the 2022 energy crisis, Southeast Asia consumers had some degree of protection from global market volatility as governments intervened. But this came at a cost to the region, which saw fossil fuel consumption subsidies – measured by the difference between domestic fuel prices and their international market value – soar to a record US$105 billion, nearly 60 per cent above the previous peak, found the IEA.
While fossil fuel consumption subsidies are typically linked to socioeconomic objectives, such as to ensure energy access or reduce poverty, in practice they are highly regressive and often benefit higher-income households, said the global energy body.
In Indonesia, for instance, despite middle- and higher-income households accounting for merely 20 per cent of the population, they consumed at least 42 per cent of subsidised diesel and almost a third of subsidised liquified petroleum gas in 2022.
“Clean energy and greater electrification offer the main avenues to mitigate the risk from rising fuel import dependence,” wrote the IEA, which set up its first regional office outside of its Paris headquarters in Singapore on Monday.
The agency added that the global energy crisis “highlighted the need for careful and transparent pricing reform” that takes into account the impacts on the poorest households, while “[bolstering] the case for investment in cleaner and more efficient technologies and to relieve strains on public budgets.”
In order to meet Southeast Asia’s climate goals, the IEA estimates that the region’s current spending on renewables, grids and battery storage must scale by fivefold by 2035, to reach over US$190 billion.
With the exception of Myanmar and the Philippines, all nations in the region have enacted net zero targets.
Region has yet to decouple growth and emissions
Based on pledges made at the COP28 climate summit last year, the pace of Southeast Asia’s energy transition “is enough to weaken the link between gross domestic product (GDP) growth and emissions, but not sever it entirely,” noted the IEA.
In order to decouple economic growth and emissions, IEA suggested that beyond a planned doubling of the region’s renewable capacity under current policies, it also has to speed up energy efficiency upgrades, address methane leaks, expand grid and storage infrastructure, advance low-emissions fuels and phase out inefficient fossil fuel subsidies.
Scaling up clean energy financing in line with the IEA’s recommendations remained a point of discussion at the Singapore International Energy Week (SIEW) which commenced on Monday, despite the energy event’s headline sponsor calling for continued investments into oil and gas.
On one of SIEW’s panels on Tuesday, Gillian Tan, chief sustainability officer at the Monetary Authority of Singapore, made the plug for innovative financing mechanisms to meet the IEA’s suggested annual investments of about US$20 billion between 2026 and 2030 for Southeast Asia’s grid expansion.
“There will not be a transition without transmission. So we need to double down on investments in grid infrastructure and battery storage because of the firming requirements [i.e. maintaining the output from an intermittent power source like wind or solar for a period of time].”
Tan gave an example of how transition credits – a novel class of carbon credits generated from phasing out coal plants early, which the central bank mooted a year ago – are being piloted in the Philippines to fully account for not just the costs needed to enable a just transition and renewables replacement, but battery storage.
To increase the volume of blended finance deals in the region, she also pointed to the need to move beyond the current approach of looking at individual transactions, to establish “operating platforms” that aggregate the risks and returns from a range of investors.
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If you ask the question of what would drive decarbonisation faster, I don’t think the answer is finance… As long as governments exercise their duty to [dismantle fossil fuel subsidies and price pollution], money is going to flow.
Assaad Razzouk, chief executive officer, Gurīn Energy
However, Assaad Razzouk, chief executive of Singapore-based renewable power developer Gurīn Energy, said that removing fossil fuel subsidies – which reached a record US$7 trillion in 2022 – and making polluters pay would go a longer way in accelerating the region’s transition away from climate-warming energy sources, compared to tinkering with financing instruments.
“At the moment, the oil, gas and coal industries pollute freely because they don’t pay the price for either the pollution they pump into the sky or the pollution in your plastic bottles and probably in half the clothes you’re wearing, which are all made from oil and gas. Unless we price that, I can’t even consider financing instruments,” said Razzouk on a separate SIEW panel on Wednesday.
“Money follows bankable projects and bankable structures. Nothing’s going to change that equation. So the problem, 99 per cent of the time, is not about financial systems, capabilities or structures; it’s not about getting more money from the World Bank, the Asian Infrastructure Investment Bank or whoever. We already know that renewable energy is the cheapest source of energy in the history of the world. So if you ask the question of what would drive decarbonisation faster, I don’t think the answer is finance,” he said.
“60 to 70 per cent of the finance is already present locally in all these countries… As long as governments exercise their duty to [dismantle fossil fuel subsidies and price pollution], money is going to flow. And I think we’re all going to be surprised by the speed at which we’re going to decarbonise in this part of the world. It’s going to be faster than projections.”
