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Sea Change: Delivering a Zero Carbon Economy in Southeast Asia

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Sea Change: Delivering a Zero Carbon Economy in Southeast Asia REPORT OCTOBER 2019 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA CLAIRE HEALY AND TINA MARIE MARCHAND About E3G Copyright E3G is an independent climate change think This work is licensed under the Creative tank accelerating the transition to a climate Commons Attribution-NonCommercial- safe world. E3G builds cross-sectoral coalitions ShareAlike 2.0 License. to achieve carefully defined outcomes, chosen for their capacity to leverage change. You are free to: E3G works closely with like-minded partners > Copy, distribute, display, and perform in government, politics, business, civil the work. society, science, the media, public interest foundations and elsewhere. In 2018 E3G > Make derivative works. was ranked the fifth most globally influential environmental think tank for the third Under the following conditions: year running. > You must attribute the work in the www.e3g.org manner specified by the author or licensor. Berlin Neue Promenade 6 > You may not use this work Berlin, 10178 for commercial purposes. Germany +49 (0)30 2887 3405 > If you alter, transform, or build upon this work, you may distribute the Brussels resulting work only under a license Rue du Commerce 124 identical to this one. Brussels, 1000 > For any reuse or distribution, Belgium you must make clear to others the license +32 (0)2 5800 737 terms of this work. London > Any of these conditions can be waived 47 Great Guildford Street if you get permission from the London SE1 0ES copyright holder. United Kingdom +44 (0)20 7593 2020 Your fair use and other rights are in no way affected by the above. Washington 2101 L St NW Suite 300 Washington DC, 20037 United States +1 202 466 0573 Cover image www.istockphoto.com © E3G 2019 Design www.whatcommunications.com 2 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA Our partners Shift South East Asia (Shift SEA) The Shift SEA project and its partners encourage the shift of financial flows away from fossil fuels into low carbon energy in Vietnam, the Philippines and Indonesia by engaging with the relevant stakeholders to support the adjustment of national policymaking, investment frameworks and international financial institutions’ strategies in favour of sustainable energy solutions. For more information on the project and partners visit: https://www.e3g.org/library/shift-SEA-financial-flows-investing-low-carbon- development-southeast-asia Federal Ministry for the Environment, Nature Conservation and Nuclear Safety This project is supported by the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag. More information: https://www.bmu.de/en/ 3 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA Acknowledgements E3G would like to acknowledge the following people who kindly took the time to review all or part of this paper: Kavita Singh, Energy Transition Partnership; Melissa Brown, IEEFA; Adhityari Puri, GSCC; Russell Marsh, EY; Isabelle de Lovinfosse; Kathryn McPhail and consortium partners Nithi Nesadurai, Climate Action Network – Southeast Asia; Dean Bialek, Mission 2020; Mikael Melin and Florence Mazzone, SEforAll; and staff at E3G including Taylor Dimsdale, Shane Tomlinson, Nick Mabey, Chris Littlecott, Larissa Gross and Pedro Guertler. Thanks also to all our national partners, and James Hawkins and Dileimy Orozco from E3G for their part in the underlying political economy research and analysis. 4 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA Table of Contents EXECUTIVE SUMMARY ............................................................................................. 6 INTRODUCTION ...................................................................................................... 14 PART 1 WHY SHOULD VIETNAM, INDONESIA AND THE PHILIPPINES INCREASE THE PACE AND SCALE OF THEIR TRANSITION TO A LOW CARBON ECONOMIC GROWTH MODEL? ............................................. 21 CHAPTER 1 WHY? THE IMPERATIVE TO ACT ......................................................... 22 CHAPTER 2 WHAT NEEDS TO HAPPEN? ENERGY TRANSITION AND ECONOMIC TRANSFORMATION ................................. 32 CHAPTER 3 POLITICAL ECONOMY MISALIGNMENT WITH THE LOW CARBON TRANSITION ........................................................................................................... 42 PART 2 HOW CAN SOUTHEAST ASIA PROACTIVELY MAXIMISE VALUE IN THE TRANSITION TO A LOW CARBON WORLD? ............................................... 51 FIVE STRATEGIC PRIORITY ACTION AREAS............................................................. 52 REFLECTIONS AND RECOMMENDATIONS ........................................................... 102 ANNEX I: POLITICAL ECONOMY MAPPING OF INDONESIA, VIETNAM AND THE PHILIPPINES .......................................................................................... 112 5 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA Executive Summary Southeast Asia is one of the most vibrant and fastest growing economic regions in the world. Demand for energy services is growing extremely fast: since 2000 overall energy demand has grown by more than 80 per cent and the vast majority of this growth has been met by a doubling of fossil fuel use. This report is the final report for a project entitled ‘Shifting financial flows to accelerate the energy transition in Vietnam, Indonesia and the Philippines’. These countries were selected as the focus because as of July 2019 they collectively had a total of 49 GW of coal in their pipeline (announced, pre- permitted and permitted) – in addition to 25 GW under construction. The energy systems in Vietnam, Indonesia, and the Philippines are becoming more, not less, dependent on fossil fuels, and in turn their reliance on energy imports is growing. The projected increase in fossil fuel consumption, particularly coal, would lead to a 66 per cent rise in CO2 emissions to 2.4 gigatons by 2040. Put simply, should they build the coal-fired power plants currently in their pipeline, the Paris Agreement goals cannot be met. Southeast Asia is the only region in the world where the share of coal in the energy mix increased in 2018. In the same year, the Intergovernmental Panel on Climate Change (IPCC) issued a special report effectively saying there is no more atmospheric room for the emissions from coal power plants if we want to reach the 1.5 degree temperature goal set out by the Paris Agreement, and it is imperative that we do given the impact on lives and livelihoods if we stick to 2 degrees and overshoot. To this end, the task in hand is to decarbonise all economies so that they produce net zero emissions by 2050. Southeast Asia is a diverse and dynamic region growing in economic weight and carbon footprint, despite possessing extraordinary renewable energy resources, and having already benefited from their falling costs and many positive early deployments. In order to compete in a low carbon world, and hasten its onset, regional collaboration must be strengthened. In their 2019 regional outlook, the International Energy Agency (IEA) paints a picture of two very different scenarios out to 2040. This is one model of many, but it is a stark illustration of the strategic choice. 6 SEA CHANGE: DELIVERING A ZERO CARBON ECONOMY IN SOUTHEAST ASIA The first IEA scenario is based on policy frameworks and ambition in place today – it is called the Stated Policies Scenario (SPS). In the SPS, the share of renewables in power generation rises from a base of around 24 per cent of power generation coming from renewables today (18 per cent of which is hydropower) to 30 per cent. This places Southeast Asia far behind China, India, and other Asian economies and would result in a net energy trade deficit of over USD 300 billion per year and 650,000 annual premature deaths associated with air pollution, up from an estimated 450,000 in 2018. This path means that the carbon intensity of Southeast Asia’s power generation infrastructure would be responsible for almost half of the globe’s total energy-related emissions, up from 42 per cent today. Pause for a moment and reflect on that. Southeast Asia would be trending in the exact opposite direction of most other parts of the world, where the share of energy-related emissions declines as they replace fossil fuels with renewables, cut demand and electrify. There is an alternative low carbon development pathway for Southeast Asia. The IEA’s Outlook forecasts one possible version of what that could look like. In their Sustainable Development Scenario (SDS), coal demand peaks after 2020 and is cut by 80 per cent relative to the scenario outlined above. The share of coal in electricity generation falls to 4 per cent in 2040. From the base of 24 per cent in 2019, in this scenario the share of renewables in generation triples to around 70 per cent in 2040 – cutting the current emissions trajectory by 50 per cent with this one measure alone. The IEA provides a regional outlook and we know there are big variations between countries. Indonesia is a juggernaut compared to some other economies in the Association of Southeast Asian Nations (ASEAN) and warrants its own analysis. Not all countries will follow the same pathway or trajectory. Finding ways to work at the regional level is important to more efficiently share learning, build capacity and then support countries to make progress in the areas that resonate most. The region has considerable
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