Asia’s Energy Challenge Energy Asia’s This book examines key issues and policy options in the development of Asia’s energy security. Rapid growth has transformed Asia’s presence in the world economy: Past growth has dramatically improved Asia’s living standards, lifting millions out of poverty. Future growth will do the same. But, crucially, can Asia secure the energy it needs to fuel this dramatic economic expansion? This book stresses that the threefold challenge of energy supply security, environmental sustainability, and affordable access requires a multipronged approach. The book also explains that the region must actively contain its rising demand, aggressively explore new energy supply sources and technology, and progressively promote the regional integration of energy markets and infrastructure. The book also highlights that, unless there is a paradigm shift in the current energy use, Asia will struggle to deliver the inclusive growth needed to lift millions of its citizens out of poverty. The book also considers the range of policy reforms and technological developments that can ensure a future of ample, affordable, clean energy for Asia. Minsoo Lee is a Senior Economist in the Macroeconomics and Finance Research Division of the Economics and Research Department at the Asian Development Bank (ADB). Prior to joining ADB, he was an Associate Dean and a tenured Full Professor at Peking University, HSBC Business School. His main research fields are international finance, international trade, applied econometrics, and energy economics. Donghyun Park is currently Principal Economist at the Economics and Research Department (ERD) of the Asian Development Bank (ADB), which he joined in April 2007. Prior to joining ADB, he was a tenured Associate Professor of Economics at Nanyang Park, Donghyun Minsoo Lee, by Edited Technological University in Singapore. Dr. Park has a PhD in economics from UCLA and his main research fields are international finance and trade. and Harry D. Saunders and Harry D. Harry D. Saunders conducts research in energy economics, evolutionary biology, and the law of evidence theory as his “hobby.” He earns his living by consulting to executive teams who face major, risky decisions. Research is driven by curiosity and is entirely self- Asia’s Energy Challenge funded. Harry enjoys the fact that he has numerous academic colleagues worldwide in each of these three disciplines. He has a PhD in engineering-economic systems from Key issues and policy options Stanford. Edited by Minsoo Lee, Donghyun Park, ECONOMICS and Harry D. Saunders www.routledge.com Routledge titles are available as eBook editions in a range of digital formats Cover image: © ADB Asia’s Energy Challenge This book examines key issues and policy options in the development of Asia’s energy security. Rapid growth has transformed Asia’s presence in the world economy: Past growth has dramatically improved Asia’s living standards, lifting millions out of poverty. Future growth will do the same. But, crucially, can Asia secure the energy it needs to fuel this dramatic economic expansion? This book stresses that the threefold challenge of energy supply security, environmental sus- tainability, and affordable access requires a multipronged approach. The book also explains that the region must actively contain its rising demand, aggressively explore new energy supply sources and technology, and progressively promote the regional integration of energy markets and infrastructure. The book also highlights that, unless there is a paradigm shift in the current energy use, Asia will struggle to deliver the inclusive growth needed to lift mil- lions of its citizens out of poverty. The book also considers the range of policy reforms and technological developments that can ensure a future of ample, affordable, clean energy for Asia. Minsoo Lee is a Senior Economist in the Macroeconomics and Finance Research Division of the Economics and Research Department at the Asian Development Bank (ADB). Prior to joining ADB, he was an Associate Dean and a tenured Full Professor at Peking University, HSBC Business School. His main research fields are international finance, international trade, applied econometrics, and energy economics. Donghyun Park is currently Principal Economist at the Economics and Research Department (ERD) of the Asian Development Bank (ADB), which he joined in April 2007. Prior to joining ADB, he was a tenured Associate Professor of Economics at Nanyang Technological University in Singapore. Dr. Park has a PhD in economics from UCLA and his main research fields are international finance and trade. Harry D. Saunders conducts research in energy economics, evolutionary biol- ogy, and the law of evidence theory as his “hobby.” He earns his living by con- sulting to executive teams who face major, risky decisions. Research is driven by curiosity and is entirely self-funded. Harry enjoys the fact that he has numerous academic colleagues worldwide in each of these three disciplines. He has a PhD in engineering-economic systems from Stanford. Asia’s Energy Challenge Key issues and policy options Edited by Minsoo Lee, Donghyun Park, and Harry D. Saunders Co-publication of the Asian Development Bank and Routledge First published 2015 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN and by Routledge 711 Third Avenue, New York, NY 100117 Routledge is an imprint of the Taylor & Francis Group © 2015 Asian Development Bank Typeset in Times New Roman by Sunrise Setting Ltd, Paignton, UK Printed and bound in Great Britain by All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Library of Congress Cataloging-in-Publication Data Asia’s Energy Challenge: key issues and policy options / edited by Minsoo Lee, Donghyun Park and Harry D. Saunders. pages cm Includes bibliographical references and index. 1. Energy security–Asia. 2. Energy consumption–Asia. 3. Energy resources development–Asia. 4. Energy policy–Asia. I. Lee, Minsoo. II. Park, Donghyun. III. Saunders, Harry D. HD9502.A782A767 2015 333.79095–dc23 2013050060 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Note: In this publication, “$” refers to US dollars. 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax +63 2 636 2648 [email protected] ISBN 13: 978-0-415-74930-5 (hbk) ISBN 13: 978-1-315-76853-3 (ebk) Contents List of figures ix List of tables xvii Notes on contributors xix Preface xxii PART I Asia’s energy challenge 1 1 An overview 3 MINSOO LEE, DONGHYUN PARK, AND HARRY D. SAUNDERS The challenge 3 Containing burgeoning energy demand 6 Tapping cleaner energy supply 16 Fostering regional market collaboration 25 Asia’s energy challenge, reprised 27 PART II Energy security, sustainability, and affordability 31 2 Oil security in Asia and the Pacific 33 DAVID ISAAK Introduction 33 Oil in context 33 Oil prices 37 Oil demand 42 Oil supply 53 Critical issues in oil security 61 Energy and financial markets in Asia 72 Summary of policy recommendations 76 vi Contents 3 Energy security, sustainability, and affordability in Asia and the Pacific 81 NORBERTO FUEYO, ANTONIO GÓMEZ, AND CÉSAR DOPAZO Introduction 81 Indicators 82 Indexes from 2010 to 2035 86 The benefits of integration 109 International benchmarking 117 Alternative scenarios 122 Conclusions and policy recommendations 127 4 Energy access and energy security in Asia and the Pacific 132 BENJAMIN K. SOVACOOL Introduction 132 Defining energy poverty and access 132 Energy access as an energy security concern 138 Financing sustainable energy for all 145 Policy recommendations 150 PART III Energy and the environment 159 5 The environment and energy security in Asia and the Pacific 161 BENJAMIN K. SOVACOOL Introduction 161 Climate change 161 Air pollution 166 Water quality and availability 167 Land-use change 169 Environmental impact of energy technology options 171 Conclusions 179 6 Macroeconomic impacts of energy efficiency improvements in Asia 186 DEEPAK SHARMA, SUWIN SANDHU, AND SUCHI MISRA Introduction 186 Methodological framework 187 Contents vii Macroeconomic impacts 193 Policy trade-offs and implications 212 PART IV Options for energy supply and integration 227 7 Diversification of energy supply: prospects for emerging energy sources 229 MICHAEL M. D. ROSS Introduction 229 Unconventional gas 229 Photovoltaics 257 Wind energy 271 Appendix: Formation