Towards Green and Inclusive Growth in Asia: Perspectives from the Energy Sector

Speech by ADB President Takehiko Nakao on 11 June 2013 at the 19th Conference of Montreal - A New Economic Cycle: New Realities, New Frontiers in Montreal, Quebec, Canada

Introduction

Good morning Mr Jacques Daoust, Chairman of the Board, President & CEO of Investissement Quebec and Mr. Strobe Talbott, President, Brookings Institution, distinguished guests, ladies and gentlemen.

In the last 40 years, we have made tremendous achievements in economic growth and in reducing poverty in Asia and the Pacific. In 2010, Asia produced 28% of global GDP. According to the Asian Development Outlook 2013, under a 6% annual growth scenario, this figure could rise to 44% by 2035.


Developing Asia - World's Largest Energy Consumer in Two Decades: Asian Development Outlook 2013

However, Asia's growth has come with environmental costs. Material standards have increased but at the steep price of environmental degradation and resource-intensive growth. Developing Asia’s share of world energy consumption is projected to rise from 32% in 2010 to over 50% by 2035. In the context of climate change, this is a real challenge.

In addition, growth has been uneven, and many Asians are not yet enjoying the benefits of growth. The gap between Asia’s rich and poor has widened significantly in the past 2 decades. More than 800 million Asians still live on less than $1.25 per day and are in absolute poverty.

Achieving sustainable growth

To achieve sustainability, we need to simultaneously look at the economic, environmental, and social dimensions of growth. My speech today focuses on three key points: First, Asia needs to move toward green growth; second, we need more inclusive growth; and third, we need to address the financing and knowledge gaps. In addressing these points I will focus on energy and natural resources management challenges. In addressing these points I will focus on energy and natural resources management challenges.

First, green growth.

The need to de-couple economic growth from the intensive use of natural resources is clear. Resource constraints and climate risks are damaging our food, water, and energy security. Global demand on our ecosystems is estimated to now exceed the earth’s regenerative capacity by more than 50%. And this gap is widening more rapidly in Asia than elsewhere, threatening prospects for continued growth and poverty reduction.

Nowhere is the need for transformation greater and more evident than in the energy sector. Under current trends, fossil fuels would be the main source for meeting Asia’s increasing demand for energy in the coming decades. By 2035, Asia’s CO2 emissions would double to more than 20 billion tons per year - nearly half of global CO2 emissions. A transition to cleaner, renewable, more efficient energy systems is essential to our green growth efforts.

Transport is Asia’s fastest growing source of CO2 emissions. In the past decade, the total number of vehicles including motorbikes in Asia has more than doubled to over 450 million. This may get out of hand if China and India - currently standing at 47 and 18 vehicles for every 1000 people respectively - follow the US pattern of 802 vehicles. Asia clearly needs to invest more in sustainable transport systems, and to prioritize mass rapid transit, railways, and inland waterways rather than individual vehicle ownership.

At the same time, we need to reverse the decline of natural resources by investing more in their sound management. Our region has some of the world’s largest and most diverse ecosystems. These provide the “natural capital” that supports livelihoods, food production, water and energy security, and resilience to climate change.

In this area, ADB supports the Heart of Borneo program, which is helping to conserve one of the world’s most critical - and threatened - rainforest areas, known as the “lungs of Asia”. Reducing illegal logging and poaching, and developing livelihood opportunities for forest communities are among the areas that the program works on.

Let me turn to the second key issue - the challenge of inclusion.

To eradicate poverty and create more inclusive development, Asia needs to promote growth that creates jobs and provides economic opportunities for all. Asian countries need to invest more in basic services, such as education and health care, and access to energy and water. And they need to strengthen and expand social safety nets to reduce risk and vulnerabilities.

Again, the energy sector is an excellent example. While countries such as Bhutan, China, Malaysia, Thailand, and Viet Nam have achieved universal or near universal energy access, about 700 million Asians still do not have access to electricity. Nearly all live in rural areas. If policies do not change, 350 million people could still be without electricity in 2030. This is not acceptable.

ADB’s Energy for All Partnership is trying to ensure this doesn’t happen. The Partnership - launched in 2009 - is on track in providing access to modern energy to 100 million people by 2015. It brings together the private sector, financial institutions, governments, and nongovernment organizations to scale up investments in energy access through better knowledge management, capacity building, and project development.

The third element of sustainability is finance - or what we call finance ++ at ADB.

ADB is transforming itself in line with the rapidly changing needs of our client countries. Our goal is to bring more value to our member countries by providing not only finance - which still remains vital - but finance plus leverage plus knowledge.

Regarding leverage, massive investments are required to move the green growth agenda forward and increase the availability of newer energy technologies. Thus, we are intensifying our efforts to leverage external finance. In addition to bilateral official sources and existing private sector financing, we are exploring nontraditional sources such as pension funds, sovereign wealth funds, and other philanthropic funds. We also need to help countries gain better access to concessionary resources for green growth, such as the Climate Investment Funds, Global Environment Facility, and Green Climate Fund.

In terms of knowledge, we know that development solutions and expertise are essential for moving the agenda forward. Drawing more systematically on our experience in designing and implementing development projects will be essential. Reforming policies, building institutions, and accelerating new technology development and deployment all involve knowledge capture, management and sharing.

Here I can mention another ADB example which combines innovative financing and knowledge: The Climate Public-Private Partnership Fund in which we have made an equity investment of US $ 100 million. This $1+ billion investment vehicle is set up to mobilize both the public and private sectors including financing from pension funds and sovereign wealth funds. Through this fund, ADB will expand its traditional role of financier and bring to the table its development knowledge and experience. We will participate in fundraising, deal sourcing, risk mitigation and fund management activities of a private equity fund. Our vision is to offer investment products attractive enough to commercial investors, so that we can enhance our impact on financing.

Conclusion

In conclusion, I would like to stress that where there are challenges, there are also opportunities. Asia’s rapid growth presents a number of critical challenges - including its efforts to combat global climate change and the need for more inclusive growth. These will have to be tackled, and the sooner the better. Many believe, for example, that it is in Asia where the climate change battle will be won or lost.

We must accelerate the transition to more sustainable and inclusive growth. Together, as partners in development, we can ensure Asia and the Pacific will contribute to a prosperous future for all.