Remarks by Ashok Lavasa, ADB Vice President for Private Sector Operations and Public–Private Partnerships, at the T20 Summit 2022, 5 September 2022, Bali, Indonesia
Good morning, ladies, and gentlemen. On behalf of the Asian Development Bank, it is my honor to speak to you about how to facilitate a green and just energy transition in Asia and the Pacific.
Asia-Pacific is at the frontlines of climate change
Climate change is the biggest threat to human health and the global economy. It can push millions into poverty, endanger lives and disrupt our drive toward sustainable development.
Combined with the continuing pandemic impact, climate change particularly hurts the poor and vulnerable, women and girls, and small island nations. The recent global energy crisis has only made it worse.
Our region is highly susceptible to climate change. In 2020 and 2021, nearly 40% of the disasters worldwide occurred in Asia and the Pacific. Within the region, most happened in East, Southeast and South Asia. Despite its small land mass, the Pacific experiences over 5% of the disasters. Millions of people are displaced each year.
Climate change damages both economies and finance. For example, a 2020 McKinsey report estimates that by 2050, our region may lose about $1.2 trillion each year in capital stock due to flooding alone.1 And Asia may lose on average between $2.8 trillion and $4.7 trillion in annual gross domestic product annually by 2050 as people are unable to work outdoors for long hours because of increased heat and humidity.
A report by the Swiss Re Institute shows that economic losses could rise to about 18% of GDP by 2050 in the worst-case scenario of a 3.2-degree Celsius increase, in other words, if no action is taken to mitigate climate change effects.
Asia-Pacific is the biggest contributor to climate change
Asia and the Pacific is at the frontlines of climate change. Today, the region is the largest contributor to global annual CO2 emissions, mainly from the burning of fossil fuels. The region generates more than half of global annual CO2 emissions. By comparison, the European and North and Central American regions contribute about 16%.
Asia continues to industrialize, and with overall population growth, it is likely the region’s share of global annual CO2 emissions will only increase if we don’t take action now.
One major reason for the large share of global CO2 emissions is the region’s continued heavy dependence on coal for electricity and heating.
The average share of coal power in electricity generation in Asia and the Pacific rose from 40% in 1990 to over 50% by 2020. This was when the world’s average share of coal in electricity generation remained around 40% for over the last 30 years. In the European Union, it fell from 40% in 1990 to 17% in 2020.
Asia-Pacific needs to accelerate its green energy transition
To reduce the region’s contribution to climate change, a first step is to prioritize energy efficiency and renewable energy.
The share of renewable energy in generating the region’s electricity grew from 21.6% in 2015 to 24.3% in 2019. However, the share of renewable energy remains lower than the world average. And the gap increased in 2019. By comparison, the share of renewable energy use in the European Union in 2019 was around 34%.
It is important that G20 members support Asia and the Pacific’s green energy transition by finding ways to boost financing and narrow the technology gap.
To this point, let me mention two findings from the International Energy Agency.
First, to achieve net zero, we will need to double our capital investments. More than half of this investment over the next 30 years will be on electrification of the energy system including the expansion and upgrade of clean and efficient electricity generation, transmission, and distribution systems.
Second, the majority of CO2 emission reductions by 2030 will come from technologies available today. Yet by 2050, nearly half the reductions will come from technologies that are currently being demonstrated or prototyped. This highlights the importance of research and development, which is central to our discussions at today’s T20 Summit.
Ensure the green energy transition is just
Another critical aspect of the energy transition is that we must ensure it is a “just” transition. This requires all of us to apply the same level of commitment―to ensure the energy transition is just, inclusive, and sustainable.
Countries can all achieve their long-term national and climate goals while ensuring that no one is left behind―and the rights of vulnerable populations and future generations are protected.
The IEA estimates that the green energy transition will generate a net gain in new jobs in the clean energy and mining sectors. But it is important to remember that while these new jobs will outpace losses in fossil fuel sectors, we must address these job losses as countries transition from coal, oil, and gas.
Workers, communities, and women must be protected from the negative impacts of the energy transition, for example, through social protection measures.
More than half of the new jobs in the clean energy sector are highly skilled, with over a quarter medium skilled. Countries must work to ensure their people possess the right education and skills for future green jobs.
Headwinds facing the green energy transition
Of course, there are some headwinds as countries transition into green energy.
First, the COVID-19 pandemic limited the available fiscal space. Over the last 2 years, expansionary fiscal programs to support businesses and households have worsened fiscal positions while virus containment measures slowed economic activity. Many in Asia recorded fiscal deficits during the 2019-2021 period, where averages, in percent of GDP terms, are even worse than those during the Global Financial Crisis.
Second, Russia’s invasion of Ukraine sent shockwaves across the global economy, causing oil and commodity prices to surge.
Asia and the Pacific is vulnerable to these price fluctuations, as many continue to rely heavily on oil imports. The region must invest in energy efficiency and renewable energy to diversify the supply mix with cheaper and low-carbon energy resources.
Key policy priorities
I see four important policy priorities:
- Increased financing;
- Foster greater private sector participation using innovative financing schemes.
- Build capacity and the right kind of knowledge; and
- Strengthen international cooperation and national policies on climate mitigation and adaptation.
Increase financing for a green and just energy transition
ADB is piloting an innovative Energy Transition Mechanism (ETM) in Southeast Asia to accelerate the move out of coal to clean energy.
It has three goals: the early retirement of coal-fired power plants; scaling up clean, renewable energy solutions; and ensuring the transition is just and affordable.
Concessional funds can mobilize large amounts of private financing, creating a pool of low-cost capital to retire or repurpose coal plants. It can simultaneously unleash new investment in clean energy, grid, and energy storage.
Country-specific ETM funds will be supported by donor funds and capital from private institutional investors, international finance institutions, and other public or private sources.
Feasibility studies have been conducted for Indonesia, the Philippines and Viet Nam to develop optimal business models and transaction structures.
Once scaled up, ETM has the potential to be the largest carbon reduction model in the world. For example, if we can retire 50% of the coal power plants over the next 10–15 years in Indonesia, the Philippines, and Viet Nam, we will remove 200 million tons of CO2 emissions per year―equivalent to taking 61 million cars off the road.
Foster greater private sector participation through innovative financing schemes
We must innovate financing to attract more private sector interest in the green energy transition.
We are partnering with the private sector on two main initiatives.
The first is with Temasek, HSBC, and Clifford Capital Holdings under the Asset Regeneration Platform to build green infrastructure in Southeast Asia. REGEN will initially focus on Indonesia and Viet Nam in areas struggling to attract commercial financing.
The second is with the Bloomberg Family Foundation and the Goldman Sachs Charitable Gift Fund through the Climate Innovation and Development Fund. It will support the clean energy transition in South and Southeast Asia, initially focusing on India and Indonesia.
ADB launched the ASEAN Catalytic Green Finance Facility in April 2019 to accelerate green infrastructure investments in Southeast Asia. It helps governments prepare and finance infrastructure projects, lowering risk and thus making them more attractive to private capital investors.
The Green Recovery Program is linked to the ACGF and aims for a green, climate resilient recovery from the pandemic. Catalyzing climate finance from both private and public sources will support at least 20 high-impact, low-emission sub-projects in the region.
Build capacity and knowledge to support a green and just energy transition
Increased finance is necessary but not sufficient. Countries need to build new knowledge and the capacity to support a “just” energy transition.
At ADB, we launched a technical assistance platform, called “NDC Advance” to support countries implement their nationally determined contributions. It provides knowledge as countries translate Nationally Determined Contributions (also known as NDCs) into climate investment plans and identify climate projects. It helps countries mobilize finance. And it builds the capacity which countries need to develop ways to measure, monitor, and report progress on NDCs.
Knowledge and capacity building is also needed to support climate adaptation and build climate resilience, especially among poor and vulnerable communities.
Our Community Resilience Financing Partnership Facility helps scale up community investments in climate adaptation. It offers technical assistance and grants to create knowledge and research, support the preparation of large-scale bankable adaptation investments, and build capacity of local governments, communities, and institutions.
Strengthen international cooperation and national policies to foster climate mitigation and adaptation
Finally, there is a need for urgent and collective action on climate change. We must strengthen international cooperation and domestic policies that support both climate mitigation and adaptation measures.
There is work globally at the World Trade Organization and regionally at the Asia-Pacific Economic Cooperation to reduce trade barriers on environmental goods―such as solar panels, wind turbines, along with equipment for environmental monitoring, analysis, and assessment. These goods are crucial to support climate mitigation. We need to reduce or eliminate trade barriers to make these products more affordable and accessible.
Carbon pricing is another key element in overall climate policy. The two most common direct carbon pricing instruments are carbon taxes and emission trading schemes. Worldwide, 68 carbon taxes and emissions trading schemes are now operating.
There is growing momentum for carbon pricing in Asia and the Pacific, with six initiatives operating nationally. Japan and Singapore use carbon taxes, while Kazakhstan, New Zealand, the Republic of Korea, and People’s Republic of China launched national emissions trading schemes. More recently, India launched a national carbon trading platform.
Other countries like Indonesia, Viet Nam, Thailand, the Philippines, and Pakistan are also introducing carbon pricing instruments.
Still, carbon prices in Asia are too low and a fraction of those in the European Union. More work is needed to raise carbon prices and increase carbon taxes in our region.
In closing, let me reaffirm ADB’s commitment to support our developing member countries in transitioning to a greener and more prosperous, inclusive, resilient, and sustainable Asia and the Pacific.
Thank you, and I look forward to our session and further discussions.