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Breaking Down Asia’s Role in the Global Energy Transition

Held from 4th to 7th October, the Future of Energy Week, a virtual event by the Economist, saw top figures from energy industries around the world come together to break down the energy transition, discuss the challenges that need to be overcome to reach net zero targets, and explore how changes in the global energy system will affect Asia and the rest of the world. Kicking off the event week was Energy Transition: The Importance of Asia, moderated by Dominic Ziegler, Senior Asia correspondent at The Economist.

The session saw four expert panelists discuss the vital role Asia has to play in the ongoing energy transition, and the challenges that have to be faced to ensure the transition’s success. The panel explored what the transition means for Asia and its diverse constituencies, how the region can wean itself off fossil fuels, and priority areas needed to speed up the energy transition.

What Does the Energy Transition Entail?

Opening the discussion was Laura Cozzi, Chief Energy Modeller at the International Energy Agency (IEA), who tapped on her experience in producing the annual World Energy Outlook report, the IEA’s flagship publication, to discuss what the energy transition means. According to Cozzi, Asia Pacific will play an essential part in a successful global energy transition for two main reasons:

  1. Dynamism of the region in terms of population and economic growth
  2. Region’s high reliance on fossil fuels

As Cozzie shared, the energy transition will need to focus on the electricity sector’s transition. While there have been incredible efforts to stop building new coal plants and renewables investing is experiencing an uptick, we are far from seeing the scale-up needed to properly decarbonise the power sector. In our roadmap to decarbonise the power sector, we will also need to electrify the economy very strongly, which will bring us a long way, but not to the end point of this transition. To make the impact needed, Cozzi says, we need to start transitioning our fuels to cleaner options.

Building on Cozzi’s point was Adair Turner, Chair of the Energy Transitions Commission, who reiterated the need to focus on decarbonising the electricity sector and electrifying as much of the economy as possible. As Turner says, the technological capabilities are there – we can decarbonise the economy without interfering with economic growth.

To get there, what is needed is a strategy not only for saying no new coal and have all growth of the power system to come from renewables, but also to exit existing coal before end of useful life. This could be done either by applying carbon capture and storage, by closing some of the older plants, or by running some of these coal plants at much lower utilisation, essentially migrating them to be a backup to the renewables system.

According to Turner, that is where there will be a concern as this will only occur if there are significant flows of climate finance. He says, “It’s now cheaper on a total system basis in almost all Asian countries to build renewables rather than building new coal, but it is not cheaper than the marginal cost of running existing coal. Somehow, we have got to cover that cost and that will require support, so that’s the bigger challenge.”

Tackling the Rise in Emissions from Developing Countries

Turning the discussion over to the inevitable increase in emissions from developing countries, Arun Sharma, Adani Group’s Head for Sustainability and Climate Change, approached the question of what the federal and state governments of countries like India would need to do to manage emissions as their economies develop, and what is needed from developed countries to support a cleaner transition.

In Sharma’s opinion, there first needs to be a better understanding that Asia is not a homogenous entity, but rather made up of economies at various stages of development. Concurrently, the global community has to realise that the responsibility of enabling a quick energy transition in developing countries needs to be shared by advanced economies, as the reality is that emerging economies like India’s are far smaller contributors to the climate problem.

He shares, currently, India’s per capita energy consumption is still many orders of magnitude lower than developed economies, and the country’s share of accumulated emissions is less than 1/30th of the European Union (EU) and that of the United States. Simultaneously, seeing as India’s goal of becoming a USD5 trillion economy will lead to an increase in emissions, the Indian government is already focusing on strategies to reduce its emissions intensity and increase the amount of renewables in its energy mix, up to 450GW by 2030.

As Sharma explains, coal is still very much needed in India’s energy transition as cleaner alternatives such as liquid natural gas, nuclear power and hydropower are prohibitively expensive or unviable due to the widescale ecological harm that will occur. The Indian government, has instead set their sights on green hydrogen, announcing aspirations for India to become a global green hydrogen hub.

However, the challenge in this area is bringing down the cost of producing green hydrogen. This is where the global West has to step in with the climate finance that has been promised since the 2015 Paris Agreement, and help India achieve the technological leaps it is attempting. As Sharma says, if India achieves their targeted lowered cost of green hydrogen components, the green transition will be easier for the rest of the world.

Financing Technological Innovation for the Climate Fight

Laura Cozzi further explains, the world is currently seeing a huge need for innovation of the type mentioned by Arun Sharma. However, Cozzi says, “what we need to fix right now is a people centered transition.” According to her, the financing mentioned by Sharma, of USD100 billion promised to emerging economies by advanced economies in the 2015 Paris Agreement, is a relatively small amount when compared to the size of the market discussed. Asia’s economies alone are measured in the trillions, so we need to work on attracting private investors to these areas.

Countering Adair’s earlier points that building renewable energy systems is cheaper than building new coal, Cozzi also explains that this is only true in places where capital can be borrowed cheaply. With financing for climate innovation being urgently needed, the priority now is to ensure capital is available at low cost for the clean energy transition in Asia and, subsequently, the rest of the world.

On the topic of investment, Adair Turner added that it is crucial for us to start getting precise about what we mean by climate finance. According to him, no details were laid out regarding the USD100billion a year promised in the Paris Agreement, including what form of financing this entailed, where the investments would be channeled to, or who would receive the investments. Providing clarity in these areas, will allow earlier exits from existing coal, and encourage faster progress to a green energy future.

Cozzi also touched on two other points which are critically important to accelerate the transition this decade in Asia – coal related jobs and affordability of electricity for the poorest consumers. There are approximately 15 million new jobs that can be created in the energy sector this decade but on the other hand, there are also 5 million jobs potentially at risk in coal and oil and gas extraction areas. Thus, the energy transition will not be a smooth road.

According to Cozzi, the global community can expect electricity price spikes as investments will not always arrive in a timely manner. It will be up to energy ministries around the world to ensure that this does not become an affordability issue, especially with the poorest consumers in mind, and those whose jobs are impacted by the transition are taken care of and given the opportunity to upskill themselves.

Geopolitics in the Energy Transition

According to Tom Ridsdill-Smith, Senior Vice President of Climate at Woodside, trade and cooperation will have a vital role in delivering an affordable and rapid energy transition for the world. As he explains, “The Paris Agreement, being very focused on national targets, is only going to get us so far and potentially, in some areas, can raise barriers to trade.”

According to Tom Ridsdill-Smith, Senior Vice President of Climate at Woodside, trade and cooperation will have a vital role in delivering an affordable and rapid energy transition for the world. As he explains, “The Paris Agreement, being very focused on national targets, is only going to get us so far and potentially, in some areas, can raise barriers to trade”.

He provides an example, saying, “If Australia were to produce either liquid natural gas or green hydrogen, it would potentially drive up Australia’s emissions, but then it goes into coal intensive Asian economies, say in Japan or Korea, where there’s limited ability to bring renewables into high production, and play a role in reducing their emissions.” Tom raised the important point of incentivising the trade of lower emission products and services – a question he hopes will be explored in the upcoming Conference of Parties (COP26) summit.

From Arun Sharma’s perspective, diversity of supply chain is a must for a quick energy transition. He says, “The world has benefitted from the manufacturing supply chain that China has been able to develop over decades, and it has brought the cost of many of our industries down, and it’s time as we look at the transition, [to ensure] this actually happens.”

Delving into geopolitics, Sharma shares that it will be beneficial for countries to work together to manufacture renewable energy equipment at lower cost locations, especially where there is existing demand for those types of energy. On top of this, instead of providing financing and incentives only for the production of green energy, countries need to do better in creating demand for clean fuels such as green hydrogen by mandating the decarbonisation of high emission sectors, such as what is being done with the fertiliser industry in India. Creating reliable demand for clean fuels, he says, will encourage the production of renewable energy and allow the cost of these fuels to plummet, benefitting the globe.

Global Cooperation is Crucial for an Accelerated Transition

In her closing statements, Cozzi shared the results of the IEA’s analysis that show that if every country were to rely on domestic innovation alone, it would take at least 30 years longer for a successful worldwide energy transition. As she explains, “None of the big cost reductions that we have seen in solar is actually in one country only. It was a ball that was kicked from one country to another, and we need to see this accelerated and multiplied in the range of many other technologies.”

Cozzi concluded that with the current nationally determined contributions, financing, and technology we are at risk of falling short of global emission targets. What more with the further risk that a two-speed world will emerge, such as what we are seeing with the vaccine today – where one part of the global economy transitions fast, while the other is left behind. In light of this, marking the end of the session, the panelists collectively agreed that solidarity in the face of climate change is a must, providing a powerful case for global collaboration and trade.

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