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Putting People at the Heart of Malaysia’s Energy Transition Policies

The Paris Agreement acknowledges the importance of aligning climate change initiatives with the broader aim of achieving inclusive and sustainable development. As the world rushes to limit global warming to under 1.5°C, transitioning from fossil fuels to clean energy will bring new jobs and opportunities, but it will also pose social disruptions across the energy value chain.

If not accounted for, adverse social impacts on the workforce, supply chain, and broader community may even outweigh the benefits of a net zero future. Successfully transitioning to a well-functioning, inclusive, and low-carbon economy can only happen when it is just – or when people have access to equitable socio-economic growth opportunities, and no one is left behind.

Governments and businesses must reinforce their efforts to deliver the leadership that the climate crisis really needs: leadership that has justice at its heart. This holds especially true for ASEAN, a region that is highly reliant on fossil fuels to meet its growing energy demand – putting it on a pathway to becoming one of the largest greenhouse gas (GHG) emitters in the world.

ASEAN has risen quickly, but so have the region’s environmental issues

ASEAN has enjoyed robust and steady economic growth over the past few decades, despite headwinds including the Asian financial crisis of 1997 and the global financial crisis of 2008-2009. Data from the World Bank shows that the region’s GDP in purchasing power parity (PPP) has grown at a staggering compound annual growth rate (CAGR) of 4.7% from 1991 – 2021.

One of the many common structural drivers behind ASEAN’s explosive growth was the region’s sectoral move from agriculture to more manufacturing and services. As a result, many nations have seen the emergence of a dynamic and thriving middle class – but this has equally led to surging levels of energy demand, growing at an average rate of 3.0% annually from 2000 – 2020.

Much of the rise in energy demand was met by fossil fuels, which accounted for 77% of the region’s total primary energy supply (TPES) in 2020. In turn, carbon dioxide emissions increased faster in Southeast Asia more than anywhere else – contributing to negative climate impacts including losses of life, damage to infrastructure, supply chain disruptions, and more.

The future of ASEAN economies will depend on the ability to reshape their development narrative based on a more sustainable model of resource utilisation. Here in Malaysia, the National Energy Transition Roadmap (NETR) trailblazes a developmental pathway that is not solely hinged on energy, but more fundamentally on a deep, collective resolve of shared responsibility.

 Malaysia’s pathway for a just and inclusive transition 

Beyond just a document about various measures to meet Malaysia’s net-zero ambition, the NETR represents a new way of thinking to radically transform Malaysia’s economy and livelihoods for a stronger and more resilient future. Central to the socio-economic priorities laid out by the NETR are the moral and ethical drivers of justice and inclusivity.

The NETR’s Responsible Transition (RT) pathway aims to achieve a notable 70% renewable energy (RE) installed capacity for the energy sector by 2050. At the same time, the government continues to protect energy security for all Malaysians by diversifying the country’s power generation mix and bolstering its grid infrastructure with an expected investment of approximately RM175 billion by 2050, a funding to be secured through the Incentive-Based Regulation (IBR). What’s more, the RT promises to unlock new opportunities for socio-economic growth and development.

A total of RM1.2 trillion and RM 1.3 trillion investment opportunities will be generated from the NETR by 2050, which will contribute an additional GDP of RM220 billion and create approximately 310,000 green growth job opportunities in 2050. Other potential of energy transition also includes the generation of about 180,000 direct jobs, encompassing roles such as smart-meter installers, as well as partnerships with over 3,000 suppliers, spanning various sectors beyond power. The positive impact of these developments will be felt across the social spectrum, with medium- and low-income households becoming the biggest beneficiaries.

Nonetheless, the NETR also recognises the need to carefully manage the energy transition, given the varying impact it will have on different industries. While new jobs will be created in emerging green growth areas, other non-green areas might experience a significant reduction. This underscores the importance of greening the economy in a way that is just and inclusive for everyone.

Social welfare to be impacted the most, but in more ways than one

The energy transition will impact economies in many ways, but the largest impact of all will be experienced in human welfare. According to the International Renewable Energy Agency (IRENA), welfare improvement for Southeast Asia is 10.9% higher under an accelerated 1.5 °C scenario, compared to the bloc’s Planned Energy Scenarios (PES) based on previous transition plans.

IRENA quantifies the impact of the energy transition through its Welfare Index, based on five dimensions: economic, social, environmental, distributional, and access. Among these, the largest welfare improvements under the 1.5 °C scenario are experienced in the social and environmental dimensions, with significant benefits also anticipated for ASEAN’s energy access.

However, IRENA’s analysis found the economic dimension experiences limited improvement under the 1.5 °C scenario – primarily due to the energy transition’s impact on consumption and investment, as well as non-employment (calculated as the share of the working age population that is neither employed nor young nor getting an education).

Meanwhile, income distribution experiences only a small improvement in the 1.5 °C scenario over the PES due to limited government flexibility in their spending choices (fiscal space). These findings suggest that more must be done to alleviate distributional inequalities across Southeast Asia to ensure that the benefits of the energy transition are shared by all.

Ingredients for success: investments that build, policies that protect

The clean energy transition offers Malaysia and wider ASEAN tremendous economic, employment, and social welfare benefits.

The clean energy transition offers Malaysia and wider ASEAN tremendous economic, employment, and social welfare benefits. But ensuring these benefits reach everyone, regardless of their background, relies on the success of economic agendas such as infrastructure investments, complemented by policies that address the most vulnerable populations.

Taking a leaf out of IRENA’s report, policies that promote greater wealth distribution and generate more fiscal space, which in turn allows improvements in income distribution, should be given more attention by policymakers and regulators to further strengthen the economic and distributional characteristics of ASEAN’s net zero transition journey.

In Malaysia, the government has already introduced targeted subsidies this year, which is critical for helping lower-income groups to cope with increasing cost pressures. The move has simultaneously saved RM4.6 billion from the nation’s coffers, by decreasing subsidies for the top 1% of heavy electricity users and ensuring no change in subsidies for the other 99% of users.

IRENA’s climate policy baskets – which underlie the macro-econometric model presented in its report – contain a range of additional policy tools (e.g. investments in public infrastructure, increased social spending, cross-sector carbon pricing, etc.) to support a just and inclusive transition, in addition to enabling, deploying, and integrating energy transition technologies.

Ultimately, addressing justice and fairness will be key to ensuring support from all citizens for Malaysia’s clean energy transition. Policymakers and regulators should work to deliver the socio-economic benefits equitably, prevent costs from falling disproportionately on disadvantaged groups, and ensure the transition promotes rather than counteracts social welfare and equality.

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