Climate change is a global issue that knows no borders, demanding urgent action from all nations. In Southeast Asia, the Association of Southeast Asian Nations (ASEAN) faces the challenge of addressing climate change while pursuing economic growth.
With a diverse membership comprising nations at different stages of development, ASEAN’s strategies reflect a tailored, collaborative approach to achieve its climate goals.
This was explained in the first chapter of a comprehensive study titled Fiscal Policy to Support the Green and Just Energy Transition from the Economic Research Institute for ASEAN and East Asia (ERIA) edited by Fauziah Zen, Fukunari Kimura, Alloysius Joko Purwanto.
ASEAN nations are firmly committed to the Paris Agreement and its nationally determined contributions (NDCs), a framework that allows countries to set their own climate targets.
This flexibility enables member states to design strategies that align with their unique economic circumstances.
However, the gaps between pledges and real progress remain significant. The urgency of bridging these gaps has been magnified by global challenges, including the COVID-19 pandemic and geopolitical tensions, which have diverted attention and resources from climate initiatives.
ASEAN’s ability to collaborate regionally and internationally will play a pivotal role in overcoming these hurdles.
Central to ASEAN’s climate strategy is the development of green finance. Transitioning to a low-carbon economy requires substantial investment, far beyond the capabilities of public funding alone.
Green finance mechanisms, such as green bonds, carbon pricing, and blended finance, are transforming the region’s financial landscape. These tools are essential for mobilising private sector participation to complement government initiatives.
Green bonds have emerged as a particularly effective instrument, channelling funds into renewable energy, energy efficiency, and sustainable infrastructure projects.
Indonesia and Thailand have taken the lead in public sector-driven green bond issuance, while Malaysia’s private sector has demonstrated significant leadership in this area.
Between 2021 and 2023, ASEAN experienced rapid growth in green bond issuance, underscoring robust market demand and the region’s commitment to sustainability.
However, achieving the ambitious climate targets will require further expansion of these markets and the development of complementary financial mechanisms such as carbon taxes and cap-and-trade systems.
Although these tools face varying levels of adoption across ASEAN due to differences in economic development, they remain critical for incentivising emissions reductions and generating funds for green projects.
ASEAN’s climate journey is best illustrated through the specific experiences of Indonesia, Malaysia, and Thailand. Each country’s unique circumstances highlight the diverse approaches required to achieve shared goals.
Indonesia, a nation heavily reliant on coal, has committed to phasing out coal-fired power plants (CFPPs) by 2050 as part of its energy transition strategy. This ambitious plan is projected to cost up to USD48 billion and requires significant investment in renewable energy sources.
By 2030, the early retirement of CFPPs alone is expected to cost between USD25 billion and USD30 billion annually, alongside USD20 billion to USD25 billion in yearly renewable energy investments. Despite the financial burden, Indonesia’s approach signals a strong commitment to sustainability. The adoption of carbon capture, utilisation, and storage (CCUS) technology is central to its efforts, offering a viable pathway to achieving net-zero emissions by 2060.
However, the economic implications of this transition cannot be overlooked. As a major coal producer, Indonesia faces the dual challenge of balancing its economic reliance on fossil fuels with the imperative to combat climate change.
Malaysia, on the other hand, is leveraging its abundant natural resources to expand its renewable energy sector. Since introducing renewable energy as the “fifth fuel” in 2001, Malaysia has implemented various policies to increase the share of renewables in its energy mix.
Currently, renewable energy accounts for just two per cent of the nation’s energy mix, but the government aims to raise this figure to 20 per cent by 2025. To achieve this, Malaysia has introduced tax incentives, subsidies, and regulatory frameworks designed to attract investment and foster innovation.
However, the success of these initiatives depends on addressing infrastructural and regulatory inefficiencies. By focusing on these areas, Malaysia can unlock its potential to become a regional leader in renewable energy development.
Thailand’s climate strategy centres on the decarbonisation of its transport sector, with a particular focus on electric vehicles (EVs). The government’s 30@30 plan aims to ensure that 30 per cent of domestic vehicle production is electric by 2030.
Economic modelling suggests that this initiative will boost GDP and household income while reducing greenhouse gas (GHG) emissions by eight per cent by 2040.
However, the plan also poses fiscal challenges. The shift away from internal combustion engine vehicles is expected to reduce government revenue from excise taxes and tariffs, leading to budget deficits.
To mitigate these impacts, Thailand must invest in EV infrastructure and strengthen public-private partnerships. By doing so, the country can position itself as a leader in sustainable transport within the ASEAN region.
ASEAN’s efforts are informed by valuable lessons from global climate action. Strategic planning and robust policy frameworks have proven essential for achieving climate goals.
The European Union’s comprehensive energy transition plans and Japan’s Green Transformation Policy highlight the importance of clear targets and strong governance.
ASEAN’s regional cooperation initiatives, such as the ASEAN Plan of Action for Energy Cooperation, can help align national strategies with global best practices.
Public-private partnerships also play a crucial role in mobilising resources for the green transition. The EU’s Green Bond Standard and Japan’s blended finance initiatives provide models for ASEAN to emulate.
By leveraging private sector investments alongside public funding, ASEAN can scale its green finance efforts and accelerate progress.
Equity is another critical consideration. A just transition ensures that vulnerable groups, such as low-income households and workers in fossil fuel-dependent industries, are not left behind. Indonesia’s welfare support during its coal phase-out and Thailand’s focus on household consumption patterns exemplify how inclusive policies can mitigate the social impacts of the green transition.
Innovation and technology are indispensable for addressing climate change. Investments in renewable energy, CCUS, and clean energy technologies are driving decarbonisation globally. Japan’s emphasis on research and development offers a roadmap for ASEAN countries to enhance their technological capabilities and competitiveness.
Looking ahead, ASEAN must prioritise several strategic actions to meet its climate goals. Strengthening regional collaboration is essential for sharing resources, knowledge, and best practices.
Initiatives like the ASEAN Alliance on Carbon Market can facilitate coordinated efforts and maximise the region’s collective impact.
At the national level, translating climate strategies into actionable plans is critical.
Governments must ensure that policies are effectively enforced and supported by robust monitoring and reporting mechanisms.
Enhancing access to international climate finance and fostering local green finance markets will provide the necessary resources for implementation.
ASEAN’s transition to a low-carbon economy must also be inclusive. This requires retraining and reskilling workers in transitioning industries, developing social protection measures, and engaging communities in the planning and implementation of green projects. By prioritising equity, ASEAN can build public support for climate initiatives and ensure that the benefits are widely shared.
Adaptation strategies are equally important. As climate impacts intensify, enhancing the resilience of vulnerable communities and ecosystems is vital. Investments in clean energy technologies, energy storage, and negative emissions solutions will further strengthen ASEAN’s climate resilience.
Finally, integrating climate goals with broader sustainable development objectives will yield co-benefits for health, equity, and economic growth. By aligning climate action with these priorities, ASEAN can achieve a sustainable and inclusive future.
The path to achieving climate goals is fraught with challenges, but ASEAN’s commitment to sustainability and innovation provides a strong foundation. With collective effort and strategic action, the region can navigate the complexities of the green transition and emerge as a leader in global climate action. – Features Desk
