New Japanese fund seeks to scale up decarbonization in Southeast Asia

In late May, Japan’s Ministry of Economy, Trade and Industry announced the creation of the Asia Energy Transition Initiative and a new $10 billion decarbonization fund to promote clean energy, coal transition, and carbon capture. Both efforts are focused on ASEAN countries, where Japan has long been a key trading partner and donor. In Asia, where energy demands are set to grow, it is essential to seek a diverse and realistic transition “by utilizing all possible energy sources and technologies, while taking into account each country's … geographic characteristics and development phase," said Hiroshi Kajiyama, Japan's minister of economy, trade, and industry, during a press event. While the initiative is not without its problems, it comes less than a year after the creation of The Asia Energy Transition Partnership, a multistakeholder platform bringing together governments, philanthropies, and partner countries. It follows countries including Vietnam and Indonesia that have expanded renewables and set time limits on coal-fired power generation, the most carbon-intensive electricity source. While shifting the region of more than 650 million away from fossil fuel-driven growth and towards low-carbon development will be a challenge, these new efforts hope to make progress towards that goal. “At the moment, ASEAN is a laggard on decarbonizing energy,” said Tim Buckley, the director of energy finance studies for Australia and Asia, at the nonprofit Institute for Energy Economics and Financial Analysis. “We need to see those technologies deployed in the domestic context to deliver the learning by doing, and Japan's fund will play an important role in that.” Long overdue To achieve both the Paris Agreement’s climate goals and the Sustainable Development Goals will require economies around the world to reduce carbon emissions and scale up sustainable energy. On that front, Southeast Asia is crucial, due to the region’s growing economies and energy demand. The region has made incredible progress in electricity access, growing from 62% in 2000 to 90% in 2017. The problem is that much of this growth came from fossil fuels, most notably coal — a report from Ecosperity, a project of the Singapore-based consulting firm Temasek, estimates that 70% of energy demand growth has come from fossil fuels. Indonesia, Vietnam, and the Philippines have been among the top builders of coal-fired power plants globally over the past decade. And it was Japan playing a role as a key investor in these projects. “One challenge is that the policies are not yet aligned with climate goals.” --— Sirpa Helena Jarvenpaa, director, the Southeast Asia Energy Transition Partnership But the past year has seen Japan make significant policy changes, as major private banks and the government-backed Japan Bank for International Cooperation signaled they would move away from investing in overseas coal. Then, last November, the country announced that it would aim to achieve carbon neutrality by 2050. The launch of AETI and the decarbonization fund are signs these commitments extend to Japan’s overseas investments and development aid as well. While $10 billion is just a tiny fraction of the $66 billion a year that the International Renewable Energy Agency estimates is needed to transition the region’s energy systems away from fossil fuels between now and 2050, it is significant. “Even though the scale of investment required means we need private investment, Japan’s fund is important as public capital is a key enabler,” Buckley said. “First-of-a-kind projects are problematic because they have to prove up the regulations and technology, to show that it is commercially viable. Having Japan funding solutions, we're going to see investments in technology that might not be commercially viable at the present.” Laying the groundwork for an energy transition One of the reasons that much of Southeast Asia has not yet seen widespread clean energy investments is due to limited energy infrastructure, and a regulatory and financing framework that makes renewables more expensive in the region than elsewhere, including India. “One challenge is that the policies are not yet aligned with climate goals,” said Sirpa Helena Jarvenpaa, director of the Southeast Asia Energy Transition Partnership, or SEA-ETP, currently operating under the United Nations Office for Project Services in Bangkok, Thailand. “While there are moratoriums and net-zero statements, the actual policies are still facilitating fossil fuel-based power generation.” SEA-ETP, which currently receives support from the United Kingdom, Germany, France, and Canada, along with several philanthropies, aims to address that by focusing not only on bringing investment to the region, but working with governments and local civil society to reduce transaction costs, build technical skills, and persuade stakeholders across the region to implement policies and measures that allow for a low-carbon energy transition to take place. “Coordination of energy sector support can yield tremendous impact, and ETP is one instrument that aims to identify the gaps and overlaps so that these resources are used effectively,” Jarvenpaa said. Concerns around false solutions While recent moves by Japan’s Ministry of Economy, Trade and Industry are welcome, the inclusion of certain clauses and technologies in AETI’s mission and the decarbonization fund worry some. This includes coal to liquid natural gas plant conversion, coal mixing, and carbon capture, utilization, and storage, also known as CCUS. “Despite the myriad of benefits to investing in renewable energy in Southeast Asia, METI is essentially extending their domestic policy into overseas markets, promoting LNG and CCUS,” said Daniel Read, a climate and energy campaigner at Greenpeace Japan. The use of natural gas as a “bridge fuel” due to its lower carbon-emissions footprint has long been promoted by the gas industry, but growing concerns about methane leakage — itself a potent greenhouse gas — and the fact that natural gas plants and infrastructure have long lifetimes have led many to argue that it’s better to shift directly to renewables such as solar, wind, and geothermal. CCUS, meanwhile, is unproven, and attempts by the fossil fuel industry to build demonstration projects in the U.S. or Australia have proven to be financially non-viable, according to IEEFA analysis. “Despite CCUS’s long history of economic nonviability, METI insists on promoting a technology that, whatever the supposed benefits, fundamentally perpetuates the need to excavate more coal out of the ground, something running counter to the recommendations of both the Intergovernmental Panel on Climate Change and the International Energy Agency,” Read said. Romain Zissley, a researcher at the Japan-based Renewable Energy Institute, hopes that Japan takes a more ambitious approach, investing in areas with the greatest potential to reduce emissions. “Japan’s investment should go towards renewable energy rather than coal or [CCUS],” Zissler said. “Embracing renewable energy would benefit Japan’s [domestic] transition, and also promote the decarbonization of Southeast Asia. It will also strengthen Japan's reputation and credibility in leading the force against climate change.” Update, July, 22, 2021: This article has been updated to reflect that Japan’s Ministry of Economy, Trade and Industry announced the creation of the Asia Energy Transition Initiative in late May.