Emissions intensity of largest Asian utilities are ‘well above’ net-zero pathway: MSCI

While Asia Pacific utilities have expanded their renewables capacity in the last decade, all except those in Australia grew their coal capacity over the same period, pointing to the need to step up early coal retirement, finds a new study.

China coal plants - Greenpeace
13 Asia Pacific countries produced more than 40 per cent of the record-high 58 gigatonnes of global greenhouse gas emissions in 2023, estimates MSCI. Image: Greenpeace/Lu Guang

Asia Pacific’s largest utilities are way off track to reach net zero by 2050, despite expanding their renewables capacity in the last decade.

A new climate action progress report by global index provider MSCI found that all of the region’s biggest utilities, except those in Australia, grew their coal capacity between 2015 and 2022, causing the region’s climate-warming emissions released per unit of electricty generated to be “well above” modelled pathways to net zero.

In 2022, coal, gas and oil made up 60 per cent of installed power capacity owned by some 117 utilities represented in the MSCI AC Asia Pacific Investable Market Index, which includes 4,244 publicly listed firms from 13 countries in the region.

Japan has lagged the rest of the region for growing their renewables capacity. While China, Hong Kong, Asean – consisting of Singapore, Indonesia, Thailand, Malaysia, Philippines and Vietnam in this study – and India all logged triple-digit percentage clean energy growth since 2015, Japanese utilities have bucked the trend, seeing only 1 per cent increase over the same period.

Emissions intensity of large APAC utilities vs net zero pathways

20 of the largest Asian utilities accounting for over 80 per cent of the region’s installed fossil fuel capacity are way off track from the net-zero by 2050 emissions pathways set out by the International Energy Authority (IEA) and the Network for Greening the Financial System (NGFS). Source: MSCI’s APAC Climate Action Progress Report

“Evident gaps still exist between current fuel mix development and net-zero pathways,” said Xiaoshu Wang, APAC ESG and climate research head at MSCI. “As the shift to a clean energy economy stands at a crossroads, capital markets’ role in improving the viability of coal phase-out programmes becomes increasingly important.”

“Accelerating climate regulatory efforts and investor pressure in the region are also expected to drive further action and responses from corporates,” added Wang.

Southeast Asia, home to some of the world’s youngest fleets of coal plants, has become a hotbed for trialing innovative market mechanisms to axe coal plants earlier than planned.

The Asian Development Bank (ADB)’s Energy Transition Mechanism is employing a blended finance approach to close Indonesia’s first early retirement deal. More recently, the Singapore central bank is piloting the use of a novel class of carbon credits dubbed “transition credits” to retire two Philippine coal plants ahead of the end of their operational lifespans.

But competing priorities for energy security and affordability “may continue to influence the speed” at which Asian utilities can transition away from fossil fuels, noted MSCI. 

Earlier this week, intergovernmental think tank Asean Centre for Energy called for the region’s sustainable finance rulebook to relax coal phase-out target dates and emissions limits for power plants, questioning the use of International Energy Agency (IEA)’s net-zero pathway – which it believes is better suited for rich nations – to guide the region’s climate strategy. Instead, the Asean taxonomy should allow for new coal plants retrofitted with technologies such as carbon capture and storage (CCS) to slash emissions, it said.

To qualify as a “transition” activity under the Asean taxonomy’s “amber” tier, existing power plants must not emit more than 285 of carbon dioxide equivalent per kilowatt hour (gCO2e/kWh) by 2030. The more stringent Thailand and Singapore-Asia guidelines set this threshold at 191 gCO2e/kWh and 150 gCO2e/kWh, respectively.

However, with CCS technologies still at the nascent development stage, coal and gas-reliant utilities in the region “may need to see significant policy and technology breakthroughts to achieve these standards,” said MSCI.

Emissions intensity of coal- and natural-gas-dependent APAC utilities vs regional taxonomies

Coal- and gas-reliant Asian utilities will need significant technology breakthroughts to meet the emissions intensity thresholds for power plants to be deemed “in transition” (amber) in Asean, Thailand and Singapore-Asia taxonomies. Source: MSCI’s APAC Climate Action Progress Report

Corporate emissions disclosures in Asia have steadily risen in the last decade, led by New Zealand, Japan and Australia. Over half of the markets included in MSCI’s analysis – including those three countries – that have already proposed mandatory International Sustainability Standard Board-aligned reporting rules that will kick in by the end of this decade.

But progress has varied across emissions categories. While more than half the firms across the region now disclose their Scope 1 and Scope 2 emissions, referring to direct emissions and indirect emissions from energy use, under a quarter of firms in China, India and South Korea report their emissions from suppliers, or so-called Scope 3 emissions.

Disclosures by small- and mid-cap firms across all Asian markets, except for Hong Kong and China, have also trailed their larger counterparts by at least 25 percentage points.

But the higher rate of disclosures among larger companies did not necessarily translate to “fully credible” decarbonisation targets across Scope 1, 2 and 3 emissions. Based on MSCI’s assessment, only Japan, Taiwan, Australia and India saw more than 5 per cent of large-cap firms having at least one short-term target for the relevant scope and one Science Based Targets Initiative (SBTi)-approved target, as well as a track record of achieving past targets and a current trajectory to meet ongoing targets.

Nonetheless, Wang sees a “bright spot” in Asia’s growing prominence in clean tech innovation, where firms in the region had a higher average research and development capacity in advanced battery storage, solar and hydrogen fuel, compared to their global peers.

Japan’s Toyota as well as China’s CATL and BYD were named the region’s top three automakers and battery makers based on their estimated revenues from electric vehicles (EVs), EV battery, hybrid vehicles and fuel cell cars.

In the solar power space, Chinese renewables manufacturers JinkoSolar and Longi Green Energy Technology have emerged as the two largest players by revenue size. 

But China’s overproduction of solar panels and trade frictions with the United States has resulted in a plunge in solar cell prices, which led Longi to announce the lay offs of about 5 per cent of employees in March, shortly after Bloomberg reported that the Chinese solar giant planned to cut a third of its staff as a cost-saving measure, citing sources familiar with the matter.


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