Relax regional coal phase-out ambitions, Asean energy report urges

Southeast Asia’s green finance rulebook should not hinge on a global net-zero pathway more suited for rich nations, and should call for a slower “phase-down”, says an intergovernmental think tank.

Indonesia coal mining
Coal mining in East Kalimantan, Indonesia. Image: Flickr/ International Labour Organization

Southeast Asia’s green finance guidelines should ditch specific target dates for ending the use of coal, and consider relaxing emissions limits for power generation to help carbon capture technologies scale up, the Asean Centre for Energy (ACE) has said.

The intergovernmental think tank’s recommendations in a report published last week represent a high-level pushback against growing calls for the region to retire its large young fleet of coal plants before the end of their operational lifespans.

Cheap coal forms the backbone of power generation in many Southeast Asia countries, while Indonesia consistently ranks among the world’s top exporters of the fuel. Scientists believe coal is the main culprit for man-made global warming, and say its use should end as soon as possible.

ACE’s paper was developed with energy sector officials from Asean member countries and an expert from global industry body FutureCoal. The report focuses on a set of recommendations, known as the “Asean taxonomy”, for how nations and banks in Southeast Asia should define and promote climate-friendly investments.

The latest version of the taxonomy, published in March, states that green finance should, in its most ambitious “green” tier, help achieve coal phase-out by 2040 – in line with a global net-zero pathway issued by the International Energy Agency. A softer “amber” target allows for a longer 2050 timeline for the coal exit.

“The 2040 deadline for phase-out specified in the Taxonomy poses challenges, appears unrealistic and is economically undesirable,” the report said, warning of job losses, high power prices and unreliable electricity generation.

It questioned why the International Energy Agency’s pathway was used as reference for Southeast Asia’s climate strategy, saying it works better for wealthy countries and is too ambitious in the local context.

ACE’s own analysis shows that even with ambitious policies, Southeast Asia will still require coal to provide at least 10 per cent of the region’s energy capacity by 2050. The figure rises to over 30 per cent in a business-as-usual pathway.

“Given their different priorities and situations, Asean member states need unique pathways to achieve their energy transitions towards more efficient and cleaner energy sources. It is prudent to avoid specific pathways being imposed on the respective countries or regions,” the report said.

“The world’s largest users of coal, India and China, for instance, set their net zero targets for 2060 to 2070, respectively, indicating room for Asean to calibrate to a more realistic and balanced coal phase-down,” it added.

The Asean bloc consists of Brunei, Cambodia, Indonesia, Philippines, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam. Only Brunei and Singapore are considered high-income by the World Bank.

There have been several initiatives launched in recent years for euthanising coal in Southeast Asia. In 2021, wealthy countries and financiers pledged US$20 billion to Indonesia in a “Just Energy Transition Partnership” that called for early retirement of power plants using the fuel. Last year, Singapore’s central bank and the Asian Development Bank said they would try to help close two coal plants in the Philippines with “transition” credits.

But such efforts have achieved little to date. Last year, Indonesia said it would focus on switching to cleaner fuels at its coal plants instead of closing them early, after the government complained of high lending rates from prospective climate financiers.

ACE’s report said the Asean taxonomy should help retire the oldest and most inefficient coal plants, while allowing new units to incorporate technologies such as carbon capture to slash emissions.

To do so, ACE said the taxonomy should consider relaxing its emissions limit for meeting a high-level “Tier 1” grade of clean power production – set at under 100 grams of carbon dioxide per kilowatt-hour of electricity – and generally achievable only with renewables and nuclear power.

Even the cleanest coal plants, fitted with carbon capture, average at in excess of 200 grams of CO2 output, rendering such technologies “practically futile” despite their importance, the report said.

Carbon capture, where emissions from burning fossil fuels are trapped and either stored or used elsewhere, is seen within the energy industry as a promising way to slash greenhouse gas output. But critics say the technology cannot scale up fast enough, citing its high costs and a lack of existing commercial projects.

ACE said coal-to-gas conversion is also a “low-hanging fruit” for power sector decarbonisation, pointing to another fuel which has been subject to fierce debate. Natural gas burns cleaner than coal, but still produces drastically higher carbon emissions compared to wind and solar power generation.

Asean will also need to improve its power regulations and upgrade its power grids to help member nations adopt more solar and wind power, the report added.

Peter Godfrey, Asia Pacific managing director for think tank Energy Institute, said he broadly supports ACE’s report and that the “significant emphasis” on coal phase-out is misplaced.

“It does not account for the continued burgeoning growth of primary energy demand in our region and the pace at which alternative energy resources can be developed,” Godfrey said.

Carbon-sequestrated fuels and nuclear energy should have a role in the energy mix along with renewables, while other fossil fuels should be phased out to make room, he said, adding that regional energy integration to develop scaled solutions “remains the number one priority”.

A spokesperson at the Asia Investor Group on Climate Change, a network of Asia-based financiers focused on climate risk, said phasing out of high carbon assets should be a priority, alongside tripling renewable power capacity by 2030. The group said Southeast Asian countries should align more with the Asean taxonomy, and welcomes the set of rules in use.

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