For clean energy to have a fighting chance of success to grow in Asia, governments must remove fossil fuel subsidies that distort the Asian energy market, said the International Energy Agency (IEA) chief economist Dr Fatih Birol on Tuesday.
Addressing delegates at the annual Singapore International Energy Week at Marina Bay Sands, Dr Birol said the share of renewables in the Asian energy market cannot grow with governments continuing to subsidise fossil fuel production and consumption.
Many Asian countries such as Malaysia, Indonesia and Thailand are rich in renewable energy resources such as solar, geothermal, biomass and hydro. But the industry remains underdeveloped as these Asian governments spend billions on subsidising fossil fuel consumption instead. Moves to remove these subsidies are highly sensitive and political, and are often met with ire from local communities that have gotten used to cheap energy.
“The argument for subsidies is completely wrong… countries like Malaysia, Indonesia and Thailand need to eliminate these subsidies.. in order to foster more competition and efficiency in the energy markets,” he said.
The IEA has noted the detrimental effects that fossil fuel subsidies have on energy markets, finding that in Southeast Asia they amounted to $51 billion in 2012.
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The argument for subsidies is completely wrong… countries like Malaysia, Indonesia and Thailand need to eliminate these subsidies.. in order to foster more competition and efficiency in the energy markets,
Fatih Birol, IEA chief economist
Dr Birol told Eco-Business separately that Asian governments are facing economic challenges, especially in balancing budgets and reducing budget deficits.
“They are understanding… the urgency of phasing out of these subsidies to have a balanced budget in their countries. Many countries are finding trade-offs in the sensitivies of the public and government deficits,” he said.
He added that there were encouraging signs that countries are planning a gradual phase out of such subsidies.
Dr Birol was speaking on the sidelines of an IEA event on the southeast Asia energy outlook, organised in partnership with Singapore’s Energy Market Authority and consulting firm KPMG.
The Southeast Asia outlook is part of the IEA World Energy Outlook series, due to be launched Nov 12.
In IEA’s preliminary report on the region, it noted that Southeast Asia is an emerging giant of the global energy market. Along with India and China, it is shifting the centre of gravity of the global energy system to Asia.
Developing policies to improve efficiency and attract investment will be vital for enhancing enrgy security, affordability and sustainability. Around $1.7 trillion of investment in energy-supply infrastructure is required in the period to 2035, noted the report.
The region’s energy demand has already expanded by two and half times since 1990, but future growth is to continue to increase on the back of strong economic growth and the relatively-low per-capita energy use of its 600 million inhabitants.
The report also looks at trends in domestic energy needs and supply prospects in the region, including the status of fossil-fuel subsidies and energy access; the role of coal in fuelling the region’s power sector; implications for energy trade and energy-import bills; the level of investment needed to expand energy-supply infrastructure; as well as the substantial energy security, economic and environmental gains possible if the region were to realise a “high efficiency scenario”.
To download the Southeast Asia Energy Outlook, please click here.
