A sharp drop in Western development aid threatens to derail Southeast Asia’s clean energy transition, hit its poorest nations hardest and tilt the region’s strategic ties further toward Asian powers such as China, Japan and South Korea, experts say.
The Lowy Institute’s recently published Southeast Asia Aid Map reports that official development finance (ODF) to the region reached US$29 billion in 2023 – up from US$26.5 billion in 2022 but still below the pre-pandemic average of US$33 billion.
Growth was driven mainly by non-concessional loans, or ODFs from China, the World Bank and the Asian Development Bank, while grants and concessional loans, or official development assistance (ODA) – vital for poorer nations – stagnated.
However, developed countries are falling short in supporting Southeast Asia’s shift away from coal, with ODF for clean energy falling to its lowest level in 2023 despite the region’s growing contribution to global emissions.
The funding slowdown risks undermining Southeast Asia’s clean energy transition. “Western climate aid has been a factor in many Southeast Asian efforts to phase out coal and advance the clean energy transition,” said Courtney Weatherby, deputy director of US-based think tank Stimson Center’s Southeast Asia programme.
“The loss of funding and foreign assistance targeted towards the phaseout of coal and clean energy is likely to slow the transition in economies which were relying on it to drive these shifts,” she told Eco-Business.
Regional development support increased modestly in 2023 but remained below pre-Covid levels. Graph: Lowy Institute
The Lowy Institute report highlighted that clean energy ODF has dropped sharply from US$1.7 billion in 2018 to under US$710 million last year – just 6 per cent of what the International Energy Agency (IEA) says is needed annually to meet electricity demand and climate commitments in the region. On a concessional basis, the shortfall is even starker, with donors providing just 2 per cent of the required funding.
Countries with limited domestic resources, such as Laos and Myanmar, are most at risk. Even larger economies like Vietnam and Indonesia could face delays without programmes such as the Just Energy Transition Partnerships (JETPs). The pullback, Weatherby added, is not only about money – it also means losing capacity-building, technology risk reduction and regulatory support that can attract private investment.
Western climate aid has also supported cross-border cooperation on energy and climate issues, from grid integration to emissions monitoring. Without it, progress could slow, leaving Southeast Asia more reliant on bilateral financing from non-Western partners.
This shift is already visible in the data. China has ramped up disbursements by almost 50 per cent, emerging as the largest single source of ODF in Southeast Asia, funnelling more than US$4.9 billion in 2023 alone, mostly in the form of loans. While Japan and South Korea remain key donors, their financing often supports large-scale infrastructure, including fossil gas projects that could lock countries into higher emissions for decades.
The broader geopolitical stakes are significant. A reduced Western presence in Southeast Asia’s development finance landscape could narrow diplomatic engagement on issues like climate ambition, environmental safeguards and human rights. If Western aid is deprioritised, countries may have fewer incentives to commit to higher climate targets or adopt stricter governance frameworks, Weatherby warned.
“
Countries with fewer bureaucratic barriers to investment, such as the Philippines and Singapore, are likely to become hotspots for clean energy investment.
Dr Dinita Setyawati, senior energy policy analyst for Southeast Asia, Ember
‘Tripling renewables’
The timing could not be worse. Nearly two years after the COP28 agreement to triple global renewable energy capacity by 2030, most countries have yet to update their national targets. Tripling renewables is seen as the single biggest step to stay on track for the 1.5°C climate pathway – but without scaled-up finance, particularly concessional support, that goal risks slipping out of reach.
The Lowy Institute warns that even if ODF stays stable in dollar terms, the shift toward loans and away from grants means poorer Southeast Asian nations could end up with more debt and fewer resources for a just, equitable transition.
The funding picture is darkening. In 2024, seven European governments and the EU announced US$17.2 billion in aid cuts between 2025 and 2029. The Trump administration plans to slash US overseas aid by US$60 billion – an 83 per cent reduction – and will eliminate all United States Agency for International Development (USAID) overseas positions by 30 September as part of a sweeping restructuring. The UK will cut about US$7.6 billion annually, redirecting funds to defence.
From 2015 to 2023, Europe, the US and the UK accounted for roughly one-third of Southeast Asia’s ODA, much of it for humanitarian relief, education, health, and civil society. Projections show total ODF could be slashed by up to US$2 billion and fall to US$26.5 billion by 2026, with bilateral aid down 20 per cent.
The sharpest impact will be felt in aid-dependent nations: ODA made up 95 per cent of development finance in Timor-Leste, 84 per cent in Myanmar, and 81 per cent in Cambodia. Since 2020, ODF to Cambodia, Laos, Myanmar, and Timor-Leste has nearly halved to US$5.2 billion, even as poverty has risen.
A critical moment for the transition
The cuts come as Southeast Asia faces surging electricity demand, dwindling concessional capital and worsening climate disasters. Power demand is projected to grow 41 per cent by 2030, while renewable capacity must expand 300 to 500 per cent by 2035 to meet climate goals.
Coal still dominates the power mix. In March, the US Treasury confirmed its withdrawal from Indonesia’s US$20-billion JETP – a move that “undermines grant funding and transition studies and reinforces perceptions that Western pledges are unreliable,” said Daniel Nesan, Southeast Asia analyst at the Centre for Research on Energy and Clean Air (CREA), a research non-profit. Indonesia’s climate envoy has already called the pact “a failure.”
Asian donors fill the gap
As Western donors retreat, China, Japan and South Korea are stepping in with their own priorities. While they have pledged to end state-backed funding for new coal plants, their private sectors remain active in fossil fuels.
“The retreat of Western donors is accelerating an eastward shift in development finance. China, Japan and South Korea are not just filling a gap – they are also reshaping what gets built,” Nesan told Eco-Business.
Between 2013 and 2023, China invested over US$2.7 billion in public clean-energy projects in Southeast Asia. Japan has focused on geothermal and solar, while South Korea has funded battery components and grid digitalisation. All three promote transitional fuels and carbon-capture technologies that could prolong fossil fuel dependence.
China’s importance as a development actor in the region is seen to rise as Western development support recedes. Graph: Lowy Institute
“These Asian donors are setting the agenda for Southeast Asia’s energy transition. Their investments favour large infrastructure, hydropower and transition fuels,” he added. “While they bring much‑needed capital and technology, they also raise questions about debt sustainability and the inclusivity of the just transition.”.
Adapting strategies – but at a cost
Despite the squeeze, some governments are setting more ambitious targets. “Southeast Asian governments are beginning to recognise the risks of falling behind in the global clean energy race and are scaling up their ambitions,” said Dr Dinita Setyawati, senior energy policy analyst for Southeast Asia at think tank Ember.
Indonesia has set a target of 34 per cent renewable energy by 2034, while the Philippines aims for 35 per cent by 2030. Yet without coordinated international support, poorer nations may delay projects or turn to gas-fired plants, locking in emissions for decades.
“Countries with fewer bureaucratic barriers to investment, such as the Philippines and Singapore, are likely to become hotspots for clean energy investment,” Setyawati told Eco-Business.
COP28’s goal of tripling renewable capacity by 2030 requires boosting capacity from 3.7 terawatts (TW) in 2022 to 11 TW, but current commitments total just 7.4 TW – enough to merely double capacity. As of July 2025, only seven countries outside the EU have updated their 2030 renewable targets since the summit.
China has already met its 2030 solar and wind goal six years early and could reach 2,461 gigawatts (GW) by 2030. Japan has stuck to its 2021 target of a 36 to 38 per cent renewable share, with no updates planned until 2028.
Of the 22 countries that have updated their 2030 renewable energy targets, only three are in Asia - Indonesia, South Korea and Vietnam. Map: Ember
For Southeast Asia, the aid crunch magnifies the challenge. “Southeast Asia is entering a period of surging energy demand,” CREA’s Nesan warned. “Currently, coal still dominates the power mix and the pipeline of renewable projects falls far short of what’s needed.”
Without a surge in ambition and finance – especially for the developing world – the world risks missing its most consequential climate milestone by 2030.
“Many Southeast Asian countries still subsidise fossil fuels and face political resistance to raising electricity tariffs. Without concessional capital to offset transition costs, governments may be forced to delay coal plant retirement projects,” Nesan concluded.
“This risks locking in a carbon‑intensive energy system just as the region is poised to become a major driver of global emissions.”
