Charting a Feasible Path to Carbon
Neutrality in the ASEAN Region

In a rapidly evolving landscape of environmental concerns, the quest for carbon neutrality in the ASEAN region has gained paramount significance. Recent research, including the latest Energy Outlook and Saving Potential in East Asia published earlier this year by the Economic Research Institute for ASEAN and East Asia (ERIA), has shed light on the region’s escalating greenhouse-gas emissions. From 1990 to 2021, these emissions surged fourfold, primarily driven by robust economic growth and a mounting demand for energy. Moreover, the latest International Energy Agency (IEA) World Energy Outlook 2023 indicates that, unless substantial measures are taken, the ASEAN region could potentially become the global leader in absolute growth of CO2 emissions toward 2050. Clearly, decarbonization in this region is pivotal for achieving global carbon neutrality.

Carbon neutrality is an overarching goal shared by countries worldwide, but the pathways to attain it should be tailored to the unique circumstances of individual nations. In this perspective, decarbonization in ASEAN countries hinges on two imperatives.

The first imperative: The decarbonization process must safeguard energy security for ASEAN countries. Amidst ongoing global instability and the projected surge in energy consumption within the ASEAN region, it has become increasingly vital to ensure a stable energy supply. Striking a harmonious balance between a dependable energy supply and decarbonization initiatives is a formidable challenge that warrants global attention. This challenge is especially pertinent for ASEAN countries, underscored by their heavy reliance on fossil fuels. In 2020, fossil fuels accounted for a substantial 76.3% of power generation in the ASEAN region. Even under a scenario envisioning ASEAN’s carbon neutrality by 2060, a report by ERIA suggests that fossil fuels are still projected to contribute 44% of power generation in 2060. Therefore, it is essential to chart a path that enables the region to achieve net-zero carbon dioxide emissions while still using fossil fuels as part of the energy mix.

The second imperative: Decarbonization must harmonize with economic growth in ASEAN countries. The IEA World Energy Outlook 2023 reveals that the total energy consumption shares of the ASEAN region, relative to the world total, has increased from approximately 4.2% in 2010 to around 4.5% by 2022. Simultaneously, ASEAN Member States are expected to achieve combined real GDP growth ranging from 3% to 7% between 2005 to 2050. As economic growth continues, energy demand is poised to rise significantly, and in the absence of decarbonization, this dynamic could lead to an increase in greenhouse gas-emissions.

How can ASEAN countries navigate these imperatives? Three fundamental strategies are crucial for the region.

Firstly, focus on developing transition technologies, i.e., those that reduce carbon emissions without entirely eliminating them, predominantly in the power sector and related upstream activities, which account for over 50% of the region’s CO2 emissions.

According to an ERIA report, Technology List and Perspectives for Transition Finance in Asia (2022), in the power sector, these technologies encompass combined cycle gas turbine (CCGT), waste-to-energy power plant, biomass cofiring, low-carbon ammonia cofiring, low-carbon hydrogen cofiring, and carbon capture utilization and storage (CCUS) in coal/gas power plants. In the upstream (fuel production), these technologies comprise leak detection and repair (LDAR) for fugitive emissions reduction, process electrification in gas production and processing, blue hydrogen, blue ammonia production, and CCUS in gas processing. Those technologies represent a shift towards low emission intensity and near-zero emissions technologies.

Secondly, optimize the role of carbon pricing such as emission trading schemes and crediting mechanisms to steer the region toward net-zero emissions. This transition necessitates a shift from fossil fuels to renewable energy sources, including biomass, and emerging low-carbon energy sources and technologies, such as hydrogen and fuel ammonia. Carbon pricing plays a crucial role in this transition. Strategies that align the decarbonization of industrial facilities with the added value of industrial products to carbon pricing have the potential to significantly contribute to economic growth. However, it is essential to note that the escalating costs associated with decarbonization may impact corporate production and give rise to concerns about declining international competitiveness. To mitigate these challenges, public institutions must implement policies that incentivize companies engaged in decarbonization projects.

Lastly, seize opportunities from various international cooperation schemes with advanced economies. ASEAN governments are encouraged by various multilateral organizations, development banks, and partner governments to decarbonize ASEAN economies and achieve their stated policies and announced pledges. Initiatives like the Asia Zero Emission Community (AZEC), launched in 2023, aim to establish realistic, just, affordable, and various decarbonization pathways for Asian countries in line with each country’s circumstances.

AZEC is strengthening cooperation among ministers of Asian countries to work towards carbon neutrality through strategies, plans, business initiatives, and technological developments across various domains. These include energy efficiency, renewable energy, hydrogen, ammonia, energy storage, bioenergy, and carbon capture, utilization, and storage (CCUS/carbon recycling), as integral components of collaborative efforts between the public and private sectors to achieve zero emissions. Moreover, one of the key concepts integral to the AZEC platform is promoting decarbonization while simultaneously addressing economic growth and energy security. This practical approach is being pursued in several ASEAN countries, such as establishing eco-friendly industrial zones. In these zones, renewable energy equipment, like rooftop solar panels, is installed to supply green electricity for industrial plants or facilities. Such low-carbon products will appeal to entities, particularly those in advanced economies aiming to integrate clean energy into their product supply chains. Consequently, advanced economies are likely to display increased interest in investing more in clean technologies within the developing world. The pursuit of carbon neutrality in the ASEAN region is a multifaceted endeavor that demands a delicate balance between decarbonization, energy security, and economic growth, while considering individual countries’ circumstances. By focusing on transition technologies, optimizing the role of carbon pricing, as well as promoting effective policies and international cooperation, the region can chart a course toward a sustainable, affordable and reliable carbon-neutral future.

Written by Dr. Alloysius Joko Purwanto, Energy Economist, Economic Research Institute for ASEAN and East Asia (ERIA)