Urgent Action Needed as Emission Reduction Targets Remain Elusive
SINGAPORE: Southeast Asia’s efforts to decarbonise are inadequate, despite an increasing number of countries in the region committing to net-zero emissions, according to a report released by Bain & Company, Temasek, and Microsoft.
The report highlights that no Southeast Asian nation is projected to achieve the emission reductions necessary to align with the 1.5 degrees Celsius target by 2030, even after factoring in slight improvements based on the latest Nationally Determined Contributions (NDCs) and planned policy initiatives. To meet the 1.5°C goal, countries need to reduce carbon dioxide emissions by at least 45% from 2010 levels by 2030.
Currently, the region faces a significant emissions gap of 3 gigatonnes of CO2—equivalent to removing approximately 647 million cars from the roads for a year. While eight out of ten countries now have net-zero targets—up from only two a year ago—progress remains slow.
“Southeast Asia is… well short of where it needs to be on carbon and investment to reach 2030 goals,” the report states.
Moreover, climate financing is falling short of what is needed to enhance decarbonisation efforts and meet countries’ unconditional NDCs. Presently, investment levels sit below US$20 billion, starkly contrasting with the estimated US$1 trillion to US$3 trillion required to close the emissions gap.
Although the issuance of green, social, and sustainability bonds in Southeast Asia surged, reaching nearly US$19 billion last year, the report asserts that the volume must increase by 15 to 20 times to adequately cover the investment deficit by 2030.
“SEA (Southeast Asia) must transition from promises to action, and bridging the gap between opportunities and results will be crucial,” said Dale Hardcastle, Partner and Director of the Global Sustainability Innovation Center (GSIC) at Bain & Company. “We remain optimistic about the US$1 trillion economic opportunities in SEA, but we need to collectively enhance the investable market and boost green capital flows,” he added.
The report emphasizes the necessity for updated roadmaps at the national and sectoral levels, particularly in energy, alongside clear policies and incentives to phase out fossil fuels in alignment with new ambitions. For instance, Indonesia is set to implement a carbon tax on coal power this July; however, the current rate of 30,000 rupiah (US$2.08) is deemed insufficient to drive the transition.
Challenges impeding greater investments and climate action in the region include inadequate incentives for effective decarbonisation measures, insufficient emphasis on proven low-risk solutions, and a lack of clarity regarding the costs of energy transition. Since 2020, a cumulative US$15 billion in investments has been made, primarily in renewables and the built environment.
To accelerate green investment and close the emissions gap, the report suggests adopting a comprehensive decarbonisation program. It also advocates for clearly defining the full costs of transitioning to renewable energy and establishing funding mechanisms to attract new investments.
Strengthening green financing can be achieved by leveraging the financial services sector to develop abatement investment products, which could lower the cost of capital for businesses transitioning to cleaner energy sources. Additionally, regional collaboration should be intensified to unlock new potentials and mitigate risks.
In an interview with CNA, Temasek’s Chief Sustainability Officer Dr. Steve Howard emphasized the immense solar energy potential in the region, stating, “With 5 billion years of solar reserves, tapping into renewables offers tremendous energy security.” He noted that while it took approximately 70 years to generate the first trillion watts of solar power, the next trillion is expected to come within just four years.
Investible Opportunities
As energy and agriculture are major carbon emissions sources in Southeast Asia, the report identifies key levers that could yield “concrete” investible opportunities, which could drive 60% of the region’s carbon abatement potential.
Forest conservation stands out as the most significant carbon abatement measure, projected to represent a US$20 billion opportunity by 2030. In addition, solar and wind energy are estimated to create a US$30 billion opportunity by the same year, with solar making up two-thirds of that total. Corporate investments in renewable energy solutions are accelerating, contributing at least US$6.6 billion in corporate green investment since 2020. Other priority areas include electric mobility, sustainable farming, and the built environment.
