Supportive public policy is required to solve Asia s climate adaptation, mitigation and resilience challenges

Transcription

1 Supportive public policy is required to solve Asia s climate adaptation, mitigation and resilience challenges Against the backdrop of international climate negotiations, this statement is a call for ambitious policies to facilitate investment in addressing climate change challenges in Asia. This statement provides guidance to policy makers on the frameworks required to mobilize substantial investment into low carbon and clean energy opportunities across Asia and transform the manner in which the region grows. ASrIA s Asia Investor Group on Climate Change (AIGCC) asks policy makers to ensure predictable, transparent and long-term policies are in place to create a supportive environment for investors. A correct policy mix must be developed and should include: 1. Setting ambitious renewable energy targets as a specific portion of total electricity production; 2. Developing quantifiable energy efficiency goals and capacity building efforts to strengthen awareness about and application of energy efficiency measures; 3. Creating and implementing green growth strategies that align incentives with investor interests and provide for enhanced risk management; and 4. Developing market-based solutions that place a price on carbon, such as emissions trading schemes and carbon taxes. Background Asia is home to some of the world s most dynamic, fastest growing economies. However, remarkable economic expansion has also created a long list of environmental challenges. The region is diverse, comprised of low-income, resource-intensive, export-oriented countries with young populations, such as Indonesia, alongside higher-income, resource-efficient countries with aging populations, such as Korea. Immediate needs vary as well, from housing, essential utilities, education, nutrition, and health. In many instances, these continue to have priority over environmental and climate concerns, despite inter-dependencies. However, there is increasing recognition that current models of production and consumption are destabilizing Asia s climate and can jeopardize future development if left unchecked. In recent years, many countries in Asia have committed to climate change related targets that will help shape policy making and economic planning in the short, medium and long-term. While these developments are promising, more ambitious and targeted public policy solutions are required to mobilize private sector capital to support sustainable socio-economic development while addressing the imperatives of resource efficiency, environmental protection and climate resilience. 1

2 Asia context: Investment needs Asian countries are among the most vulnerable to climate change. Decreasing freshwater availability, particularly in large river basins, threatens water, energy and food security. Major urban centers including Jakarta, Manila and Ho Chi Minh City are rapidly growing, yet their location in lowlying coastal areas makes them particularly vulnerable to the effects of storms, sea-level rises and coastal flooding 1. Leadership and action is needed to integrate both mitigation of greenhouse gas emissions and climate change adaptation measures into development planning and investments. The Asian Development Bank (ADB), for example, projects infrastructure needs, specifically in energy and transportation, at US$ 750 billion per year from 2010 to 2020, all of which needs to be climate change proof 2, 3. It also estimates that adaptation costs for Asia and the Pacific are in the order of US$ 40 billion per year between now and Closing the investment gap To meet climate and energy goals, a significant shift in investment patterns and a scale-up in investment volume are required. This can only be achieved if governments create conducive investment environments through appropriate incentives and mechanisms to facilitate private sector engagement and capital flows. Actions policy makers can take to ensure predictable, transparent and long-term policies include: 1. Setting ambitious renewable energy targets as a specific portion of total electricity production a. to diversify the current energy mix; b. to introduce a roadmap to progressively reduce reliance on fossil fuels; c. and to draw on market-based mechanisms such as feed-in-tariffs and renewable energy certificates to support efforts to phase-out fossil fuel energy sources; 2. Developing quantifiable energy efficiency goals and capacity building efforts to strengthen awareness about and application of energy efficiency measures; 3. Creating and implementing green growth strategies that align incentives with investor interests and provide for enhanced risk management; and 4. Developing market-based solutions that provide a price on carbon such as emissions trading schemes and carbon taxes Climate change proof infrastructure (i.e. bridges, roads, energy infrastructure) is designed to withstand disastrous effects of climate change, such as extreme weather events

3 1. Renewable energy Effective policy interventions include a combination of direct incentives, pricing mechanisms and renewable energy standards and targets. Examples of national approaches include: Direct incentives: In the three years since 2010, Thailand more than doubled its installed clean energy capacity, from 1,880 to 3,789 MW 5, driven by the feed-in premium program (known as the Adder ) introduced in By the beginning of 2014, the country emerged as a leader in solar development in South East Asia with MW installed. 6 Pricing mechanisms: Renewable Energy Certificates (RECs), such as those introduced by the Government of Japan, allow utilities to trade credits for over or under production of electricity (compared to public targets) generated from renewable sources. Energy standards: In 2013, the Philippines Energy Regulatory Commission introduced rules concerning its Renewable Portfolio Standard (RPS), bringing the country closer to launching a Renewable Energy Market to be operated under the Wholesale Electricity Spot Market, for trading of RECs to facilitate compliance with the RPS. Renewable energy targets: Across the region, governments have set various renewable energy targets including: Country Target 7 8 Target year Cambodia Reach a 15% share of renewables in generation 2015 Indonesia Achieve a minimum of 23% renewables in the energy mix 2025 Lao PDR Build 5 GW of new hydropower 9 capacity and increase share of renewables in primary energy supply by 30% 2025 Malaysia Achieve 985 MW of installed renewable power capacity (2015), contribution 13% of generation 2030 Myanmar Increase the share of renewables in power generating capacity to 15-18% 2020 Singapore Achieve 5% of peak electricity demand supplied from renewable energy sources 2020 Thailand Increase the share of renewable energy of final consumption to 25% 2021 The Philippines Triple currently installed renewable capacity to 15 GW 2030 Vietnam Achieve 5% of power generation from renewable energy resources Specifically hydropower projects need to be provisioned by internationally credible environmental and social impact assessment standards and monitoring frameworks. 3

4 2. Energy efficiency Energy efficiency is recognized as a low-cost pathway for reducing carbon emissions compared with new generation, and should form a key part of national emission reduction strategies. 10 Examples of policy interventions include: Pricing mechanisms: India has begun to recognize the vast potential of energy efficiency towards energy security and emissions reduction objectives, and has introduced Perform, Achieve and Trade (PAT), an innovative, market-based pricing mechanism for energy efficiency. In the PAT framework, the regulator sets energy efficiency targets for energy intensive industries. Energy savings are certified and can be traded among market actors that exceed or fail to meet the targets. 11 Fiscal policy: Environmental fiscal reform may offer important potential synergies between fiscal and environmental policy objectives. In Indonesia, since 2010, the Ministry of Finance s Economic and fiscal policy strategies for climate change mitigation in Indonesia 12 has promoted a levy on fossil fuels in conjunction with a gradual removal of energy subsidies. Energy efficiency targets: Across the region, energy efficiency targets vary and include the following: Country Target 13 Target year Cambodia Reduce final energy demand intensity by 10% 2030 Lao PDR Reduce final energy consumption by 10% 2025 Malaysia A 10% reduction in energy intensity compared to business-as-usual 2030 Myanmar Reduce primary energy consumption by 5% in 2020 and 8% by 2030 (compared with business-as-usual) 2030 Philippines Achieve energy savings of 10% relative to business-as-usual 2030 Singapore Reduce energy intensity by 20% by 2020 and 35% by 2030 compared with 2005 levels 2030 Thailand Reduce energy intensity by 25%, compared with 2005 levels 2030 Vietnam Consumption 5-8% less energy Ministry of Finance Green Paper: Economic and Fiscal Policy Strategies for Climate Change Mitigation in Indonesia. Jakarta: Ministry of Finance and Australia Indonesia Partnership

5 3. Infrastructure Investment vehicles can effectively leverage private sector funding while putting foreign reserves held by many Asian nations to work. Examples include: ADB s ASEAN Infrastructure Fund has committed to lending approximately US$ 4 billion through to ADB states that one unique feature is that the fund will issue debt, which is targeted to be purchased by Central Banks' foreign exchange reserves. With ASEAN countries holding over US$ 700 billion in reserves, the Fund offers an avenue for recycling the region's resources for its growing infrastructure requirements. Germany s KfW has also joined forces with ADB to work with the Bangladesh government to finance the US$ 150 million Coastal Climate Resilient Infrastructure Project (CCRIP). It focuses on climate proofing coastal infrastructure and improving local climate change adaptation capacity across 32 districts. 14 The project also allows for the development of local expertise within the public and private sector. Asian Infrastructure Investment Bank (AIIB), launched in 2014, is expected to play an important role in providing capital for infrastructure developments across Asia. Around 50 nations applied to become founding members of the instituion, which has authorized capital of US$ 100 billion and an initial capitalization of US$ 50 billion 15. It is expected that the development bank will adhere to international environmental and social standards, and may provide an important impetus to climate sensitive growth in the region. Developing the policy framework in support of innovative financing solutions is an important catalyst to engage the private sector and address national challenges with customized solutions

6 4. Emissions Trading Schemes (ETS) Asia is playing a leading role in developing emissions trading, with several new ETS launched in the past three years. As a policy instrument, ETS have been tailored to fit a variety of jurisdiction sizes (national and/or subnational), and cover a range of sectors and specific greenhouse gases. Across the region, ETS have been implemented, scheduled or considered, as follows: Korea: Asia s first national ETS entered into force on 1 January The Korean ETS covers 525 business entities from 23 sectors and now forms the second largest carbon market worldwide after the European ETS, with a three-year cap of billion tco2e. 16 China: Regional pilot schemes launched in 2013 in Shenzhen, Shanghai, Beijing, Guangdong and Tianjin have now completed their first compliance cycle, reporting a high level of compliance among participating enterprises. Hubei and Chongqing s pilot schemes, the final two, were launched in As of 15 April 2015, the combined market value of Chinese pilot schemes had reached US$ 122 million, and the cumulative trading volume reached million tones. The Chinese government has announced a timeline to establish a national ETS in Progress has been made towards establishing the necessary institutional framework and infrastructure, including the construction of national registry. Six sectors will initially be included in China s national ETS: power generation, metallurgy and nonferrous metals, building materials, chemicals, and aviation. Entities emitting more than 26,000 tco2/year will be covered by the national ETS, giving the Chinese carbon market an estimated CO2 emissions coverage of three to four billion tons (roughly twice the volume of the EU ETS). 19 Thailand: The country s focal point, the Thailand Greenhouse Gas Management Organization (TGO), is developing a trading scheme in partnership with the World Bank for energy efficiency certificates in an Energy Performance Certificate Scheme (EPC). TGO has also launched a Thailand Carbon Offsetting Program (T-COP) and a Thailand Voluntary Emission Reduction (T-VER) Program, both of which aim to encourage private sector and individual participation in emissions reduction initiatives

7 5. Carbon Taxes Taxes can be used as an economic policy instrument to incentivize producers and consumers to reduce energy consumption and greenhouse gas emissions. The impact and intensity of the incentive depends most importantly on the level and way of introduction. A transition phase allows producers and consumers to adapt slowly and lower transition costs, whilst a sudden introduction may cause adverse social and economic reactions such as significant price increases. Taxes are a stable emission reduction measure, which allow policy makers to slowly increase taxes and thus reduce emissions independently of certain other economic circumstances. It is also possible to make decisions based on national consensus rather than as part of a wider market and funds raised can be used to finance other actions that support low carbon growth. On the downside, taxes need to be high to be effective and monitoring and following this strategy throughout several legislative periods requires strong political commitment. Regional examples include the following: India: A nationwide carbon tax was introduced in July The tax on imported and locally mined coal was double in 2014 and 2015 to currently 200 rupees per metric tonne (US$ 3.20). Revenues are collected in the National Clean Energy Fund to support clean energy projects 21. Japan: In 2012, Japan phased in a new tax on coal, natural gas and oil, of about 289 per tonne (US$ 3.30). Throughout the five-year introduction phase the tax has been increased three times and is estimated to generate about 80 billion yen (US$ 1.02 billion), which is channeled toward low-carbon initiatives

8 Conclusion and Recommendations The risks of insufficient action to tackle the multiple threats of climate change are substantial, including direct economic value erosion in addition to significant loss and damage to property and livelihoods. It is imperative that governments across Asia develop policies, in consultation with the private sector, that can redirect existing and mobilize new private sector capital through the development of financial products and services that support low carbon growth. Policy emphasis needs to be placed on supporting the development and deployment of renewable energy and energy efficiency technologies in parallel with measures to reduce fossil fuel dependencies. Redirecting subsidies and adopting other incentives, such as carbon pricing, that support the adoption of climate friendly technologies are to be encouraged. Similarly, disincentives are needed to avoid, reduce and manage polluting industries and land use conversion particularly of tropical peatland forest. Care needs to be taken to ensure that climate resilient infrastructure and large-scale renewable energy projects are developed with appropriate environmental and social safeguards in place, ideally considered during strategic land use planning to ensure that anticipated significant adverse impacts on sensitive receivers, including existing community users, can be avoided or otherwise satisfactorily addressed in advance of any physical development. 8

9 About Association for Sustainable & Responsible Investment in Asia (ASrIA) The Association for Sustainable & Responsible Investment in Asia (ASrIA) is the leading organization in Asia dedicated to promoting sustainable finance and investment across the region. ASrIA plays a critical role - as a thought leader, advocate and convener - in transforming Asia s financial markets into the driver for a sustainable future. We encourage thoughtful participation by financial institutions, governments, multilateral bodies, corporates and NGOs in addressing the challenges that Asia will face in the years ahead. As a member-based think tank, for over 14 years ASrIA has provided leadership, helped to build capacity and leveraged expertise to promote the development of sustainable financial markets and systems in Asia. Occupying a unique position of working across geographical and disciplinary boundaries, we share best practice and regional and global insights with the markets, its regulators and policy makers. ASrIA is also a founding member of the Global Sustainable Investment Alliance (GSIA). About the Asia Investor Group on Climate Change (AIGCC) The Asia Investor Group on Climate Change (AIGCC) is an initiative set up by the Association for Sustainable & Responsible Investment in Asia (ASrIA) to create awareness among Asia s asset owners and financial institutions about the risks and opportunities associated with climate change and low carbon investing. AIGCC provides capacity for investors to share best practice and to collaborate on investment activity, credit analysis, risk management, engagement and policy. With a strong international profile and significant network, including pension funds, sovereign wealth funds, insurance companies and fund managers, AIGCC provides representation for the Asian voice in the evolving global discussions on climate change and the transition to a greener economy. AIGCC also forms the Asian link in the Global Investor Coalition on Climate Change (GIC). 9