The green economy, marked by investments in activities, infrastructure and assets that mitigate carbon emissions and pollution and fuel growth, has been gaining traction, particularly after the commitments made at COP26 in November 2021. A green economy improves energy and resource efficiencies while preventing biodiversity and environmental destruction.
Transitioning to a green economy brings numerous benefits, but it calls for material investments. Several Southeast Asian countries and businesses have committed to net-zero emissions. However, there is a wide gap in investments required to bring a noticeable difference in CO2 emissions. While current investments stand at $20bn, Southeast Asia requires a $3tn investment over the next decade to construct sustainable infrastructure to pare the region’s greenhouse gas (GHG) emissions. Key investment areas include renewable energy, forest conservation, sustainable farming, clean industrial and construction practices and waste management.
Despite the potential for optimum returns and the urgency to switch to low-carbon solutions, there are several roadblocks to scaling green economy efforts:
- Inadequate stimuli to quickly scale up investments in decarbonization solutions. In some companies, especially small-scale ones, decarbonization does not bring the required returns.
- Preference for proven solutions to innovative solutions. Although innovative solutions have several implementation obstacles and high risks, there is substantial decarbonization potential.
- Uncertainties in costs involved in energy transition systems. Small-scale companies have traditionally preferred non-renewable energy, which has a low fixed cost but high variable cost, over renewable energy. Renewable energy has a high fixed cost but is more cost-efficient in the long term.
- Limited focus of agricultural industry on decarbonization. Agriculture – a major source of carbon emissions in Southeast Asia – makes a substantial contribution to the region’s economy. Since the sector is unorganized in the region and dominated by small-scale farmers, knowledge of low-carbon agricultural practices is limited.
Several measures can promote green economy principles to meet the COP26 climate promises and bring about economic benefits to Southeast Asia’s economy:
- Unlocking potential in tried-and-true solutions: Although innovative solutions have a higher decarbonization potential, a more comprehensive decarbonization strategy with a balance between proven and innovative solutions is required.
- Identifying the cost of energy transition: It is paramount to identify and analyze all costs tied to a shift to renewables, chalk out funding sources, determine channels to attract investors and seek pathways to optimize returns on investment.
- Promoting green finance: Leverage multiple capital markets and streams to create a low-carbon business environment with a low cost of financing, particularly for local, regional, and small and medium-sized enterprises.
- Improving coordination among stakeholders: Improved relationships across industries and the value chain and public-private engagements can unlock new low-carbon business opportunities to minimize investment risks.
- Focusing on low-carbon agricultural practices: Small farmers must be engaged and offered incentives to adopt more sustainable and low-carbon farming practices. In addition, efforts should be made to raise their awareness of the benefits and need for sustainable farming.
The shift to sustainability and a net-zero business environment has enormous potential to transform Southeast Asia’s economy and catapult the region to the forefront of the energy transition. The region’s transformation will likely have a considerable impact on global GHG emissions. Moreover, the adoption of optimum climate ambition agenda will likely deliver environmental and social benefits to the region, as well as help deliver higher and more sustainable returns over the long term that benefit the region’s people, environment and economy. Technological innovation and green financing will likely be the key focus areas for this mission.
Gunung Capital is closely monitoring the energy transition journey in the region. It has invested in several low-carbon and sustainable solutions, technologies and business models. Such investments enable to mitigate emissions from high-carbon-emitting sectors and bring low-carbon solutions to the forefront of clean financing to fight climate change.