School of Regulation and Global Governance (RegNet)

Asia-Pacific countries are expected to add most of the world’s new power plants over the next three decades, leaving open the question of how to persuade them to build as much renewable power as possible in order to slow climate change.

Indonesia, China and the Philippines currently are considering constructing numerous coal-fired plants to meet their burgeoning electricity demand. If these go forward, they would lock in a new long-term fleet of fossil-burning power plants and miss opportunities to switch to renewable power and therefore limit greenhouse gas emissions.

If the world is to avert dangerous climate change, then renewable energy must replace coal fired power plants and that this transition must happen as a matter of urgency, said ANU College of Asia and the Pacific Professor Neil Gunningham.

“The policy question is: How can developing countries in the Asia-Pacific region be steered towards a low-carbon future?” he said. “Can they roll out a new clean energy infrastructure? What would it look like? What sort of financing instruments would underpin it?

“Financing is the key. It will require a massive amount of financing to ensure a transition to renewables and clean energy,” Gunningham said.

Since most individual governments in the region simply do not have the money to fund such an energy revolution, the bulk of that finance can only come from the private sector, which can be underpinned by support from international investment banks and groups.

Gunningham and his team received a contract in 2018 from the Australian Department of Foreign Affairs and Trade (DFAT) to help spur the private sector to fund more renewable energy development throughout the Asia Pacific. This will be a considerable challenge, because institutional investors and others will only invest where they are confident that the risks are manageable and the anticipated financial rewards sufficiently high.

“The key question is: Why would the private sector be willing to put that sort of money into low-carbon projects?” he said. “The amount of money required is unbelievably large. One estimate is $90 trillion over the next 15 years globally.”

Gunningham’s research team will initially engage with key stakeholders and policymakers in the Asia Pacific – including governments, their agencies and peak energy associations, as well as international organisations such as the Asian Development Bank, World Bank and Green Climate Fund – to determine the challenges and opportunities to invest in clean-power projects.

Based on these interviews and on broader based research, the research team will then develop country-specific low-carbon transformation roadmaps. These will help facilitate energy-finance networks, and provide regulation, governance and policy recommendations that could accelerate the clean-power revolution.

Additionally, the team will try to boost the knowledge levels and expertise about renewable power at national levels. To promote extensive collaboration, initial draft reports will be circulated among all stakeholders, who will be encouraged to provide feedback and become part of the process.

At this early stage, Gunningham speculates that a framework that he and his colleagues developed in the context of domestic environmental regulation, namely “smart regulation,” may also prove helpful within the sphere of regional and national energy policy.

Smart regulation refers to governance practices beyond typical command-and-control rules issued by government agencies that prescribe specific actions and penalties. Instead, smart regulation relies on more flexible and less-interventionist measures, such as escalating responses to control behaviours and empowering third parties to act as surrogate regulators in order to maximise potential outcomes.

Developing smart regulation involves collaboration between multiple stakeholders, Gunningham said. Similarly, trying to develop clean-energy projects in the Asia Pacific will require significant work with various financial, energy, environmental and government stakeholders in what he and his collaborators have termed “the new environmental governance.”

“This is a particularly complex challenge of regulation and governance,” he said. “This is an extension of our previous work that has argued there is considerable benefit in harnessing business and third parties towards providing environmental solutions.”

To achieve this, substantial trust and knowledge will have to be shared between international groups and political and energy leaders of individual nations.

Investors in costly power projects will need reassurance that the host country has created a clear and coherent set of regulations that support renewable energy as well as institutions that can ensure that once projects are built they are protected from arbitrary decision-making down the road, Gunningham said.

Backers of green projects will also have to understand the differences among Asia-Pacific nations. While many different types of loans, securities and financial instruments exist for funding new power projects, the mix will be different for each country based on their unique laws and culture, he said.

Additionally, different nations have different appetites for renewable energy. For example, China is looking at building power projects using all sources of energy, while Pacific nations like Fiji have to import expensive fuel oil but have substantial sun and wind resources. Understandably such countries are very interested in renewable power and reducing fossil fuel consumption.

In order for this strategy to be effective, energy and government officials within individual countries will need to master various financial and technological information about clean technology, which continues to change, Gunningham said. These leaders also will have to be persuaded that clean-power technology is both reliable and cost effective in the long-term.

“Critical decisions are being made now in those countries about where they’re going to be getting power,” he said. “Many of these decisions are not in their economic interests and will contribute to further global warming. By deciding to build coal fired power plants, these nations could be locking in not only carbon intensive energy production but high costs as the price of renewable energy continues to plummet.”

Research funded by: Australia Department of Foreign Affairs and Trade

Engagement Activities undertaken:

• Ongoing interviews, round-tables and stakeholder meetings in Asia-Pacific countries- starting in Fiji and Sri Lanka.

• Policy papers will be circulated to stakeholders at a later stage in the project.

Outcomes/results: Anticipated project outcome is to influence the thinking of in-country decision-makers about how they might best finance a rapid transition to a low carbon economy.

This article was republished from the ANU College of Asia and the Pacific written by Doug Abrahms.