Venkatachalam 

Anbumozhi
Kaliappa Kalirajan · Fukunari Kimura
Xianbin Yao Editors

Investing in
Low-Carbon
Energy Systems
Implications for Regional Economic
Cooperation
Investing in Low-Carbon Energy Systems
Venkatachalam Anbumozhi
Kaliappa Kalirajan Fukunari Kimura
•

Xianbin Yao
Editors

Investing in Low-Carbon
Energy Systems
Implications for Regional Economic
Cooperation

123
Editors
Venkatachalam Anbumozhi Fukunari Kimura
Economic Research Institute for ASEAN Economic Research Institute for ASEAN
and East Asia (ERIA) and East Asia (ERIA)
Jakarta Jakarta
Indonesia Indonesia

Kaliappa Kalirajan and

Crawford School of Public Policy
Australian National University Faculty of Economics
Canberra Keio University
Australia Tokyo
Japan

Xianbin Yao
Asian Development Bank
Manila
Philippines

ISBN 978-981-10-0760-6 ISBN 978-981-10-0761-3 (eBook)

DOI 10.1007/978-981-10-0761-3

Library of Congress Control Number: 2016933243

© Springer Science+Business Media Singapore 2016

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The original version of the book frontmatter was
revised: The book title was corrected. The Erratum
to the book frontmatter is available at
DOI 10.1007/978-981-10-0761-3_17.
Foreword

Emerging economies of Asia have an essential role to play in promoting the global
move towards energy security, economic growth, and sustainable development.
Although their economic activities are circumscribed by developmental prefer-
ences, equity concerns, and industrial competiveness, they are important agents in
implementing several measures which would mitigate global environmental chal-
lenges like climate change. The way in which the emerging economies manage
their future energy systems and economic integration activities are critically
important, as the global society increasingly expects. East Asia Summit region have
begun responding to this challenge by in the form of intended nationally determined
contributions and comprehensive economic partnerships. However, the observed
effects of these commitments are often met with many regulatory barriers, tech-
nological hurdles, financial deficiencies, and lack of international cooperation, some
of which are very specific to the region.
At the same time, there is much scope for the regional cooperation—countries
working together through market and market mechanisms—to complement and
augment investment in low carbon energy systems, and thus provide a contribution
to achieving energy security goals, and long-term reductions in carbon emissions.
However, policy approaches to understand the synergies differ radically across the
region and there is a need for mutual learning.
This book is based on papers presented and discussed for the ERIA project on
Low Carbon Energy Systems: Implication for Regional Cooperation and
Integration. This project aimed
• to identify and elaborate on individual energy policy actions in major economies
based on scenario analysis that is necessary to create low carbon economy at a
scale required; and
• to review regional economic integration activities in the region and beyond,
which facilitate such actions with suggestions for any improvements.
This project brought together leading energy and economic experts from region,
assessed country approaches, generated common insights and understanding and

vii
viii Foreword

weighed policy implications, and identified action plans, all of which are captured
in this book.
This book is being published as part of ERIA’s effort to produce knowledge
products that can be used to promote sustainable development, one of the three
priority themes. I am confident that this book will contribute to policy development
and academic understanding in an area where new insights are urgently needed.
I hope this book will also help countries in ASEAN and East Asia to set up and
implement robust policy measures and sustainably manage their critical energy
resources for the long-term development of their people.

August 2016 Hidetoshi Nishimura

President of ERIA
Contents

1 Serendipity of Low Carbon Energy System and the Scope

of Regional Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Venkatachalam Anbumozhi and Xianbin Yao

Part I An Evolutionary Analysis of Low-Carbon Energy Systems

and Green Growth
2 Low Carbon Energy Systems in China: Visioning Regional
Cooperation Through the Belt and Road . . . . . . . . . . . . . . . . . . . . . 31
Zhu Yuezhong, Tian Zhiyu, Liu Jianguo, Chao Feng and Liang Qi
3 A Multi-level Experience of Designing Low-Carbon Energy
Systems in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Ritu Mathur and Malancha Chakrabarty
4 Toward a Low-Carbon Economy for Indonesia:
Aspirations, Actions and Scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Arianto A. Patunru and Arief Anshory Yusuf
5 Greening the Economy with Low Carbon Energy System:
Developments, Policy Initiatives and Lessons from Malaysia . . . . . . 111
V.G.R. Chandran Govindaraju
6 On the Dynamics of Low Carbon Green Growth in Thailand . . . . . 131
Qwanruedee Chotichanathawewong
7 Functional Characteristics of Low Carbon Energy Systems
and Need for Regional Cooperation in Vietnam . . . . . . . . . . . . . . . . 185
Pham Khanh Toan, Nguyen Duc Cuong and Tran Thi Thu Huong
8 Low Carbon Energy Systems and Indicator Framework
for Cambodia, Lao PDR and Myanmar . . . . . . . . . . . . . . . . . . . . . . 215
Sivanappan Kumar

ix
x Contents

Part II Transition Experiments and Innovation in Regional

Cooperation
9 Energy Policy and Regional Cooperation: Australia’s
Contribution to Low Carbon Green Growth Initiatives . . . . . . . . . . 251
Gaminiratne Wijesekere and Arif Syed
10 Aiding the Transition: Innovations with Japan’s Bilateral
Offset Mechanisms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Akira Ogihara and Venkatachalam Anbumozhi
11 Regional Cooperation and Asia’s Low Carbon Economy
Transition: the Case of New Zealand. . . . . . . . . . . . . . . . . . . . . . . . . 309
Douglas Hill
12 Low Carbon Energy Transition in EU: Lessons from Economic,
Institutional and Management Approaches . . . . . . . . . . . . . . . . . . . . 327
Matthias Helble

Part III Regional Economic Integration and Implications

for Low-Carbon Green Growth
13 The Influence of Regional Cooperation on Export Potential
of the APEC 54 List of RCEP Countries . . . . . . . . . . . . . . . . . . . . . . 359
Kaliappa Kalirajan
14 Barriers and Options for Carbon Market Integration . . . . . . . . . . . 391
Lingshui Mo and Xuedu Lu
15 Domestic and International Finance in a Regional Perspective . . . . 435
Tomonori Sudo

Part IV Conclusion
16 The Hard Choices that Asia Must Make . . . . . . . . . . . . . . . . . . . . . . 465
Kaliappa Kalirajan, Venkatachalam Anbumozhi and Fukunari Kimura
Erratum to: Investing in Low-Carbon Energy Systems . . . . . . . . . . . . . . E1
Venkatachalam Anbumozhi, Kaliappa Kalirajan, Fukunari Kimura
and Xianbin Yao
Appendix 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 471
Appendix 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 487
Appendix 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 495
Editors and Contributors

About the Editors

Venkatachalam Anbumozhi is a Senior Economist at the Economic Research

Institute for ASEAN and East Asia (ERIA), Indonesia. His previous positions
include Capacity Building Specialist and Senior Fellow at Asian Development
Bank Institute and Assistant Professor at the University of Tokyo. A distinguished
fellow of Asia Pacific Rim University (APRU) Forum on Development and
Environment, he also advised ADB, JICA, JBIC, UNESCAP projects on sustain-
able development. He has published several books, authored numerous research
articles, and produced many project reports on natural resource management, cli-
mate friendly infrastructure design, and private sector participation in green growth.
Anbumozhi was invited as a member of the APEC Expert Panel on Green Climate
Finance and the ASEAN Panel for promoting climate-resilient growth. He has
taught resource management, international cooperation, and development finance at
the University of Tokyo and has speaking engagements at some of the leading
international organizations. He obtained his Ph.D. from the University of Tokyo.
Kaliappa Kalirajan is a Professor in the Crawford School of Public Policy at the
Australian National University, Australia. He is also a Visiting Professor at the
Madras School of Economics, India and International University of Japan. His areas
of major interest include macroeconomic and trade policies, sources of growth,
regional cooperation in low carbon energy systems, and technology issues in
emerging Asian countries. He has 150 publications in those areas in refereed
academic and policy journals. He has authored and edited 15 books. He is currently
serving on the editorial board of the following journals: Journal of Asian
Economics; Agricultural Economics; Australian Journal of Agricultural and
Resource Economics; The Developing Economies; The Journal of Applied
Economic Research; Journal of Social and Economic Development; and Asia and
the Pacific Policies Studies. He has been a consultant to different national and
international organizations from time to time.

xi
xii Editors and Contributors

Fukunari Kimura has been Professor, Faculty of Economics, Keio University,

Tokyo, Japan since 2000 and Chief Economist, Economic Research Institute for
ASEAN and East Asia (ERIA) since 2008. He is also a co-editor of the Journal
of the Japanese and International Economies. He was born in Tokyo in 1958 and
received his Bachelor of Laws from the Faculty of Law, University of Tokyo in
1982, Master of Science and Ph.D. from the Department of Economics, University
of Wisconsin-Madison in 1990 and 1991. He worked for the International
Development Center of Japan as Researcher during 1982–1986, the Department of
Economics, State University of New York at Albany as Assistant Professor during
1991–1994, and the Faculty of Economics, Keio University as Associate Professor
during 1994–2000. He was also the President of Japan Society of International
Economics during 2010–2012. His major is international trade and development
economics. In particular, he has recently been active in writing
academic/semi-academic books and articles on international production networks
and economic integration in East Asia.
Xianbin Yao is the Director General of the Pacific Department of the Asian
Development Bank (ADB). Mr. Yao leads the department that formulates ADB’s
operational strategies for the Pacific developing member countries, including eco-
nomic analyses, policy analyses, and country performance reviews; and develops
associated country operational programs for ADB assistance. Prior to this, Mr. Yao
was the Director General for ADB’s Sustainable Development and Climate Change
Department, leading and coordinating the development and implementation of
ADB’s financing and technical assistance programs on climate change, low carbon
green growth and social development. Mr. Yao holds a doctoral degree from
Michigan State University, USA.

Contributors

Venkatachalam Anbumozhi Economic Research Institute for ASEAN and East

Asia, Jakarta, Indonesia
Malancha Chakrabarty The Energy and Resources Institute, New Delhi, India
Qwanruedee Chotichanathawewong Thailand Environment Institute, Nonthaburi,
Thailand
Nguyen Duc Cuong Institute of Energy and Environment of Vietnam, Hanoi,
Vietnam
Chao Feng China University of Mining and Technology, Beijing, China
V.G.R. Chandran Govindaraju University of Malaya, Kuala Lumpur, Malaysia
Matthias Helble Asian Development Bank Institute, Tokyo, Japan
Douglas Hill University of Otago, Dunedin, New Zealand
Editors and Contributors xiii

Tran Thi Thu Huong Australian National University, Canberra, Australia

Liu Jianguo Energy Research Institute of National Development and Reform
Commission, Beijing, China
Kaliappa Kalirajan Australian National University, Canberra, Australia
Fukunari Kimura Economic Research Institute for ASEAN and East Asia,
Jakarta, Indonesia; Faculty of Economics, Keio University, Tokyo, Japan
Sivanappan Kumar Asian Institute of Technology, Pathumthani, Thailand
Xuedu Lu Asian Development Bank, Manila, Philippines
Ritu Mathur The Energy and Resources Institute, New Delhi, India
Lingshui Mo Asian Development Bank, Manila, Philippines
Akira Ogihara Institute for Global Environmental Strategies, Hayama, Japan
Arianto A. Patunru Australian National University, Canberra, Australia
Liang Qi Energy Research Institute of National Development and Reform
Commission, Beijing, China
Tomonori Sudo Ritsumeikan Asia Pacific University, Oita, Japan
Arif Syed Bureau of Resources and Energy Economics, Canberra, Australia
Pham Khanh Toan Institute of Energy and Environment of Vietnam, Hanoi,
Vietnam
Gaminiratne Wijesekere Australian National University, Canberra, Australia
Xianbin Yao Asian Development Bank, Manila, Philippines
Zhu Yuezhong Energy Research Institute of National Development and Reform
Commission, Beijing, China
Arief Anshory Yusuf Padjadjaran University, Bandung, Indonesia
Tian Zhiyu Energy Research Institute of National Development and Reform
Commission, Beijing, China
Chapter 1
Serendipity of Low Carbon Energy System
and the Scope of Regional Cooperation

Venkatachalam Anbumozhi and Xianbin Yao

1.1 The Setting

As the world’s most populous region as well as one that has to contend with high
economic growth, rising share of global greenhouse gas emissions (GHG), and the
most vulnerability to risks, Asia has started taking policy actions towards
low-carbon green growth. Many emerging economies in Asia have began to shift
towards a new sustainable development paradigm that brings competiveness to their
industries, alleviates energy poverty and serves growing technology markets
(ADB-ADBI 2013). In recent literature, Yao and Anbumozhi (2014) analysed the
driving forces of such low-carbon policy options at the country level. They con-
cluded that integrating climate policies into broader development policies facilitates
the transition of major developing economies towards a low-carbon green growth
paradigm. These policy actions are voluntary, country driven and compatible with
needs of each country. Many other studies (Zhu 2012; Mathur 2012; Patnuru 2012;
Doshi 2012; Howes 2013; Chotichanathawewong and Natapol 2012) indicate that it
is economically feasible to halt, and possibly reverse, the growth of GHG emissions
with Nationally Appropriate Mitigation Actions (NAMA). The debate over
low-carbon green growth is focused primarily on current country-level actions.
Successful low-carbon green growth approaches, however, need to be supported
by appropriate institutional, financial and technical capacity. Many country-level
studies also found that, in the past and present, developing countries in Asia too
often plan policy actions that support green growth in a non-linear, mono-sectoral

V. Anbumozhi (&)
Economic Research Institute for ASEAN and East Asia, Jakarta, Indonesia
e-mail: [email protected]
X. Yao
Asian Development Bank, Manila, Philippines
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 1

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_1
2 V. Anbumozhi and X. Yao

approach but have failed to develop a systematic understanding of opportunities

available at regional level (Hasson et al. 2010; Carfi and Shiliro 2012). So far, only
a few studies have explored the linkages of national actions and opportunities
available with regional cooperation. Bosello et al. (2003) studied the effects of
different equity rules on regions’ trade incentives to cooperate. Carraro et al. (2006)
showed how appropriate monetary transfers may induce almost all countries to sign
a stable climate treaty. Building upon the same study, Brechet et al. (2012) analysed
the negotiation strategy for future climate agreements, while Nagashima et al.
(2009) looked at different monetary transfer schemes and their impact on partici-
pation and abatement costs. These studies are limited in scope in that they focus
mainly on equity issues between advanced and developing countries of Asia. On
the other hand, others studies (GGGI 2011; Sachs and Someshwar 2012) observed
that country-level plans in developing Asia are struggling to overcome a slow
implementation and witnessing a lack of regionally coordinated approach to col-
lectively take a strong, ambitious and rapid action on climate change as well as to
accelerate green growth. Considering the global scope of the climate change
challenges and interdependent nature of economic growth, there is a need for
value-driven regional partnerships that are committed to green growth and capable
of transforming country-level actions into a collective effort.
International discussions on low-carbon green growth often omit the issues
related to the legitimacy and benefits of regional cooperation. In seeking for the
answers to the following questions below, traditional thinking on the bounds of
actions and the distributional issues are seldom applied beyond state boundaries:
• Do the current policies and practices of low-carbon green growth in Asia, which
are situated at the nexus between the market and non-market forces, need
regional cooperation to accelerate the transition?
• What are the benefits and disadvantages of working together?
• Does a regional partnership for technology and knowledge diffusion compliment
or serve as alternatives to national actions on climate change?
In this chapter, these questions are addressed by providing a regional coopera-
tion model and discussing the legitimacy for a networked and regionally coordi-
nated support mechanism that has the potential to tackle climate change issues and
accelerate green growth. This chapter is organised as follows: Sect. 1.2 provides an
overview of the regional cooperation framework that is based on market and
non-market actions. Section 1.3 first assesses the basic individual incentives for
countries to participate in a regional coalition by reviewing the current state of
low-carbon green growth and then identifies gaps in technology, finance, and
capacity building. The overall conclusions are given in the final section.
1 Introduction: Serendipity of Low Carbon Energy System … 3

1.2 A Regional Cooperation Framework to Accelerate

Low-Carbon Green Growth in Asia

1.2.1 The Legitimacy Theory behind Regional Cooperation

An effective low-carbon green growth cannot be attained by one country alone, but
requires considerable cooperation among countries in a region and beyond. It would
be neither desirable nor feasible for each country to separately attempt to reduce
national abatement costs. That is, it would not be desirable because lower-cost
abatement options would be foregone, and higher cost options accepted (Asuka
2012: Wyes and Lewandowski 2012; Hammit and Adams 1996). It would also not
be feasible because there would be no financial incentive for emerging economies
to participate in strong climate mitigation efforts that need actions at the global level
(Bosetti et al. 2013; van Vauren et al. 2009). Greenhouse gas mitigation and green
growth costs of emerging economies may be lowered by regionally coordinating the
flow of technology and finance as quickly and as widely as possible.
Thus, regional cooperation in accelerating low-carbon green growth involves a
networked system. Addressing the operating challenges and investment issues
related to low-carbon development will require a wise combination and adaptation
of market and non-market options (Carfi and Schiliro 2012). In that sense, regional
cooperation and transnational partnership could be defined as cooperative
arrangements between countries that have a common understanding and objectively
address the challenging issues of technology transfer and finance as well as capacity
building needs. This can be characterised by an institutionalised cooperation among
public (governments and international organisations) and private actors (corporate
and civil society) to capitalise the market forces.
Open regionalism is already progressing in Asia with the proliferation of free
trade agreements and evolving monetary policy coordination mechanisms. These
market-driven regional cooperation efforts have the potential to complement and
strengthen the present and future climate mitigation agenda and pool together
diverse resources due to its flexibility (Aminian 2005). The benefits from regional
cooperation can be felt once there is an institutionalised arena where different levels
of efforts from private and public parties collectively work to provide for a global
public good such as climate change mitigation. Given the current trend in GHG
emissions and the latest round of stalled global climate talks, the traditional ways of
problem solving are no longer sufficient. Innovative actions that can accelerate the
paradigm shift should be brought about by a regional architecture so as to avoid the
tragedy of commons.
4 V. Anbumozhi and X. Yao

1.2.2 Mapping the Landscape for Regional Cooperation

While countries face different challenges and needs in managing their transition,
jeopardising the benefits from low-carbon green growth is never an option. This
thus involves some balancing act. That is, how can major developing economies
cooperate to maximise the efficient and equitable use of resources, while meeting
the challenges in ensuring economic stability and growth?
Low-carbon green growth is an inclusive development model that improves
resource efficiency and mitigate climate change while generating a number of
co-benefits, including accelerated job creation, healthier population, expanded
access to secure energy supplies, and sustained economic growth (ADB-ADBI
2013). Policies needed to achieve the goal have been identified and are known to
stakeholders. However, mobilising the required scale of technology, finance, and
knowledge is the core of the implementation deficit and demands new cost-effective
approaches to accelerate the process (Bosetti et al. 2013; Cho et al. 2014).
Emerging Asian economies need to do all these (i.e., deploy existing energy
efficiency and low-carbon technologies, develop new goods and services as well as
infrastructure) on a hitherto unprecedented scale. The most effective way to address
this challenge is to develop a market framework that stimulates and scales up
low-carbon technology investment. Over the period to 2035, the investment
required by Asia to stabilise the climate to 450-ppm carbon scenario is estimated to
be US$380 billion (IEA 2014).
New financing models to catalyse the regional resources’ economic and envi-
ronmental benefits are needed. Policy actions to address low-carbon development
are already happening in Asia, and many different emission management systems
such as cap and trade are being introduced at the country level. Such clear
recognition of the carbon markets as an internal part of global and domestic efforts
to mitigate climate change adds a new dimension to low-carbon green agendas.
Creating a regional carbon market will establish a single carbon cost and will
create equitable access to the prevailing low-cost abatement opportunities.
Nevertheless, the region is vastly underinvesting in innovation system that can
catalyse domestic capacity to develop, adapt and diffuse beneficial technology and
business models. Experiences in Japan and Korea indicate that effective low-carbon
innovations need to encompass not only the hardware of technology but also the
software of knowledge management (Ramanthan 2012; Asheim et al. 2006). Both
the knowledge base and learning economic rationale argue that in the global
economy, knowledge is the most strategic resource, while learning is the most
fundamental activity that can bring economic competiveness.
Then the question that needs to be explored now is how a combination of “pull”
by regionally coordinated actions and “push” by domestic actions will bring pos-
itive changes and engage developing Asia in international efforts. For that, the
following measures are identified to help enhance, directly or indirectly, the
regional cooperation architecture as well as have the potentials to augment current
country-level efforts on low-carbon green growth:
1 Introduction: Serendipity of Low Carbon Energy System … 5

Accelerating Country-Level Actions on Low-carbon Green Growth

A B C D E

Free Pooling of
trade in Strengthe Collective
regional Integration
low- ning learning
Pull public and of carbon Push
carbon regional and
private Markets
goods innovation capacity
financial
and systems building
resources
services

Market-based Options Mandated Options

Fig. 1.1 A regional cooperation framework for pursuing low-carbon green growth in Asia

A. Free trade in low-carbon technology and services

B. Integration of carbon markets
C. Managing the regional financial reserves
D. Coalition for regional innovation systems
E. Partnerships for collective learning and capacity building
As illustrated in Fig. 1.1, it is possible to classify the basic regional cooperation
pillars into market and non-market choices. Specifically, improvements in trade,
carbon markets, and financing architecture at the regional level (A, B, C)—which
are based on the market principles—can reduce the cost of implementation directly.
These have the potential to solve some of the issues related to increasing share of
low carbon technologies and achieving energy efficiency targets. Implementing
these basic measures may be less challenging since there are already inherent
certainties associated with ongoing regional economic integration process. If this is
the case, additional measures should be considered. In a dynamic and rapidly
changing economy, it is necessary to pay attention to innovations and knowledge
sharing as processes that are equally important as national competency building.
The capacity mechanisms indicated in D and E are hybrid solutions between a
market oriented and a regulated one, where government’s lead role is necessary.
Nevertheless, such capacity building arrangements may well be necessary to cope
with the transition in an environment wherein regulatory measures and market
failures are common rather than the exception.
6 V. Anbumozhi and X. Yao

1.3 Country Actions versus Regional Cooperation

for Low-Carbon Green Growth in Asia: Lesson
Learned

1.3.1 Meta-Policy Analysis Method

The above analytical framework was used in this study to examine whether current
policy actions are necessary enough to drive low carbon green growth efforts at the
national level. Benchmark meta-policy analysis set for a regional study on Low
Carbon Green Asia (ADB-ADBI 2013) was used to assess if technologies, financial
arrangements and capacity building efforts are on track to achieve the NAMA
targets. The meta-policy analysis introduced by Yao and Anbumozhi (2014) is a
useful tool to identify the drivers of low carbon green growth and to develop deep
insights on robust policy changes taking place at different levels of the government.
Thus, this book coordinates several assumptions on low carbon green growth within
the context of developing Asia and introduced feedback that is absent in conclu-
sions of peer-reviewed publications.
The meta-policy analysis covered national development plans, sectoral plans and
targets for energy efficiency improvement and renewable energy mix as well as
policies that support market capitalisation, local government actions, private sector
development and economic integration. Since GHG reporting remains sparse in the
region, the NAMAs in National Communications (NC) to the United Nations
Framework Convention on Climate Change (UNFCCC) were studied in detail to
assess the policy impacts on GHG emissions. Based on other available data and
information, the progress of current policy actions towards regional cooperation
was also assessed.

1.3.2 Scaling Up Trade and Investment in Low-Carbon

Technology

Low-carbon technology and services help in climate change mitigation by lowering

the total cost in stabilising GHG emissions. The Intergovernmental Panel on
Climate Change (2007) has defined three major categories of technology, namely:
(i) generic large-scale technologies (e.g., end-use efficiency, advanced electricity
generation from fossil fuels, carbon capture and storage, alternate energy sources—
biofuel, wind, hydro, solar, geothermal); (ii) sector-specific, large-scale technolo-
gies (e.g., energy efficiency in manufacturing, forestry, agriculture); and (iii) mi-
cro-level mitigation technologies (e.g., methane digesters, fuel efficient stoves, etc.)
where advancements should be made by 2020.
Supported by strong domestic policies, the rapid absorption of the above tech-
nologies (particularly in renewables and energy efficiency) is observed in Asian
countries. In 2012, China, India, and Indonesia accounted for 32 % of new
1 Introduction: Serendipity of Low Carbon Energy System … 7

installations at global level, becoming the largest markets in the world for both wind
and solar (IEA 2014). However, the flow of technology transfers has traditionally
been from developed to developing countries. Given their position on the economic
growth path, these emerging countries are well placed to take advantage of
opportunities offered by expanded international trade and investments in
low-carbon technologies.
Table 1.1 gives an overview of low-carbon energy policies, and trade and
investment policies in major developing countries of Asia. Energy policies in the
Chinese government’s 12th five-year plan are directed at reducing the energy
intensity of GDP by 20 % below as well as reducing emissions of major pollutants
by 10 %. Implementation of carbon reduction targets increases the absorption of
low-carbon technologies. Accordingly, since 2006, four major pieces of legislation
have been enacted in China to address the issues of cross-border investment in
low-carbon technologies, to promote tax equality across foreign and domestic
enterprises, to establish formal property rights and to rev up market-based com-
petition (Zhu 2012).
Meanwhile, India in 2008 announced five renewable energy missions to run until
2017 so as to achieve the carbon intensity targets of 25 % compared to 2005 levels.
That was accompanied by a strengthened foreign direct investment
(FDI) framework that provides automatic approval and tax breaks for overseas
investors. In Indonesia, its government announced a National Energy Law in 2008,
the country’s first piece of legislation on energy that sets the goals for protection of
the environment with targets on biofuel, natural gas and other alternate sources.
Over the years, the Indonesian government has initiated a number of reforms in FDI
that include the creation of incentives for new investors, harmonisation of the legal
status of foreign enterprises, protection of property rights, creation of a central
coordinating body and establishment of special economic zones for low carbon
equipment-makers.
Promotion of energy security based on the principles of self-reliance is the core
low-carbon, green growth paradigm of Thailand. To achieve that, the Thai gov-
ernment encourages entrepreneurs to undertake joint ventures in cross-border
hydropower projects and low-carbon technology deployment in domestic markets
by providing the latter with tax incentives and import duty exemptions. Viet Nam
also gives greater emphasis on the security of energy supply in its low-carbon green
growth plans through progressive liberalisation of restrictions on international
technology and capital flows. The above policy initiatives prove that there is great
diversity in the policy instruments countries can apply to efficiently deploy
low-carbon technologies.
Furthermore, the Free Trade Agreement (FTA) network has been steadily
expanding in the region since the 2000s. It is worth noting that the ASEAN + 1
network and ASEAN Free Trade Agreement completed in 2012 accounted for a
12 % increase in general technology and capital flows (Shino 2011). Developing
Asia can use the momentum created by these agreements in its bid to expand the
penetration of low-carbon green technologies.
 8

Table 1.1 Overview of low-carbon energy and FDI policies in major Asian economies
Country Energy policy FDI policy
Policy Objective Policy Objective
China Public sector energy savings regulation Promote energy savings Catalogue for the Guidance of Instrument for addressing
Foreign Investment Industries macroeconomic/sectoral economic and
(2003, 2007) growth objectives
Civil energy bill Promote the use of renewable and Measures:
alternative energy sources in – Divides economic sectors into “prohibited”,
newly constructed buildings “restricted”, “permitted”, and “encouraged”
with respect to FDI;
– 2007 changed focus, encouraged FDI on
technologies providing environmental
protection, energy efficiency and recycling
Law to promote circular economy Increase re-use and recycling of Regulations on the Address concern about:
materials Acquisition of Domestic – Risks posed by powerful foreign-owned
China Coal Legal System Framework Coordinate electric power Enterprises by Foreign enterprises to Chinese economic security;
generation and mining industry Investors (2006) and
– Risk posed by expansion of foreign business
to expansion and innovation of domestic
enterprises
Solar PV subsidies 50 % subsidies Measures:
Investment in hydroelectric facilities Investment of US$125 billion – Delineation of “no go” sectors for foreign
enterprises;
– preferential import tax incentives for
intermediate goods
Enterprise Income Tax Law Encourage domestic development of
(2008) technologies and sustainable economic
development
Measures:
– Remove concessionary taxes for foreign
enterprises
– Special incentives for renewable energy
investment irrespective of ownership
Property Rights Law (2007) Establishes private property rights
V. Anbumozhi and X. Yao

Anti-Monopoly Law (2008) Framework to regulate market competition

(continued)
Table 1.1 (continued)
Country Energy policy FDI policy
Policy Objective Policy Objective
Indonesia National Energy Law (2006) Reduce Energy dependency Law No 25/2007 on Attract overseas investment
Investment
Change energy mix Government regulation No Measures:
Reform of energy pricing 1/2007 on Income tax – Incentives for new investors or expanding
facilities existing investors, provided some
Green Energy policy (Ministerial Decree Increase due of renewable
conditions are met
2/2004) energies
– Consistent legal status of domestic and
Increase education foreign enterprises
Small distributed power generation using Incentives for small scale – Protection of Property rights
renewable energy (Ministerial decree renewable power facilities – Easing of immigration regulations
112/K/30/MEM/2002) – Creation of central coordinating body
Medium-scale power generation using Incentives for medium-scale
renewable energy (Ministerial regulation renewable power facilities
2/2006)
Public/Private initiatives Micro-hydroelectric Presidential Regulation Encourage domestic growth and employment
Energy self-sufficiency village No. 76/2007 on requirements Measures:
programme for investment – Various criteria relating to technology
Solar home system programme transfer, location of investment, and training
and employment of Indonesian workers
1 Introduction: Serendipity of Low Carbon Energy System …

10,000 MW Crash Program (Presidential Construction of 10,000 MW coal

– Creation of Special Economic Zones (SEZ)
Decree 71/2006) fired capacity by 2010
Construction of 10,000 MW coal Presidential Regulation No Protect certain sectors of the economy
fired capacity by 2009–14) 77/2007 on negative and
Bilateral Energy Cooperation Promote the use and deployment positive lists of investment Measures:
Indonesia-Netherlands (BECIN) of renewable energy resources – Negative investment list re
restrictions/prohibition on foreign
investment
(continued)
9
Table 1.1 (continued)
10

Country Energy policy FDI policy

Policy Objective Policy Objective
Thailand Energy Supply Policy (2008) Energy security Directive to promote Encourage investment in targeted CFTs
Monitoring of energy prices investment in renewable Measures:
industries – Tax Incentives
Promotion of alternative energy
production and R&D – Import duty exemptions
– Discount from transport, electricity, and
Energy savings and energy
water cost
efficiency
Energy Conservation Plan (2009) Environmental goals
Increase the share of renewable Investment incentives for Encourage investment in targeted locations
energy to 8 % by 2011 certain provinces (2009)
Measures:
– Tax Incentives
– Import duty exemptions
– Incentives for infrastructure development
Thailand Investment Years Encourage investment in targeted industries
initiatives (2008–2009)
Vietnam National Energy Development Strategy Increase share of renewable Certification requirements Requirements to certify foreign-led
(2009) investment projects
Installation of nuclear power Special zones Creation of geographic zones to attract FDI
plant
Competitive markets for
electricity, coal, oil and gas
Rural energy programme Law on Competition (2004) Framework to regulate market competition
(continued)
V. Anbumozhi and X. Yao
Table 1.1 (continued)
Country Energy policy FDI policy
Policy Objective Policy Objective
Vietnam Power Sector Development Development of renewable Law on Technology Transfer Create framework for promoting and
Strategy (October 2004)/National Energy energy (2005) restricting certain types of technology transfer
Strategy Development (December 2007)
Other policies Incentives for international Law on Investment (2005) Regulate investment
investment in domestic fuels
Diversification of energy sources Measures:
Incentive for exploitation of – Lists forms of allowed private sector
domestic fuels investment
– Lists sectors closed to foreign investment
Law on Enterprises (2005) Establish modern company structures
Law on Intellectual Property Establish intellectual property rights
(2005)
Source Zhu (2012), Chotichanathawewong and Natapol (2012), Mathur (2012), Kang (2013)
1 Introduction: Serendipity of Low Carbon Energy System …
11
12 V. Anbumozhi and X. Yao

However, the utilisation ratio of the FTAs remains low—for example, 42 % for
Thailand; 3 % for Vietnam; and 24 % for Malaysia (Baldwin, Kawai and Wignarjah
2014). While the tariff rates for a number of automobile, electronic and manufac-
turing technologies have been eliminated, the tariff rate for low-carbon goods and
services in the region remains in the range of 12–50 %, with high tariff rate observed
among low-income countries (Kalirajan and Anbumozhi 2014; Mikic 2010). High
tariff and non-tariff measures on low-carbon goods and services hinder the wider use
of these technologies. Kalirajan (2012) estimated that the complete elimination of
tariffs and non-tariff barriers (i.e., tariff free and quota free) would lead to an average
increase of trade in wind and solar power energy generation and energy-efficient
lighting technology by 13.5 % at the current level, with variation across technolo-
gies and countries. The elimination of tariff alone would raise trade by around 7 %
from its current level, which then translates to a 9 % total reduction in the region.
At present, there are difficulties in current systems arising from unnecessary and
unwieldy multiple administrative levels and potentially contradictory pieces of
legislation pertaining to line ministries. In most cases, low-carbon investment
projects and technologies are required to undergo certification process across the
ministries. This requirement adds another layer of complexity to the implementation
of low-carbon technology transfer projects.

1.3.3 Transformative and Prioritised Financing

for Low-Carbon Green Growth

Although there are many low- or negative-cost opportunities to reduce or avoid

carbon emissions, there is still a net cost to adopting a low-carbon pathway, albeit
small in comparison to the economic growth that can be expected over a period.
Financial investment in low-carbon energy systems itself is estimated to be at US
$150 billion in 2035 for China, India, and Southeast Asian countries in 450 scenarios,
although the lack of clarity over policies could increase this risk. In China, the cost of
realising the low-carbon scenario was estimated at US$84 billion while in India, the
additional investment to achieve the all-out scenario in terms of energy plant retro-
fitting, efficiency improvement and new capacity for grid-supplied renewable elec-
tricity is estimated to have a net present value of US$33 billion by 2035 (IEA 2014).
The size of funding required necessitates use of a wide range of financial
mechanisms, whether public or private, domestic or international. At the national
level, the revenue from new taxes on emissions and pollution is used as a strategy to
boost low-carbon investments. Aside from the revenues gained, other economic
benefits from an environmental levy, such as carbon tax, are reduced CO2 emissions
and decreased consumption of fossil fuels. In 2005, Japan introduced an environ-
mental tax of US$28 for each ton of carbon, which resulted in an additional revenue
of US$4.2 billion. That revenue is recycled to support energy-efficient buildings,
low-carbon technologies for automobiles and forest absorption source-based
programmes.
1 Introduction: Serendipity of Low Carbon Energy System … 13

India has become the first Asian country to introduce carbon tax on coal in 2010
as part of its NAMA. The Chinese National Development and Reform Commission
has introduced carbon trading schemes in Beijing, Chongqing, Shanghai and
Tianjin, and the provinces of Hubei and Guangdong in 2013, with a view to
encourage investment in low-carbon infrastructure. Meanwhile, Korea introduced
carbon taxes in 2012 but the plans for the additional use of the revenues are yet to
be announced. Currently, a commission is reviewing and analysing several eco-
nomic instruments, including carbon taxes imposed on GHG and a cap-and-trade
scheme. Given that a quarter of the developing Asian population lives below
$1.25/day poverty line and more than half of the population still live below
$2.00/day poverty line, additional revenue generated from eco-taxes might be
diverted to other basic human needs in those countries.
Gaining a comprehensive picture of the private financing landscape is compli-
cated due to the absence of common definitions as well as inconsistent reporting and
tracking methodologies. A study conducted by Climate Policy Initiative (Sudo 2012)
estimated that at least US$97 billion of climate finance is currently being provided at
the global level. Of this, the amount of private financing is almost three times greater
than that of public financing. There is a disparity in private sector finance depending
on the countries’ economic circumstances. According to the data from Global
Development Finance (GDF 2011), US$378 billion has been invested in Asian
developing countries. Out of this, a large part of the FDI to Asia goes to China (US
$254 billion). Among the developing Asian countries, the top 10 recipient
countries—e.g., Singapore (US$39 billion), India (US$24 billion), Indonesia (US$13
billion), Kazakhstan (US$10 billion), Malaysia (US$9 billion), Viet Nam (US$8
billion), and Thailand (US$6 billion)—account for 97 % of FDI inflow in Asia.
International climate finance is also important, but because of high demands,
some prioritisation will be required. Based on the Japan International Cooperation
Agency (JICA) and Asian Development Bank (ADB) funding in Asia, funds for
readiness activities (economy-wide and sector-specific low-carbon planning),
transformative policy changes (detailed implementation of recommendations), and
first-of-kind investments (for demonstration and to overcome real or perceived risks)
are proposed as high priorities as these are likely to achieve the greatest return.
A report by Nakhooda et al. (2011), which summarised climate change financial
flows into Asia and the Pacific region based on the data extracted from Climate Fund
Update (CFU), indicated that a total of US$1.73 billion for Asian countries has been
approved between 2004 and 2012 and approximately $866 million of this approved
funding has been disbursed from dedicated climate change funds.
Out of the total inflows, attracting sufficient private capital to low-carbon
investment is a major challenge, as those projects tend have high up-front capital
expenditures as a share of project cost. Higher unit capital costs and risk premiums
mean that low-carbon investments may suffer disproportionately in the event that
banks and other institutions retreat from providing long-term finance due to Basel III
capital adequacy requirements (Hongo 2013). Furthermore, the dispersed, diverse
and small-scale nature of many low-carbon investments such as small-scale renew-
ables and energy efficiency makes it difficult to package them and securitise credit to
14 V. Anbumozhi and X. Yao

Table 1.2 Selected concessional financing vehicles for regional pooling of investments in Asia
for low-carbon actions
Category Description Typical Actors Advantage
application
Green Fixed income All mature Principally issued High degree of
bonds debt securities low-carbon by governments, security when
technologies, international backed by
predominantly financial governments
wind, solar and institutions,
cross-border hydro
multi-national banks
or corporations
Special Leasing Energy efficiency Provided from Can be leased to
purpose scheme using in SME, government end-users to reduce
vehicles debt facilities micro-generation, financial institutions the impact of cash
available afforestation or investment banks flows, while giving
programmes to provider or access to large-scale
utilities debt finance
Pooled Private equity All mature Issued by asset Exposure to
vehicles funds, green low-carbon managers or companies or assets
infrastructure technologies, specialist private for small investors
funds, and predominantly equity funds with
other listed wind, solar and guarantee from
vehicles cross border hydro bilateral and
multi-lateral
financial institutions
Source Hongo (2012), Kim (2012), Anbumozhi and Patunru (2011)

investors, which is a key instrument to reduce risk. The financial community needs to
appreciate the distinctive nature of such investments and develop suitable vehicles to
finance low-carbon projects in a way that aligns with their varying sizes, operational
models and investment objectives. Current finance vehicles for pooling regional
investments in low-carbon energy projects in Asia are illustrated in Table 1.2.
In financing low-carbon investments, the possibility of tapping into huge
regional resources held by sovereign wealth funds and institutional investors shall
be a good strategy for collective action. Sovereign funds include pension funds and
foreign exchange deposits in US treasury. Institutional investors include insurance
companies, infrastructure investment funds, etc. In emerging Asian economies,
sovereign wealth funds are key sources of capital, with US$6 trillion assets in 2012.
The foreign exchange reserves are estimated to be in the order of US$7 trillion.
Establishing regional agreements such as special drawing rights (SDR) for
low-carbon green growth can help tap these resources.

1.3.4 Emission Trading and Carbon Markets

Developments in Asia over the past years have given a major boost to global carbon
markets, an acknowledgement of the growing role that markets play in national
1 Introduction: Serendipity of Low Carbon Energy System … 15

efforts to reduce GHG emissions. Many emission trading mechanism initiatives are
meant to meet national and Kyoto targets. Some are driven voluntarily by business.
Japan, China, India, and Korea are now at the forefront in proposing innovative
systems, whereas they lagged behind in their usage of tradable permits in the past
(Kim 2011). The Tokyo Cap-and-Trade Program is the world’s first carbon market
programme targeting urban facilities. The programme started in April 2010 and so
far has been successful. In 2011, emissions had been reduced to 23 % compared to
the base year. This is a further 10 % from the first year in 2010, which showed to
13 % reduction in 2011 (ICAP 2014). In 2011, China approved a pilot trading
scheme in seven provincial regions so as to encourage carbon emission reductions.
In 2012, as a market-based emissions reduction policy measure, India launched a
scheme called Perform, Achieve and Trade (PAT) to improve energy efficiency.
Here, industry operators are assigned tradable quotas, and the energy efficiency is
increased. These lead to the creation of domestic markets for domestic players.
Table 1.3 shows the sectoral coverage of emission trading systems in Asia. They
vary across systems, depending on local needs, economic structure, and carbon
market capacity. Key considerations in this regard include the largest emitting

Table 1.3 Sectoral coverage of emission trading schemes in Asia

Sectoral coverage
Emission trading Power Industry Transport Buildings Waste Forestry
schemes

Tokyo

India -PET

Kazakhstan

Shenzhen

Shanghai

Beijing

Guangdong

Tianjin

Chongqing

Hubei

Korea

Total number of 13 15 6 5 3 1
systems at global
level*
a
Includes EU-ETS, US-RGGI and New Zealand. Source ICAP (2014)
16 V. Anbumozhi and X. Yao

sectors in a given jurisdiction and the available abatement options. Some sectors,
like the power or industry sector, are included in the scope of all emission trading
systems.
At the international level, the Clean Development Mechanisms (CDM) was
designed to help developed countries meet a part of their emission reduction targets
on carbon-offset principles. The projects of the CDM provided certified emission
reduction (CER) credits, which could be traded or sold by participants in the
projects. To date, market creation through CDM is highly concentrated in a few
developing countries of Asia. As of December 2012, 37 % of CDM projects in the
pipeline were located in China and 27 % in India. The remaining 36 % are shared
by other nations. By 14 September 2012, the CDM Board had issued 1 billion
CERS, 60 % of which originated from projects in China. India and the Korea were
issued with 15 and 9 % of the total CERS, respectively. The Himachal Pradesh
Reforestation Project in India is claimed to have the world’s largest CDM
(Anbumozhi and Patunru 2011).
Within each type of carbon market—either emission trading systems or CDM—
different emission management approaches are being implemented, creating a dif-
ferent carbon cost within its targeted sector or country, either explicitly through the
incremental cost of policy requirements. These fragmented markets also are not
favourable to investors, as the transaction costs are more. On the other hand, a
regional carbon market that links different emission management approaches
together will establish a single carbon cost and create equitable access to the pre-
vailing lowest-cost abatement opportunities.
Integrated carbon markets will deliver a number of benefits. They will expand
the scope and diversity of low-cost abatement opportunities, thus enhancing the
cost effectiveness of reduced emissions in participating countries. Deeper and more
liquid carbon markets will also operate more efficiently and effectively provided
there is a strong confidence in the governance and credibility of the markets
(Asheim et al. 2006). As regional carbon markets develop, price volatility should
decrease because supply and demand for permits will be less dependent on a single
country or region’s short-term economic outlook. Linked markets decrease trans-
action costs for business with liability under various schemes, and reduce the risk of
competiveness impacts on business and of potential carbon leakage (Froyn and
Hovi 2008).
Linkages among the carbon markets occur when one system recognises the
market instrument (e.g., allowance) operating within another system and allows its
use to meet the compliance objective of the first system. For example, Japan’s
Tokyo ETS recognises China’s Shanghai ETS and permits the use of CER to meet
the compliance requirement of a facility in Shanghai. A regional agreement to
integrate markets could take a step-wise approach, which allows linkages between
various national approaches, covering both direct emission management and the
need to offset emissions. A signatory country may choose multilateral participation
in the regional carbon market by accepting, at the national or sector level, a fixed
carbon emission budget for a given future period. Alternatively, the signatory
country may choose to begin the task of managing the emission without
1 Introduction: Serendipity of Low Carbon Energy System … 17

participating multilaterally, but instead engage in regional trade through unilateral

recognition of project mechanisms.
In any case, the unilateral recognition and bilateral arrangements such as Japan’s
Bilateral Offset Credit Mechanisms (BOCM) may also play a role in unifying the
currently fragmented markets.

1.3.5 Regional Innovation Systems and Localised Learning

Countries that will be competitive in the 21st century are those that innovate, move
to clean energy, and reduce emission intensity of their economic growth. For that,
they require diverse technology responses across many economic activities and
sector. Some of the highest-profile technologies intrinsically require very
large-scale funding on discrete projects. However, it is a myth to think that the only
technologies that matter are those that are big and centralised such as carbon capture
and storage. On the contrary, the recent 5th Assessment Report and IEA (2014)
found that the biggest potential for emission reduction lies in more energy-efficient
technologies across the sectors. About 50 % of the emission reduction could be
achieved by introducing new small-scale technologies and services (product
innovation) or by implementing new production process (process innovation). In its
broadest definition, a national innovation system represents new creations of eco-
nomic significance, and encompasses radically new technologies or a combination
of existing technologies that bring novelty or intangible services (Ramanthan 2012;
Kumar 2012). This is also the basis for a knowledge-based economy. Investment in
R&D is one of the main routes of innovation.
The pattern and pace of innovation in Asia has been mixed, with some countries
leading the world in innovation according to some measures, while others have
failed to benefit as much. The absolute level of annual investment in R&D in
countries such as China, India, Japan, and Korea is now substantial. However,
R&D as a percentage of GDP varies considerably. Korea and Japan have levels
comparable to that of the United States, while India and China are somewhat
behind. Similarly, the number of scientists and engineers as a proportion of the
population is higher in some Asian countries (e.g., Japan, Singapore, Korea and
Taipei, China). Some Asian nations have very low R&D spending as a proportion
of their GDP: Figures for Thailand, the Philippines, Viet Nam and Indonesia are
0.25 % or less. According to Fischer and Newell (2008), low- and middle-income
economies increased their share of global R&D expenditure by 13 % between 1993
and 2009, with China accounting for most of this increase—more than 10 %
points—propelling China to be the world’s second largest R&D spender in 2010.
There is still considerable scope for many Asian countries to increase their
innovative activities in these areas, and tailor the results of innovation to their
needs. According to World Bank (2008), water pollution control technologies in
developing countries tend to rely more frequently on local innovation than do air
pollution control technologies, because local conditions are more important in
18 V. Anbumozhi and X. Yao

shaping what these technologies have to do. They are also less likely to have been
patented elsewhere. Kang (2012) found that the most common climate-friendly
patented innovations in China and Korea included technologies designed primarily
for local markets, such as geothermal and cement manufacture. Specifically, process
innovation can be tailored to the mix of inputs available to the country concerned:
Many Asian countries have abundant unskilled labour but are less endowed with
raw materials and energy resources.
Part of the rise of innovation in several Asian countries come from efforts to start
the transition to low-carbon green growth. China and Korea, for example, have
moved up the rankings for patenting “green” innovations. China’s 12th Five-Year
Plan envisages increasing R&D expenditure to 2.5 % of GDP by 2015, focusing on
seven key strategic industries that help it move towards greener growth: environ-
mental protection and energy efficiency; new types of energy supply; next gener-
ation information technology; biotechnology; high-end manufacturing;
clean-energy vehicles; and high-technology materials.
On the other hand, in the midst of acute social development needs and limited
budgets, why and how can governments of low-income countries invest in inno-
vation? Table 1.4 shows the type of local barriers to technology adoption in
developing Asia and interventions required. It is useful to think of investments in
low-carbon innovations as a staged process where adjustment are made based on
their level of development. Sub-regional-level cooperation can help the group of
same-stage countries overcome their barriers. It is worth noting that there is large
heterogeneity of low-carbon technology needs among developing Asian countries,
some of which also hold pockets of excellence in certain sectors and technologies
such as in the case of Indonesia for biofuel; India for solar power; and China for
wind energy. These developments are not only based on cheap labour but on the
process improvement and business model innovations as well (Mohanty 2012).

Table 1.4 Local barriers to innovation and intervention required to address specific barriers
Activity Gaps/lessons learned Benefits of regional
cooperation
Applied research and Inadequate support for New ideas from local
development relevant applied research for knowledge base applied and
Grand funding, open and/or technologies where funding developed to point of
directed at prioritised is minimal due to classic potential commercial value
technologies innovation barriers
Technology accelerator Uncertainty and scepticism Reduction in technology
Designing and funding about in situ costs and risks and costs by
projects to evaluate imported performance, and lack of independent collection and
technology performance user awareness dissemination of
performance data and lesson
learnt
Business incubator services Lack of seed funding and Investment and partnering
Strategic and business businesses skills within opportunities created by
development advice to start research/technology building a robust business
ups start-ups; cultural gap case, strengthening
between research and private management capacity and
sectors engaging the market
(continued)
1 Introduction: Serendipity of Low Carbon Energy System … 19

Table 1.4 (continued)

Activity Gaps/lessons learned Benefits of regional
cooperation
Enterprise creation Market structures, inertia, Development of local
Creation of low-carbon lack of value impede commercial and technical
businesses by bringing development of new capabilities and creation of
together key skills and low-carbon products and new high-growth business to
resources services both meet and stimulate
market demand
Early stage funding for low- Lack of financing for early Enhanced access to capital
carbon techno ventures stage, low-carbon businesses for emerging business that
Co-investments, loans or due to classic innovation demonstrate commercial
risk guarantees to help barriers combined with potential. Increased public
viable businesses perceived low-carbon and private sector investment
market/policy risks in the sector that
demonstrate potential
investor returns
Deployment of existing low- Lack of awareness; Improved use of resources
carbon technologies information and market by enabling organisations to
Advice and resources (e.g., structure limit uptake of implement energy-efficient
interest free loans) to cost-competitive energy measures and save costs.
encourage organisations to efficient or low-carbon Catalyse further investment
reduce emissions technologies from organisations receiving
support
Source Ramanathan (2012), ADBI (2013a, b), KDI (2014)

Conversely, within each Asian country, firms with very different levels of
technological capabilities co-exist, and the kind of innovation process needed by
less-advanced small industries, for example, is completely different from the
demands of most technically competent firms in advanced economies. Therefore, it
would be risky and costly to apply predetermined technology prescriptions
across-the-board to Asian countries at each level of development. Instead, countries
with the same level of development or economic structure can develop compre-
hensive innovation policy strategies that will combine supply and demand side
measures, cut across functional and administrative boundaries, and build upon open
innovation processes and regional cooperation. Fiscal constraints and increasing
cost of financing the imported technologies in many developing countries make it
necessary to search for cost-effective solutions on the specific technological areas
best suited for country- or sector-specific low-carbon green growth goals. In many
developing Asian countries, these challenges are compounded by the lack of a
central organisation that can help bring together the academic, business, and
policy-making communities to address the low-carbon innovation challenges.
Establishing a network of low-carbon innovation centres across countries and
sectors could address both local and regional barriers to technology.
20 V. Anbumozhi and X. Yao

The motivation for establishing low-carbon innovation centres based on

public-private partnerships (PPP) may fall under two categories:
• First, there are the direct benefits to the low-carbon technology concerned, as the
centres will allow the innovation to be performed or applied to local needs and
potentially reduce the costs of technology interventions more quickly and
economically than without cooperation among the countries.
• Second, there are the indirect benefits arising from the cooperation. These may
occur dynamically in the course of building a knowledge-based economy, where
the collaboration across the countries is driven by external goals of political,
economic and cultural nature. For example, as indicated in Table 1.5, with the
access to the expanded market, costs and risks are shared in building a strong
business incubator services programme. Smaller enterprise creation or
exchange/visit programmes can provide the means to attract large-scale funding
as such activity can have reputational benefits, which then can attract
investments.

1.3.6 Learning Economy and Low-Carbon Green Growth

Knowledge Base

Low-carbon green growth is a relatively young field of public policy practice. In

essence, it involves development policy-making that factors in environmental,
industrial and social risks and opportunities. The key question then is: What are
these specific, viable opportunities open to the government so as to achieve social
and environmental benefits and help stimulate broad-based economic development?
Low-carbon development was not, and will not be, an easy political path for
many developing countries in Asia. Indeed, it will take a number of attempts before
they can succeed. In learning economies, public policy-making is understood as an
interactive learning process, which is socially and territorially embedded and cul-
turally and institutionally contextualised (Anbumozhi and Bauer 2013). Access to a
stock of specialised knowledge is the key that can speed up the learning process.
The faster the knowledge is absorbed, the greater the dependence on the sources of
knowledge becomes.
While it is true that Asia’s developing countries differ in economic structure and
method of governance, there remain similarities in some respects across the nations.
This presents an opportunity for Asian countries to learn from each other. Among
their common characteristics, issues such as urbanisation and air pollution in cities
as measured by traffic congestion are relevant in the context of promoting
low-carbon green growth. For example, the measure of urbanisation between 2005
and 2010 for China was 2.3, for India 2.4, and for ASEAN 2.2 (Kumar 2012). The
creditable efforts of China have included enhancement of organisation and capacity
creation for energy and emissions savings; development of energy-saving laws and
Table 1.5 Summary of policy actions and capacity building needs to accelerate low-carbon green growth
Policy NAMAs covered Lessons learned and capacity building needs
regime Economic Institutional Technical Legal Financial
National Low-carbon Evaluating cost Coordination Identifying and Full agreed costs
strategies and development effectiveness of between evaluating potential approach
plans strategies, national NAMAs using government NAMAs, developing
mitigation strategies, modelling as well as agencies at baselines and national
national action plans funding for national and local emission projections
implementation level and identifying and
assessing mitigation
options
National General Analysing emission Create capacity in Formats and measures To create a Resources necessary to
policies and economic/fiscal reduction alternatives, the national for MRV system; national design and implement
measures measures, regulation costs and calculating a institutions that Design and target the schemes;
and standards, target or the tax level will implement implementation of instrument Co-financing emission
market-based CAC and MBI systems for tracking the for adopting reduction schemes with
measures, R&D Capa, trading of domestic the rules and resources from
and Trade Carbon Tax allowances; procedures advanced countries
Determining and through financial
collecting tax from mechanisms or carbon
1 Introduction: Serendipity of Low Carbon Energy System …

regulated sources market

Sectoral Regulation and Evaluating cost Organisational Identifying and Depending Financing for design
programmes standards; Preferential effectiveness of strengthening for evaluating potentials for on mitigation phase, full cost through
and measures taxes; performance sectoral mitigation enforcing emission reduction and activity IFI; Co-financing by
standards subsidies activities/technologies mitigation associated mitigation needed for advanced economies
and low interest loans; as well as for the activities activities or regulations through financial
voluntary energy request of funding for technologies and standard mechanism or carbon
reduction programmes implementation settings market
(continued)
21
Table 1.5 (continued)
22

Policy NAMAs covered Lessons learned and capacity building needs

regime Economic Institutional Technical Legal Financial
Sub-national Institutional reforms, Fore designing Institutional Create sound and Legal Full cost financing of
level adjustments to incentives for energy strengthening for periodical national, city concealing pilot phase activities;
programmes governance; conservation enforcement monitoring programmes for Co-finance of measures
Enhancement of capabilities; institutional, through market
enforcement Multi-stakeholder urban incentives or funds.
capabilities; consultation planning and Full cost finance of
performance-based land use MRV requirements
licensing reforms
Source ADB-GGGI-CDKN, ADB (2012), SNU-ADBI (2012), ADB-ADBI (2013), KDI (2014)
V. Anbumozhi and X. Yao
1 Introduction: Serendipity of Low Carbon Energy System … 23

regulations; analysis of the implications of national energy intensity objectives on

sectors as well as annual assessment evaluations; increased public budgets to
encourage energy saving; adjustments in tax, price, and financial policies; and
elimination of outmoded energy-inefficient production capacity across sectors.
Policies towards strengthening forest and wetland restoration and afforestation have
been implemented. Also, research on improving carbon sink capacity of forests has
been encouraged via financial support from government agencies.
China’s afforestation programme can be a good source of learning for Indonesia,
which among the Asian emerging economies, has serious problems with defor-
estation. In fact, Land Use, Land Use Change and Forestry (LULUCF) is at the
centre of climate change discussions in Indonesia. Changes in these sectors have
been strongly correlated with the country’s emissions trajectory. Among the gov-
ernment’s several plans, better forest management would be critical in reaping the
highest social and environmental benefits from the Reducing Emissions from
Deforestation and Forest Degradation plus (REDD+) programme.
The management of forests should be placed in the hands of those who would
push for sustainable practices. It may be useful to observe India’s forest manage-
ment initiatives, which aim to strengthen the participation of communities for
sustainable use of forests. In this context, the points of Howes and Wyrwoll (2012)
are worth noting. They argued that the effective reduction in the level of defor-
estation in China and India, by use of appropriate blends of market-based and
command-and-control instruments, could have been one of the reasons for the
increased deforestation elsewhere in the region so as to meet the demand for forest
products in the region and beyond. Indonesia would benefit from studying, through
a collaborative knowledge partnership, the experiences of China and India in
controlling deforestation.
As for air pollution, China has put in place strict regulations for new vehicles to
comply with airborne emission standards of Euro II. Furthermore, China promotes
the use of mixed-fuel motor vehicles and has popularised the use of gas-burning
buses and taxis in cities. It has stepped up resources devoted to coal-liquefaction
projects and has encouraged research into developing alternative fuels. To reduce
air pollution, India has concentrated its efforts on improving and promoting public
transportation, bringing many training programmes to the public as well as using
fiscal incentive measures to promote the advantages as well as use of public
transportation systems. It also has initiated long-term plans on transport develop-
ment and urban planning. Like China, India has been supporting R&D programmes
on cellulosic extraction of ethanol and butanol from agricultural waste and crop
residues.
An important issue within Thailand concerns local governments’ lack of
knowledge about CDM. There are no clear roadmaps for reducing CO2 emissions in
cities. In this context, Thailand can learn more from the experience of China and
India, as both have a large number of CDM projects in Asia.
Thailand needs to link up its plans with co-benefits in activities such as solid
waste management at the local level. It can also learn from Japan, which has used a
back-casting modelling approach to develop its mid- and long-term roadmap. The
24 V. Anbumozhi and X. Yao

city of Yokohama is a good model of a “low-carbon” city (Kainuma 2012). Just like
Indonesia, Thailand also needs support from emerging economies in the region
such as China and India as far as collecting data is concerned. It currently needs to
establish baselines for GHG emissions in different sectors and to estimate possible
savings at the sub-national level.
These reviews of low-carbon green growth best practices also confirm that there
are multiple elements in the way countries are developing their strategies, policies,
and measures. Data sourcing and scenario modelling have been cited by policy-
makers as a constraint in building road maps for low-carbon green growth (ADB
2013a, b; KDI 2014). In a leadership programme on sustainable development,
participants (i.e., mostly policymakers from developing Asia) indicated that many
measures and options have not been comprehensively assessed and that further
assistance is needed in the conduct of detailed cost-benefit analyses of these policies
and practices, and in the identification of relevant entities and stakeholders who
may be affected by the measures as part of the monitoring, reporting and verifi-
cation (MRV) system. A summary of the constraints and needs in capacity building
is presented in Table 1.5.
To be effective in this context, planning tools need to be an open-access database
of success cases and failed attempts. Sharing of the regions’ good practices and
options in low-carbon green growth can serve as bases in the preparation of action
plans at national and sub-national levels.
Many low- and middle-income countries in Asia do not have enough resources
to spend on policy research and development of low-carbon technologies. They also
have a chronic shortage of officials and managers with trans-disciplinary skills
needed to develop and apply low-carbon policies. Such shortage of human capacity
and skilled workforce capable of low-carbon innovations in developing Asian
countries underscores the importance of pooling human capital resources region-
ally. For example, emerging Asian economies with experiences in promoting
low-carbon green growth can share their knowledge of policies and practices with
other Asian economies. In the end, what is necessary is a permanent regional
platform for sharing knowledge and promoting collective learning.

1.4 Conclusions

This chapter conceptualised and mapped a regional cooperation framework on

low-carbon green growth in developing Asia. The framework is based on five
pillars to address the technology, finance and capacity building needs of developing
countries. These pillars, in varying degrees, link domestic actions with international
goals on climate change mitigation. Some elements of regional cooperation, par-
ticularly market-based ones, will reinforce as well as drive the national and
sub-national level actions, while non-market-based ones are framed as
“no-regret alternatives” that enhance the public-good nature of current efforts and
the aspiration to build knowledge-based economies. Appraising the accountability
1 Introduction: Serendipity of Low Carbon Energy System … 25

and assigning the responsibility over this framework is a complex one since
countries must interact to find a win-win solution, which implies a situation where
each country thinks of both cooperative as well as competitive ways to change so as
to maximize the benefits from the identified regional cooperation strategies.
Based on the analysis of current actions and expected needs, this chapter also
proposed specific ways to drive regional cooperation. It is hoped that after recog-
nising the potential benefits of such an approach, policy-makers in the region will
engage in a wider discussion among themselves, along with the private sector and
civil society operators, on how to build an enabling environment as well as sup-
plement the ongoing actions at national and sub-national level, which are discussed
in the following chapters.

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 Part I
An Evolutionary Analysis of Low-Carbon
Energy Systems and Green Growth
Chapter 2
Low Carbon Energy Systems in China:
Visioning Regional Cooperation Through
the Belt and Road

Zhu Yuezhong, Tian Zhiyu, Liu Jianguo, Chao Feng and Liang Qi

2.1 Introduction: Economic, Energy and Emission Profile

In 2014, China’s gross domestic product (GDP) exceeded USD 10 trillion1 and the
per capita GDP approached USD 8,000 (2015a). From 2012 onwards, the economic
growth rate steps into a new stage within 7–8 % after a high-speed development
with nearly 10 % annual growth in the past 30 years. It marks that the form of
economic growth has shifted from the extensive to the intensive type; and the latter
type pays more attention to quality and efficiency, which is expected to be the “new
normal”. Under this background, the energy sector, the underpinning of the eco-
nomic development, also exhibits new signs such as slowing energy consumption
growth, narrowing energy supply and demand gap, initial energy mix adjustment
and accelerated decline of energy intensity and carbon intensity.

2.1.1 Trends of Economic Growth and Energy

Consumption

China’s energy consumption entered into a high-growth phase in the new century
with the acceleration of industrialization and urbanization. In 2005, the total pri-
mary energy consumption hit 2.36 billion tons of coal equivalent (tce), a net
1
In 2014, China’s GDP reached RMB 64.6463 trillion, about USD 17.49796 trillion, according to
the official exchange rate.

Z. Yuezhong (&)
T. Zhiyu
L. Jianguo
L. Qi

Energy Research Institute of National Development and Reform Commission, Beijing, China
e-mail: [email protected]
C. Feng
China University of Mining and Technology, Beijing, China

© Springer Science+Business Media Singapore 2016 31

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_2
32 Z. Yuezhong et al.

Table 2.1 China’s energy consumption elasticity coefficient in different times

GDP growth Energy consumption growth Elasticity coefficient of energy
(%) (%) consumption
1978–1980 7.7 2.7 0.35
1980–1985 10.7 4.9 0.46
1985–1990 7.9 5.2 0.66
1990–1995 12.3 5.9 0.48
1995–2000 8.6 2.1 0.24
2000–2005 9.8 10.2 1.04
2005–2010 11.2 6.6 0.59
2010–2013 8.2 4.9 0.6
Source NBS (2015)

increase of 61.2 % compared with that in 2000. The incremental energy con-
sumption during the 10th Five-Year Plan (FYP) period exceeded the increment
combined of the past two decades, creating the fastest five-year increase since the
reform and opening up in 1978 (Table 2.1). In the 11th FYP period, in order to
improve energy efficiency, the Chinese government set a target of cutting energy
intensity by 20 %, owing to a double-digit GDP growth in this period, the national
energy consumption still climbed to 3.25 billion tce in 2010,2 and a net annual
increase of nearly 180 million tce was also observed (Fig. 2.1). It is noteworthy that
the annual energy consumption growth slowed down during 2012–2014 against the
background of declining GDP growth to below 8 % since the 2008 global financial
crisis and especially 2010. In 2014, the energy consumption growth even registered
a decade-record low of 2.2 % (2015b).
In the march towards industrialization, the economic growth is closely linked to
industrial development, with the share of industrial contribution to the increase of
the GDP as high as 61.6 % in 1994 and 38.3 % even in 2014. As a result, the
economic growth and the industrial added value growth exhibit almost the same
trend to some extent, and the statistics also show that high GDP growth is observed
when the industrial added value increases more rapidly, and GDP slows down when
industrial growth rate declines even more drastically (Fig. 2.2). Considering the
energy consumption per unit of GDP in the industrial sector is 5–8 times that of the
service and agriculture sectors, industrial slowdown implies significant decrease of
demand for energy and weak dependence of economic on energy.

2
Currently, the combined energy consumption in the country is 15 % more than announced by the
National Bureau of Statistics (NBS), mainly due to differences in coal consumption statistics.
China’s national energy consumption in 2014 was adjusted to 4.26 billion tce, an increase of 2.2 %
over 2013, according to the statistical communiqué released on February 26, 2015. Based on this,
the energy consumption in 2013 is estimated to total 4.17 billion tce. However, as the latest
statistical communiqué does not cover energy consumption of the last 10 years, the energy profile
described hereof rests on previous statistics.
2 Low Carbon Energy Systems in China: Visioning Regional … 33

Primary energy consumption(10,000 tons

Primary energy consumption energy consumption growth

Energy consumption growth/%

450,000 18.0%

400,000 16.0%
14.0%
350,000
12.0%
300,000
of standard coal)

10.0%
250,000 8.0%
200,000 6.0%
4.0%
150,000
2.0%
100,000
0.0%
50,000 -2.0%
0 -4.0%

Fig. 2.1 Primary energy consumption and growth trends (1980–2014). Source NBS (2015). Note
Data about primary energy consumption and growth in 2014 are sourced from the latest statistical
communiqué, while data about 2013 and prior years still follow the previous statistics

25.0%
GDP growth Industrial added value growth

20.0%
Growth/%

15.0%

10.0%

5.0%

0.0%

Fig. 2.2 Growth of GDP and industrial added value (1980–2014). Source NBS (2015). Note 2014
is above-scale industrial added value growth

Energy consumption elasticity coefficient is a measure of the relationship

between economic growth and energy consumption. A great value of the coefficient
means high economic dependence on energy, and vice versa. China’s energy
consumption elasticity coefficient rose from 0.42 to 0.93 during the 10th FYP
period, and even achieved high values of 1.53 and 1.6 in 2003 and 2004, respec-
tively. The average energy consumption elasticity coefficient during this period was
1.04, indicating highly dependence of economic on energy consumption. Though
this dependence remained during the 11th FYP period, the coefficient successfully
34 Z. Yuezhong et al.

Energy consumption elasticity coefficient 1.8

1.60
1.6 1.53

1.4

1.2

1.0 0.93
0.76 0.76
0.8 0.66
0.59 0.57 0.58
0.6 0.52 0.48
0.42 0.40 0.41 0.36
0.4

0.2

0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig. 2.3 Energy consumption elasticity coefficient (2000–2014). Source NBS (2015)

fell to 0.59 owing to the initiative of energy conservation and emission reduction.
Post-2012 an obvious reduction in the economic and social dependence on energy
was witnessed, accompanying the economic slowdown, especially in the secondary
sector. The energy consumption elasticity coefficient read 0.52 and 0.48 in 2012
and 2013 respectively and only 0.36 in 2014 (Table 2.1 and Fig. 2.3).

2.1.2 Remission of Energy Supply Pressure and Alleviation

of Supply-Demand Contradiction

Currently, an encouraging phenomenon is achieved that with the shift to

medium-and high-speed economic growth, the energy supply-demand gap is
gradually narrowing and the short-term oversupply happens in certain fields. These
achievements mainly owe to the extensive energy infrastructure construction for
nearly three decades, involving the large-scale development and utilization of wind
and solar energy; as well as the beginning of taking effect of policies for sustainable
development policies covering energy conservation and emission reduction.
Preliminary statistics show a negative 2.9 % growth of the national coal con-
sumption in 2014 over a year earlier and a 7.5 % decline in the coal consumption of
major power generation companies. Meanwhile, the power consumption growth
was only 3.8 %, also the lowest level in recent decade. In contrast, the verified coal
production capacity has exceeded 5.5 billion tons and is expected to far exceed the
demand in 2020, according to the coal consumption target of 4.2 billion tons. In
2014, China’s installed power capacity attained 1.36 billion kW, ranking first in the
world. However, the average operating time of power generation facilities and
2 Low Carbon Energy Systems in China: Visioning Regional … 35

thermal power generation facilities shortened significantly to only 4,286 and

4,706 h, respectively, even the lowest levels since 2000. The symptom of over-
supply in power sector begins to emerge.
In summary, coal and power supply will be surplus to demand; the oil supply
situation will be greatly improved with the fell of international oil prices, given the
large-scale imports of petroleum and natural gas due to resource endowments.
Non-fossil energy supply continues to increase. As a whole, the contradiction
between energy supply and demand has been greatly alleviated, and tends to ease
off with economic development, regardless of energy demand growth.

2.1.3 Initial Success of Energy Mix Adjustment and Rapid

Development of Efficient and Clean Energy

All along, the proportion of coal in the primary energy consumption reached about
70 % in China, which also contributes to serious environmental pollution and high
greenhouse gas (GHG) emissions. From 2007, this proportion began to decline,
owning to the rapid development of renewable energy sources. According to
statistics, with the growing of the scale of renewable energy and nuclear energy, the
proportion of non-fossil energy consumption continues to rise, increasing from 6.4
to 11.1 % during 2000–2014. In specific, there were 22 nuclear power units in the
nationwide service in 2014, forming an installed capacity of 20.1 million kW.
Hydropower, with an installed capacity of about 300 million kW, contributed an
annual generating capacity of 1 trillion kWh. The installed capacity of wind and
solar power surpassed 90 and 30 million kW respectively, accounting for 150 and
25 billion kWh of power annually. In addition, the total installed capacity of bio-
mass and geothermal power exceeded 9.2 million kW, contributing a generation
capacity of 35 billion kWh. China has achieved initial success in energy mix
adjustment. At the same time, the increment of coal consumption decreased faster,
the average annual increment has been down from 250 Mt during 2003–2011 to
70 Mt during 2012–2014. The coal consumption has been decreased 100 Mt in
2014, and 140 Mt in the first half 2015. The International Energy Transformation
Forum held in November 2015 set a high value on the efforts made by Chinese
government over the past years in advancing the transition from a fossil fuel based
to a non-fossil fuel based energy system. Suzhou Declaration of the International
Forum on Energy Transitions said, China’s great achievements in development of
wind, solar photovoltaics and solar thermal energy applications; and the experience
that China has gained in maintaining a consistent policy environment, attracting
private sector investments and establishing its renewable energy industry (2015c).
36 Z. Yuezhong et al.

2.1.4 Growing Demand for High-Quality Energy

and Dependence on Oil and Gas Imports

The proposals of the 13th FYP for national economic and social development
approved by the fifth plenary session of the 18th CPC Central Committee made it
clear that by 2020 to build a moderately prosperous society, therefore the average
annual economic growth of China will be more than 6.5 % from 2016 to 2020
(2015d). To support high-speed economic growth, satisfy people’s increasing
demand for energy and meet the requirements of high quality environmental, during
the 13th FYP, China’s total energy consumption, especially high-quality energy
consumption will increasing. In order to cope with smog, many provinces in China
invariably take natural gas as a preferred option for improving environmental
quality. Natural gas penetrates to the urban heating and transport sectors, in addition
to the original power generation and chemical sectors. Corresponding data shows
that China’s consumption of natural gas was 24.5 billion m3 in 2000, 167.6 billion
m3 in 2013 and 180 billion m3 in 2014, providing an annual increase of 16 %, much
higher than that of energy consumption over the same period (7.6 %). As the
domestic production lagged far behind the growing demand, the dependence on
natural gas imports was on the rise, even to 32.2 % in 2014. In the foreseeable
future, in consideration of the strategic importance of natural gas and the difficulty
in increasing reserves and production, the rising trend will continue. Unless
breakthroughs in alternative fuels and technologies are sought, China will probably
become more dependent on foreign oil. A new normal can be expected that towards
2030, the dependence on international market is expect to rise particularly for
natural gas due to domestic increasing high-quality energy demand.

2.2 Policies and Achievements of Low-Carbon Energy

System Development

2.2.1 Policy Initiatives

The development of a low-carbon, green growth momentum in China’s energy

industry, partly owed to the new changes under the new normal, and more
importantly, benefited from effective policies and measures over the past years.

2.2.1.1 Strengthening Measures to Improve Energy Efficiency

The Chinese Government has always attached high attention to energy conservation
and emission reduction and incorporated it into the macro policy since early 1980s.
In 2006, energy conservation and emission reduction, as binding targets, entered
into the 11th FYP for national economic and social development. In the following
2 Low Carbon Energy Systems in China: Visioning Regional … 37

five years, the targets were upgraded to “cutting the energy intensity by 16 %,
carbon intensity by 17 %, and emission intensity of major pollutants by 8–10 %”
and published in the 12th Five-Year Plan for National Economic and Social
Development (2011a). Afterwards, the comprehensive work plan for energy con-
servation and emission reduction during the 12th five-year plan period (2011b) and
the 12th Five-Year Plan for Energy Saving and Emission Reduction (2012) were
unveiled in September 2011 and August 2012, respectively, deploying the tasks,
priorities and measures in detail. To ensure the accomplishment of targets, the
Chinese Government issued the 2014–2015 Action Plan for Energy Conservation,
Emission Reduction, and Low-carbon Development in 2014, making arrangements
for the work in the last two years of the 12th FYP period (2014a). According to
statistics, the Chinese Central Government invested more than RMB 110 billion in
this field in the previous three years (ERI 2009; Xue and Zhao 2015).
During the 11th and 12th FYP Period, on the basis of the state goals for energy
conservation and emission reduction as well as local economic development level,
industrial structure adjustment potential, technical research and development
capability and resource endowment etc., provincial governments puts forward the
energy-saving target of various regions (Table 2.2). In the meantime, the central
government actively explores the market-based mechanism to reduce emission. As
a result, 7 pilots of carbon trade had been started since June, 2013; and the Interim
Procedures for Management Rules on Emission Permits Trade was released on
December, 2014; which established a basic for the state emission trading market.
Meanwhile, provincial governments also strive to be members of “low-carbon
cities” by making plans and setting up goals for local low-carbon development.
Currently, 6 provinces and 36 cities have been selected to be the low-carbon pilots
in China.

Table 2.2 Energy-saving target of various regions during the 11th and 12th Five-Year Plan
Period
Regions Reduction of energy intensity (%)
Target in the 11th FYP period Target in the 12th FYP period
Nationwide 20 16
Beijing 20 17
Tianjin 20 18
Hebei 20 17
Shanxi 22 16
Inner Mongol 22 15
Liaoning 20 17
Jilin 22 16
Heilongjiang 20 16
Shanghai 20 18
Jiangsu 20 18
Zhejiang 20 18
(continued)
38 Z. Yuezhong et al.

Table 2.2 (continued)

Regions Reduction of energy intensity (%)
Target in the 11th FYP period Target in the 12th FYP period
Anhui 20 16
Fujian 16 16
Jiangxi 20 16
Shandong 22 17
Henan 20 16
Hubei 20 16
Hunan 20 16
Guangdong 16 18
Guangxi 15 15
Hainan 12 10
Chongqing 20 16
Sichuan 20 16
Guizhou 20 15
Yunan 17 15
Tibet 12 10
Shanxi 20 16
Gansu 20 15
Qinghai 17 10
Ningxia 20 15
Xinjiang Further evaluation 10
Source Comprehensive work plan for energy conservation and emission reduction during the 12th
five-year plan period (2011)

For promoting green and low-carbon development, Chinese government pro-

vided great financial support for energy saving and emission reduction. According
to the estimation in the China Energy Efficiency Financing and Investment Report,
a total of RMB 850 billion was invested directly to improve energy efficiency
during the 11th FYP Period, taking up 0.92 % of the investment in fixed assets in
the same period, which is equivalent to save as 0.34 billion tce and it takes 53.8 %
of the energy-saving target. It is expected that the energy efficiency investment is
hopeful to be RMB 1,525 billion during the 12th FYP Period (2013).

2.2.1.2 Promoting High-Quality Energy to Optimize Energy Mix

Coal-dominated energy structure is the fundamental cause of China’s high energy

carbonation and is also responsible for environmental pollution and GHG
emissions. In recent years, a series of measures have been taken to optimize the
energy mix and promote low-carbon energy development. The Action Plan for Air
Pollution Prevention and Control, released by the Chinese Government in 2013, is
aimed at decreasing to 65 % or less share of coal in primary energy consumption
2 Low Carbon Energy Systems in China: Visioning Regional … 39

and a negative growth of coal consumption in the Beijing-Tianjin-Hebei

(BTH) region, Yangtze River Delta (YRD) and Pearl River Delta (PRD) by
2017. The Energy Development Strategy Action Plan (2014–2020), released in
2014, requires that the total coal consumption should be controlled within 4.2
billion tons by 2020. The Interim Measures on Coal Consumption Reduction and
Coal Alternatives in Key Areas, jointly issued by National Development and
Reform Commission, Ministry of Industry and other four ministries in January
2015, clearly puts forward targets for Beijing, Tianjin, Hebei and Shandong. In
other word, by 2017, the coal consumption shall be reduced by 13 million tons, 10
million tons, 40 million tons and 20 million tons in these four regions, respectively;
and by 83 million tons cumulatively compared with 2012. In addition, the Chinese
Government set the medium- and long-term objectives for non-fossil energy
development: a share of 11.4 % in primary energy consumption by 2015 and 15 %
by 2020. According to the China-US Joint Announcement on Climate Change and
Clean Energy Cooperation in November 2014, China aims at increasing the share of
non-fossil energy in primary energy consumption to about 20 % by 2030 (2014b).

2.2.1.3 Setting Targets for Reducing Carbon Emissions to Promote

Low Carbon and Green Growth

Although China is a developing country, it still undertakes international responsi-

bility. On June 2015, China released the Enhanced Actions on Climate Change:
China’s Intended Nationally Determined Contributions, which determines its
actions by 2030 to lower carbon dioxide emissions per unit of GDP by 60–65 %
from the 2005 level (2015e). This target shows a greater improvement than the
target of 40–45 % decrease of carbon dioxide emissions per unit of GDP which is
promised before Copenhagen Climate Change Conference in 2009. Furthermore,
China also announces that by 2030 it will increase the forest stock volume by 4.5
billion cubic meters compared to the 2005 levels. On the occasion of President Xi’s
State Visit to Washington, D.C. in September 2015, the two Presidents reaffirm
their determination to promote sustainable development and the transition to green,
low-carbon, and climate-resilient economies. China plans to start in 2017 its
national emission trading system, and commits to promote low-carbon buildings
and transportation, with the share of green buildings reaching 50 % in newly built
buildings in cities and towns by 2020 and the share of public transport in motorized
travel reaching 30 % in big- and medium-sized cities by 2020. It will finalize
next-stage fuel efficiency standards for heavy-duty vehicles in 2016 and implement
them in 2019. Actions on HFCs continue to be supported and accelerated (2015f).
China will actively undertake international responsibilities and obligations, actively
involved in responding to global climate change negotiations, to actively participate
in 2030 sustainable development agenda, according to the bulletin of the fifth
plenary session of the 18th CPC Central Committee. China aims to realize green
growth and sustainable development, and restricts energy consumption and energy
intensity during the 13th FYP.
40 Z. Yuezhong et al.

2.2.1.4 Implementing the “Four Revolutions and Cooperation”

Strategy to Support Low-Carbon Energy

The “Four Revolutions and Cooperation” energy strategy, referred to energy con-
sumption revolution, energy supply revolution, energy technology revolution,
energy system revolution and all-round international cooperation, were raised by
Chinese President Xi Jinping at the sixth meeting of the Central Financial Work
Leading Group in June 2014. To meet the requirements of this strategy, China has
launched a series of measures to promote the low-carbon transition, involving the
control of energy and coal consumption and increase of the proportion of non-fossil
energy. On the aspect of energy production and consumption, the Energy
Development Strategy Action Plan (2014–2020) was issued by the State Council in
November 2014. It is clearly stated that China will control the total primary energy
consumption around 4.8 billion tce by 2020, of which natural gas should take up
more than 10 % and coal less than 62 %. On the aspect of energy technology, a
series of policy measures in favor of advanced technologies were introduced. For
example, on February 16, 2015, Ministry of Science and Technology issued the
Implementation Plan for the National Key Research and Development Project of
New Energy Vehicles (Draft) in order to promote electric vehicles. On the aspect of
energy system, the said Action Plan requires efforts to improve the market system,
promote price reform, deepen reforms in key fields and key links, and perfect laws
and regulations. In terms of international cooperation, Chinese President Xi Jinping
proposed the strategic vision of Silk Road Economic Belt and the 21st Century
Maritime Silk Road, collectively referred to as the “Belt and Road”, in September
and October 2013 respectively (2015g). The International Energy Transformation
Forum called all participating organizations for strengthen cooperation in the areas
of policy, technology and standards in the context of energy transition, and pro-
posed to establish a global coalition of partner ries undertaking energy transition,
and set up an “IRENA-China Research and Co-operation Centre for Energy
Transition”, which can support the activities of the proposed global coalition.
As indicated by these targets, China will take effective measures in the future to
curtail high-carbon energy and expand the application of low-carbon energy, such
as natural gas and non-fossil fuels, which provides a strong policy support for a
green low-carbon transition in the energy sector.

2.2.2 Achievements

2.2.2.1 Stable and Rapid Economic Development

During the late 10th FYP period, China’s energy consumption expanded at an
ultra-high speed which even exceed the development speed of the national econ-
omy. In 2005, the energy elasticity coefficient hit 1.56. Owning to strong
low-carbon development policy, the trend was reserved during the late five years,
2 Low Carbon Energy Systems in China: Visioning Regional … 41

and the energy elasticity coefficient reduced to 0.58 in 2010. Policies and measures
have been upgraded during the 12th FYP period. From 2011 to 2014, the energy
consumption per unit of GDP was reduced by 13.4 %, which was equivalent to
cumulative energy savings of 540 million tce. The economic dependence on energy
has also been mitigated. In addition, China achieved an annual economic growth of
8.0 % during the four years based on an annual 4.3 % growth of energy con-
sumption. Accordingly, the energy elasticity coefficient dropped to 0.36 in 2014.

2.2.2.2 Economic Restructuring and Economic Quality and Efficiency

China’s low-carbon development policies, especially the stringent energy conser-

vation policy, have successfully curbed the blind development of energy-intensive
industries and played a positive role in the adjustment of overall industrial
restructure and of the tertiary industries. In 2013, the tertiary industries overweight,
for the first time, the secondary industries in the national economy. From 2010 to
2014, the proportion of the tertiary industries increased by 5.0 percentage points,
while that of the primary and secondary industries dropped by 0.9 and 4.1 per-
centage points respectively. The contribution of the service industry to economic
growth is also of significance.

2.2.2.3 Technological Progress and Industrial Upgrading

Industrial energy efficiency has improved steadily during the 12th FYP period. In
2012, coal consumption of thermal power generation decreased by 12.2 %, com-
parable energy consumption per ton of steel by 7.9 %, alternating current
(AC) power consumption per ton of aluminum by 5 %, and energy consumption
per ton of cement by 23.6 % over those in 2005. China has entered the international
advanced ranks in terms of AC power consumption per ton of aluminum and coal
consumption of coal-fired power supply. From 2011 onwards, a total of 218
technologies have been prioritized for promotion through six National Promotion
Catalogues of National Key Energy-saving Technologies. The market share of a
dozen of technologies, including turbine modernization technology, dry TRT
technology for large blast furnace, energy control technology for the steel industry,
and energy-saving ammonia synthesis technology, increased from the initial 5 % to
over 70 % in 2014. As a result, the technological application has brought significant
energy efficiency benefits to enterprises.

2.2.2.4 Energy Intensity and Carbon Intensity

Energy intensity and carbon intensity were dramatically cut down (Fig. 2.4) with
the implementation of a series of policy measures, covering industrial restructuring,
key projects, technological progress, policy incentives, supervision and
42 Z. Yuezhong et al.

tce/10,000 RMB (2005 constant price) Energy Intensity

1.400
1.253 1.285 1.276
1.196 1.218 1.241
1.200 1.162 1.179
1.117
1.077
1.033 1.012
1.000 0.976
0.940
0.894
0.800

0.600

0.400

0.200

0.000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig. 2.4 Energy intensity (2000–2014). Source NBS (2015)

management, and public participation. It is estimated that energy intensity reduced

by 19.1 % during the 11th FYP period (2005–2010) and by 13.3 % during the late
four years (2010–2014). The latter reduction is equivalent to 82 % of the target set
by the 12th FYP. Compared with 2005, the energy intensity dropped by about 30 %
in 2014. Correspondingly, the CO2 emissions per unit of GDP continue to decrease.
So far, the Chinese government has issued national greenhouse gas emissions
inventory in 1994, 2005 and 2008. The greenhouse gas emission total quantity for
the three years are 3.650, 7.467 and 8.810 billion tons CO2 eq, respectively; the
carbon intensity for the three years are 0.524, 0.402 and 0.336 ton/thousand Yuan
(at 2005 constant price).

2.2.2.5 Positive Progress in Air Pollution Control

China’s air pollution control has been made positive progress owing to a series of
measurements, for example, eliminating heavy energy-consuming enterprises,
improving energy utilization ratio, developing renewable energy and controlling the
total amount of coal consumption. The data from Ministry of Environmental
Protection shows that the PM2.5 concentration value in BTH region and its around
areas fell about 14.6 % in 2014. In the first half year of 2015, the mean ratio of days
which reach the standard in BTH, YRD and PRD and 74 key cities was 68.0 %,
6.9 % increase as compared to the previous year. Specially, the PM2.5 mean
concentration values fell 15.4 % in Beijing and its around areas, 22.1 % in BTH
(with value of 78 mg/m3), 16.2 % in YRD, 20.5 % in PRD, and 17.1 % in the 74
key cities, respectively. In addition, the mean concentration of PM10, SO2 and NO2
presented decrease tendency at the same time. These results demonstrated obvious
progress in air pollution control.
2 Low Carbon Energy Systems in China: Visioning Regional … 43

2.3 Energy Demand Perspective Beyond to 2050

Actually, China’s economic development is still in a low level, though it has

become the world’s second largest economy. In 2014, the per capita GDP was less
than 1/4 of developed countries; and vehicles per 1,000 people, less than 1/5 of
developed countries and 3/5 of the world average. China’s urbanization rate stayed
below 55 %, nearly ten percentage points lower than that of developed
countries. Moreover, the economic development is uneven. The per capita GDP in
the western region was less than half of that of the southeast coastal areas, and the
per capita disposable income of rural residents, only 2/5 of urban residents.
According to World Bank standards, more than 100 million people in China still
live under the poverty line. In the foreseeable future, economic growth remains to
be the chief task. Hence, significant increase of energy intensity and carbon
intensity can be predictable under the current development model. A low-carbon
pathway of development differentiated from the traditional industrialization
becomes a daunting challenge for China and will be widely concerned (ERI 2015).

2.3.1 Methodology

Scenario analysis,3 combined with the top–down approach and bottom–up

approach, was adopted to make a comprehensive, systematic and quantitative study
on the medium- and long-term energy development.
First, the energy use for building a moderately prosperous society by 2020 and
reaching the level of moderately developed countries by 2050 is interpreted at a
macro level, and economic and social situations are envisaged under the premise of
achieving the goals. On the basis of full consideration of effects of internal and
external conditions on energy use in the next 30–50 years, different energy and
emission scenarios are built. Herein, appropriate modeling tools and end-use
analysis are combined to quantitative estimate the energy use and carbon emissions,
and then the possible emission path may be hackled and found (Fig. 2.5).

3
Scenario analysis is a process of analyzing the feasibility and necessary conditions for achieving
alternative possible outcomes. It does not forecast or show one exact picture of the future. Instead,
scenario analysis examines the possible changes and their preconditions. It is designed to allow
improved decision-making by allowing consideration of outcomes and their implications.
44 Z. Yuezhong et al.

Fig. 2.5 Schematic map of research methodology

2.3.2 Scenario Design

In this study, the reference scenario (RS) and low carbon scenario (LCS) of
low-carbon development towards 2050 were designed considering the research
needs as well as previous study experiences by Energy Research Institute. The
detailed illustrations of these two scenarios are presented as follows:
RS: describing energy use and carbon emissions for building a moderately
developed country by 2050 in the context of national realities and trends. The
scenario draws reference to the major developed countries, and takes into account
the continuation of existing policies and potential technological advances under
natural conditions, but neglects possible revolutionary technological breakthroughs
and major policy changes.
LCS: describing energy use and carbon emissions given strengthened efforts in
technological and economic, energy and emission aspects while meeting the
requirements of sustainable development, energy security, domestic environment
and low-carbon path. The scenario assumes significant improvement or revolu-
tionary change in economic development patterns, energy mix, energy and emission
technologies, and even lifestyles. Under this scenario, economic and social devel-
opment is in harmony with energy and the environment. Therefore, LCS is also
named the re-inventing Fire scenario.
Key assumptions about the two scenarios are described in Table 2.3.
2 Low Carbon Energy Systems in China: Visioning Regional … 45

Table 2.3 Key assumptions about the RS and LCS scenarios in 2050
RS LCS
GDP Achieving the targets of the Basically the same as RS
“three-step” strategy
GDP annual growth:
2015–2020: 7 %
2020–2030: 5.5 %
2030–2050: 3 %
Population Peaking at 1.46 billion around 2030 Same as RS
and decreasing to 1.4 billion in
2050
Per capita GDP USD 34,000 in 2050 (at 2010 Similar to RS
constant prices)
Industrial Preliminary economic structure Further optimized economic
structure optimization: the tertiary industries structure similar to that of
rising to a major component in 2030 developed countries; rapid
and heavy industry dominating the development of the emerging
secondary industries industries and the tertiary
industries and secured important
position of the information
industry
Urbanization 60 % in 2020, 68 % in 2030, and Similar to RS
rate 78 % in 2050
Import and From 2030 onwards, proportion of From 2030 onwards, proportion
export pattern primary product exports drastically of primary product exports
reduced and energy-intensive drastically reduced and
products to meet domestic demand energy-intensive products to meet
domestic demand; experts of high
value-added industries and
services increased significantly
Environmental Proper governance, but still Proper governance, Kuznets
problems treatment after pollution, reflecting curve peaks and troughs
the environmental Kuznets curve narrowed and curve shape change
from “ \ ” to “ ”
Energy use From 2040 onwards, wide From 2030 onwards, wide
technological application of advanced energy application of advanced energy
advances technologies; China to become the technologies. China to become a
world’s technology leader, with world leader in industries and
technical efficiency increased by other energy technologies, and in
40 % compared with the current manufacturing energy-saving
level technologies with technical
efficiency increased by 50 %
compared with the current level
Solar and wind Solar power cost of RMB 0.39/kWh Solar power cost of RMB
power in 2050; high penetration of 0.7/kWh in 2050; high
generation onshore wind farms penetration of onshore wind
technologies farms large-scale construction of
offshore wind farms
(continued)
46 Z. Yuezhong et al.

Table 2.3 (continued)

RS LCS
Nuclear power Installed capacity of 53.15 million Installed capacity of 52 million
generation kW in 2020 and 350 million kW kW in 2020 and 220 million kW
technology in 2050; rapid growth of nuclear in 2050; sustainable development
power and large-scale construction of nuclear power with falling cost
of G4 nuclear power plants after of renewable energy and
2030 to meet the fast-growing end revolutionary change in end
demand demand
Coal technology Supercritical and ultra-supercritical Supercritical and
technology ultra-supercritical technology
before 2030 and IGCC after
Hydropower use Installed capacity of Installed capacity of
about 500 million kW in 2050 about 500 million kW in 2050
Peak steel Peaking at 850 million tons in 2020 Peaking at 680 million tons in
production 2020
Lifestyle Full use of clean energy, high Low-carbon, widely application
penetration of energy-efficient of eco-friendly housing
household appliances, commercial
energy utilization in rural areas
Transport Rapid development, convenient Rapid development, perfect
development travel by bus, perfect rail transit in public transport network, green
large cities travel and perfect rail transit, full
use of the Internet of Things
(IoT) since 2020
Transport Fuel economy: 20–40 % Fuel economy: 30–60 %
technology
Proportion of Around 30 % Around 80 %
electric vehicles
in private cars
Note Electric vehicles include plug-in hybrid electric vehicles. Source ERI (2009)

2.3.3 Conclusions

1. For achieving the set goals of economic and social development, China’s total
energy use and carbon emissions possibly continue to grow (Fig. 2.6). The
building and transport sectors will be the major roles to lead the contribution,
while the industrial sector will show slow growth after 2020. Unless break-
throughs in carbon capture and storage, the coal-dominated power structure will
remain and the improvement of electrification will make it difficult to drasti-
cally cut carbon emissions.
2. In the absence of enhanced policy for energy conservation and emission
reduction, China’s energy use will reach the peak value of 8.84 billion tce4

4
Primary energy is accounted on the electric equivalent basis, namely 1 kWh = 860 calories, sic
passim excepting specially emphasis.
2 Low Carbon Energy Systems in China: Visioning Regional … 47

Total Primary Energy Use and Peaks (Mtce) Total Energy- Related CO2 Emissions (MtCO2)
20,000
IPCC conversion for primary electricity
12,000 [SERIES
Reference 15,000 NAME],
10,000 Low Carbon [VALUE]
8,000
10,000
6,000 Low Carbon,
10,984
4,000 5,000
2,000
- -
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050

Fig. 2.6 China’s energy use and carbon emissions trends. Source ERI (2009)

Low Carbon: Total Primary Energy Use (Mtce) Low Carbon: Fuel Share of Primary Energy Use
9,000
Primary Electricity (Chinese coal eq.) 100%
8,000 Natural Gas
90% Primary Electricity
Petroleum
7,000 Coal: Transformation 80% (Chinese coal eq.)
Coal: Final Use
6,000 70% Natural Gas

5,000 60%
50% Petroleum
4,000
40%
3,000 Coal:
30%
2,000 Transformation
20%
1,000 10% Coal: Final Use

- 0%
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050

Fig. 2.7 China’s energy consumption and its composition (LCS). Source ERI (2015)

around 2042 and attain 8.29 billion tce in 2050; and the CO2 emissions will
reach the peak of about 18.32 billion tons in 2042. Obviously, such high energy
use and carbon emissions will undoubtedly pose serious challenges to China’s
sustainable development and the global energy market, investment, environ-
mental protection and energy security.
3. Targeted measures, technology transfer and financial assistance from the
international community may dramatically change the picture. Under the LCS,
China’s total energy use will reach its peak of 5.21 billion tce around 2032 and
fall to 3.66 billion tce in 2050. The peak of total CO2 emissions will arrive to 11
billion tons-carbon around 2027. In 2050, China reduce the total CO2 emissions
to 5.03 billion tons-carbon, 36.7 % lower than that in 2010, expecting to make
a significant contribution to addressing global climate change.
4. Under the LCS, by 2050, more than half (57 %) of energy supply5 in China will
be from non-fossil energy, mainly renewable energy (Fig. 2.7). Non-fossil fuels

5
Here, the primary energy is based on the coal equivalent calculation method, namely the coef-
ficient for conversion of electric power into SCE ( standard coal equivalent) is calculated on the
basis of the data on average coal consumption in generating electric power.
48 Z. Yuezhong et al.

will take up 19 % of the primary energy in 2020 and 27 % in 2030, fulfilling

the anticipated international commitments.
5. China will experience three stages in economic and social development, fea-
turing the continuous growth of energy use and carbon emissions (currently–
2020), diversified development of energy (2021–2035) and remarkable CO2
emission reduction (2036–2050), respectively. The second stage is critical to
optimization of energy mix and obvious elimination of reliance on coal. It
determines the arrival of the peak for fossil fuels use and economic develop-
ment “decoupled” with CO2 emissions. It is in this stage that China will strive
to create a new pattern with balanced fossil and non-fossil energy development
in 2050 to replace the current coal-based energy structure.
6. With the progress in economic restructuring and transformation, heavy
energy-consuming products will reach the peak in succession, which reduce the
demand for coal. Under the LCS, China’s coal demand will reach its peak of 4
billion tons around 2020 and fall to 1.54 billion tons in 2050 under the con-
tribution of high-speed development of wind energy, solar energy, hydropower,
nuclear power and natural gas as well as high efficient utilization of coal. Since
the coal demand will be mainly utilized by power sectors, the high efficient
utilization of coal-fired boiler should be promoted continually.
7. Alternative advanced technologies and major technological breakthroughs are
important prerequisite for low-carbon development. Science and technology
guides economic and social development while affecting lifestyles, consumer
behavior and values. The contribution of technological advances (including
end-users and energy industries) to GHG emission reductions remains above
38 % over years and is expected to reach 50 % in 2050, according to studies.
Therefore, a world-class equipment system for energy-intensive industries
(including power plants) based on technological progress is vital to China’s
low-carbon transition.
8. Industrial, building, and transport sections are given equal priority in the effort
to reduce CO2 emissions, instead of the industrial sector solely. At present, the
industrial sector is responsible for about 70 % of the total energy use and CO2
emissions. According to the scenario analysis, with the gradual completion of
industrialization and development of a circular economy, the metallurgy and
building materials industries will be able to achieve emissions reduction as well
as output value increase. Owing to multi-level structural adjustment and
development of the energy saving potential in industrial sector itself, the growth
of energy use and emissions will obviously slow down. Its contribution to
national emissions will fall from 67 % in 2010 down to 53 % in 2050.
Meanwhile, the commercial and residential, and transport sectors will see fast
expansion of emissions as household consumption is focused on housing and
travel. Under the LCS, in 2050, the contribution of the transport sector to
national emissions will rise to 27 % from 9 % in 2010. The commercial and
residential sectors will take power as the primary energy, mainly sourced from
renewable energy generation, and reduce the share by emissions to 20 % in
2050 from 24 % in 2010 (Fig. 2.8).
2 Low Carbon Energy Systems in China: Visioning Regional … 49

Low Carbon: Total Energy-related CO2 Emissions (Mt CO2) Low Carbon: Sectoral Share of Energy- Related CO2
Emissions
16,000
Transport
Commercial 100%
14,000
Residential 90%
12,000 Industry 80%

10,000 70%
60% Transport
8,000
50% Commercial

6,000 Residential
40%
Industrial
4,000 30%
20%
2,000
10%
- 0%
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050

Fig. 2.8 China’s energy use by sectors (LCS). Source ERI (2015)

9. Under the LCS, with the implementation of technology feasible, economic rea-
sonable and social acceptable energy-saving measures, an addition of RMB 46
trillion (at 2010 constant prices) investment will be needed and the net income of
RMB 22 trillion (at 2010 constant prices) will be obtained during 2010–2050.
And it will increase earnings by reducing energy costs and using low-cost
renewable energy power. Except for economic benefit, environmental and social
benefits are also acquired with source pollution control. It is estimated that
environmental loss is taken up 5–6 % in GDP, which equals to RMB 2.35 trillion
to 2.82 trillion. In 2010, the loss of human health caused by air pollution and
workers’ health in the mining area was around RMB 305.1 billion. Compared
with RS, the loss of environment and human health shows significantly decrease
under the LCS, performs excellent environmental and social benefits.
10. China’s low-carbon development faces many uncertainties, for example,
apprehension of changes, technological innovation and technology transfer, and
funding. A favorable external environment is also important. In fact, China is
frequently misunderstood and even demonized in the use of international
high-quality energy, introduction of advanced technologies, and development
of hydropower and nuclear power. These negative factors, if not properly
handled, will hinder the low-carbon transition of energy in China.

2.4 Road Map for Low-Carbon Transition and Green

Development in Future

In the current trend, the total energy use in China will exceed 8 billion tce in 2050.
Obviously, this situation will pose serious challenges to energy supply and the
environment, as well as global response to climate change. China must adhere to
50 Z. Yuezhong et al.

energy mix adjustment, and endeavor to accomplish high-efficient, clean, green and
low-carbon energy production and consumption.

2.4.1 Pathway I—Total Coal Consumption Peaking Around

2020

The low-carbon transition of coal-based energy structure first depends on the early
arrival of peak values of the total coal consumption through strict
control. Currently, more than 30 % of the Chinese urban population lives in air
quality non-attainment areas. YRD, PRD and BTH still suffer serious acid rain,
largely attributed to the coal-dominated energy structure. To achieve a green
low-carbon transition, it is imperative to reduce coal use. The ongoing coal
reduction initiative in major areas has produced initial results and the peak of coal
use is around the corner. According to the study, by implementing a series of
effective measures to reduce the end use while optimizing the generation mix and
improving coal-fired power efficiency, the coal consumption could reach the peak
around 2020.

2.4.2 Pathway II—CO2 Emissions Peaking During

2025–2030

China is confronted with enormous pressure in the international climate negotia-

tions amid increasing attention to global warming. To achieve low-carbon transi-
tion, China needs to approach the peak value of CO2 emissions as soon as possible.
Although China’s cumulative emissions per capita in the industrialization process
are still far below the level of developed countries, but its total emission has
overtaken the United States, becoming the world’s largest emitter. Additionally
emissions per capita surpass the world average level and the annual national
emissions account for over 25 % of the world total. According to the aforemen-
tioned study, with a great improvement in energy efficiency and substantial increase
in renewable energy supply, China is expected to achieve the peak value in GHG
emissions during 2025–2030.

2.4.3 Pathway III—Total Energy Use Peaking Around 2035

The control of total energy consumption is the key in the low-carbon transition. If
appropriate measures are in place, the industrial sector will arrive energy use peak
soon while pushing ahead the industrial revolution. The commercial and residential
2 Low Carbon Energy Systems in China: Visioning Regional … 51

sectors can mitigate the lock-in effect of high energy consumption growth by
promoting ultra-low power buildings, while the transport sector can minimizes oil
consumption through “model innovation” and “technical changes”. Moreover, the
next-generation grid in the processing and conversion sectors, which integrates
resources at the supply side and demand side, is expected to increase the renewable
energy penetration in the power sector. In this way, the total energy use can peak in
2035.

2.5 Policy Implications

2.5.1 Reshaping the Energy Strategy in the Interest

of Green, Low-Carbon Transition

Under the LCS, China is likely to achieve a 6-fold economic growth with only a
9 % increase of primary energy use over 2010 given energy services available. By
then, 57 % of energy supply will come from non-fossil energy sources, CO2
emissions peak early, and emissions of major pollutants substantially decrease. To
realize these objectives, China should reshape the energy strategy that injects a new
impetus to efficient, green, low-carbon development by changing the traditional
development ideas, production and use patterns, and technical and institutional
systems. The coal consumption will go down gradually with the development of
energy structure transformation. But coal and coal power will still be the main
energy and power sources in recent and middle period. Hence, to achieve clean and
high efficient utilization of coal is China’s realistic choice. It is needed to strengthen
coal washing, generalize clean and high efficient boilers, develop clean combustion
and promote carbon capture and storage, etc.

2.5.2 Incorporating the Low-Carbon Concept

into Industrialization, Urbanization,
Internationalization and Market-Oriented
Development

Low-carbon industrialization should be armed with a new philosophy that

emphasizes the upgrading of traditional industries, expansion of high-tech indus-
tries and development of producer services. In the development of automobile and
housing markets, reasonable regulation should be provided to guide residential
consumption. It is recommended to focus on four aspects: regulation of con-
sumption growth, advanced and efficient technologies and services, efficiency of
end-use equipment, and low-carbon energy industry. China should also foster
52 Z. Yuezhong et al.

low-carbon ways of production and life as early as possible before 2020 and
rationalize the planning for cities with different sizes and internal functional areas,
to minimize energy waste derived from urban planning.

2.5.3 Meeting the New Age of Low Carbon: Electrified

Energy System

Per capita energy use and per capita power use are two major measures of mod-
ernization level of a country. Compared with the Industrial Revolution II, the new
age witnesses broad and dispersed power demand, and shifts to distributed power
supply and in-depth grid integration with the Internet, intellectualization and IoT.
Under the LCS, during 2010–2050, the electrification rate will increase from 18 to
41 % and the proportion of non-fossil power supply from 24 to 94 %. The inno-
vation in concept, technology and institution is imperative, so as to promote the
clean, low-carbon, interconnected, sustainable development of the power
system. On the demand side, the penetration of power in end users should be
substantially increased to realize coal-free buildings and oil-free transport. On the
supply side, renewable energy should be used to provide clean carbon-free elec-
tricity at nearly zero marginal cost; in addition, the power supply pattern, by setting
the renewable energy and nuclear power to be the major power supply sources, and
efficient fossil power to be the supplement, would be considered to provide flexi-
bility services in the development of non-fossil power.

2.5.4 Speeding up the Institutional Reform to Release

Reform and Ecological Bonus

Low-carbon energy development does not come true naturally. It is, in fact, an
all-around reform with equal importance as the reform and opening up. It relates to
all aspects of the whole society and involves fundamental change to the technical
route and development path. The picture described under the LCS is underpinned
by forceful reforms of governance and market mechanisms and driven by new
industrial forms, technologies and business models. To this end, the government
should make overall planning and lead energy mix optimization, to avoid local
protectionism. Energy-related pricing mechanisms such as capital, labor, land,
resources, and environmental elements, should be rationalized. A fair, competitive
market environment that reflects supply and demand, scarcity and environmental
externalities should be well established.
2 Low Carbon Energy Systems in China: Visioning Regional … 53

2.6 Deepening Regional Energy Cooperation

2.6.1 Visioning Regional Cooperation for Accelerating Low

Carbon Green Economy

At present, green growth and sustainable development has become the consensus of
the major countries, China need to change the concept of energy cooperation, and
strengthen the cooperation of energy efficiency, renewable energy. First, escalating
the regional energy transition process, realize the utilization of energy in water,
wind, solar, and biomass adapting to local resource conditions. Make energy more
accessible and affordable for everyone. Strengthen regional grid interconnection
with Southeast Asia, South Asia, and Northeast Asia, improve the power grid for
renewable energy consumptive capacity and promote renewable energy consump-
tion. Second, focus on cooperation of energy efficiency and energy saving,
strengthen cooperation in the field of clean coal utilization, actively participate in
the construction of new coal-fired power plant projects in neighboring countries,
and strengthen the cooperation in energy efficiency improvement in the areas of
industry, building, and transportation. Third, strengthen energy technology coop-
eration with European. Establish a joint funding mechanism, while promoting the
formation of the European developed countries to provide technical assistance to,
share experience with, and enhance capacity building programs for the developing
countries.

2.6.2 Creating a New Pattern of All-Round

Cooperation—The Belt and Road Initiative

Take the Belt and Road initiative as an opportunity to deepen the international
energy cooperation, to create a new pattern of all-round energy cooperation. First,
promote the Belt and Road align with the initiatives proposed by countries along
the Belt and Road. Based on the good cooperation with Mongolia and Russia,
strengthen the alignment of Silk Road Economic Belt and Korea Eurasian initiative,
21st-Century Maritime Silk Road and Indian Monsoon Plan in the energy sector. In
particular, China and India can strengthen cooperation in oil-rich areas, such as in
Central Asia and Middle East. Thus progress Bangladesh-China-India-Myanmar
Economic Corridor base on bilateral cooperation. Second, deepen the cooperation
in the involved regional energy. Association of South-East Asian Nations
(ASEAN), Northeast Asia and the Greater Tumen Area should be enhanced. For
example, though the cooperation is handicapped by complex interwoven interests
within ASEAN and the recent South China Sea issue, China should start with
specific energy governance projects and then gradually expand to mechanisms
constructions, considering ASEAN’s strong desire. Most countries in ASEAN are
developing countries, considering the complementarity of energy cooperation
54 Z. Yuezhong et al.

between China and these countries are relatively strong, primary measures can be
taken from the aspects of renewable energy development, energy technology
cooperation, oil/gas trade platform establish, regional power grid construction and
nuclear safety utilization. Meanwhile, strengthen the energy cooperation under
ASEAN+3, based on the consensuses of the Sixth China-Korea-Japan Summit,
strengthen trilateral cooperation on improvement of production capacity of energy
infrastructure and electricity, strengthen cooperation on LNG to enhance the liq-
uidity and efficiency of the LNG market in Northeast Asia, and advance ASEAN+3
energy cooperation with the trilateral cooperation serving as an engine.

References

China energy efficiency financing and investment report 2012. (2013). Beijing.
China’s 12th five-year economic and social development plan. (2011a). Beijing.
China statistical yearbook-2014. (2015a). Beijing.
Circular of the state council on the printing and distribution of the 12th five-year plan for energy
saving and emission reduction. (2012). Beijing.
Comprehensive work plan for energy conservation and emission reduction during the 12th
five-year plan period. (2011b). Beijing.
Enhanced actions on climate change: China’s intended nationally determined contributions.
(2015e). Beijing.
Energy Research Institute (ERI). (2009). Beijing.
Energy Research Institute (ERI). (2015). Reinventing fire of China. Beijing.
Statistical communiqué of the People’s Republic of China on the 2014 national economic and
social development. (2015b). Beijing.
Suzhou declaration of the international forum on energy transitions. (2015c). Suzhou.
The energy development strategy action plan (2014–2020). (2014a). Beijing.
The proposals for the 13th FYP for China’s national economic and social development. (2015d).
Beijing.
U.S.-China joint announcement on climate change. (2014b). Beijing.
U.S.-China joint presidential statement on climate change. (2015f). Washington DC.
Vision and proposed actions outlined on jointly building Silk Road Economic Belt and
21st-century Maritime Silk Road. (2015g). Beijing.
Xue, J., & Zhao, Z. (2015). Annual report on china’s low carbon economic development (2015).
Beijing.
Chapter 3
A Multi-level Experience of Designing
Low-Carbon Energy Systems in India

Ritu Mathur and Malancha Chakrabarty

3.1 Introduction

The GDP of the Indian economy has grown at an average annual rate of 7.5 % from
2004 to 2014 while per capita incomes in the same period increased at around
5.7 %.1 Despite this fairly rapid economic growth, India’s development needs
continue to be large. With a human development index (HDI) of 0.586 (which is
below the average of 0.614 for countries in the medium human development
group),2 India ranked 135 out of the 187 countries covered in the Human
Development Report 2014. The Global Hunger Index still classifies India’s hunger
status as ‘serious’. Moreover, about 25 % of the population lacks access to elec-
tricity and about 66 % continues to rely on traditional use of biomass for cooking
which has adverse effects on the health of women and children (IEA 2013).
India’s development needs have large overlaps with the Sustainable
Development Goals (SDGs), particularly SDG 1 (End poverty in all its forms
everywhere), SDG 2 (End hunger, achieve food security and improved nutrition,
and promote sustainable agriculture), SDG 7 (Ensure access to affordable, reliable,
sustainable, and modern energy for all), SDG 8 (Promote sustained, inclusive and
sustainable economic growth, full and productive employment and decent work for
all), SDG 9 (Build resilient infrastructure, promote inclusive and sustainable
industrialization and foster innovation), and SDG 13 (Take urgent action to combat
climate change and its impacts).

1
Estimates from Central Statistics Office (CSO) data.
2
UNDP, 2014.

R. Mathur (&)
M. Chakrabarty

The Energy and Resources Institute, New Delhi, India
e-mail: [email protected]
M. Chakrabarty
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 55

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_3
56 R. Mathur and M. Chakrabarty

In terms of employment, about 92 % of workers continue to be engaged in the

informal sector. Close to 276 million workers live below the poverty line of $2 per
day, and studies indicate that the bargaining positions of these people have in fact
declined despite rapid economic growth.3 Distribution of incomes and expenditures
has become more unequal and the poor have actually not benefited as much from
rapid economic growth. Both rural–urban disparities as well as inequality within
urban areas in per capita expenditure have in fact increased. The NSSO 68th round
survey indicates that the monthly per capita consumption expenditure of the top
5 % of the rural population was around 9 times that of the bottom 5 %. In urban
areas, the average consumption by the top five per cent of the population was about
14.7 times that of the bottom 5 %. Therefore, inclusive and rapid growth directed at
eradication of poverty, providing gainful employment opportunities for its huge
population and providing access to basic energy and infrastructure facilities remain
among the top development priorities of the country. Accordingly, the Indian
Government aspires to maintain a high GDP growth rate with a view to increase the
per capita incomes and reduce poverty.
India’s development issues are also closely linked to climate change because a
large section of the poor are dependent on livelihoods that are strongly influenced
by climate change and variability in natural resources. Large sections of our pop-
ulation depend on agriculture and allied activities, and live in coastal areas that are
likely to face larger implications of climate change. With an annual water avail-
ability of 1–1.7 million litres/capita/year, India is also one of the most water
stressed countries of the world.
Simultaneously, while transitioning people away from traditional energy forms
to cleaner and more efficient modern fuels is important for enabling sustainable
development, it would inevitably lead to further increasing India’s commercial
energy requirements. Further, the revival of India’s industrial sector with the plans
for “Make in India” is crucially dependent on the availability of reliable energy
supply, and likely to further increase the final energy demands of the sector. With
limited domestic energy resources, the country would also need to rely increasingly
on imports of energy from other regions to support its development plans.
Moreover, with development and urbanization, cities in India are also increasingly
characterized by growing urban sprawl, longer commutes within the city, greater
reliance on personalized modes of transport and therefore higher fuel use and
concomitant higher levels of congestion and air pollution (Fig. 3.1). In aiming to
provide a growing and urbanizing population with higher levels of energy, health,
education facilities, etc. the country therefore faces a huge challenge in terms of
being able to meet the development imperatives of the country in a clean and
sustainable manner. Apart from the environmental consequences, the country
would increasingly face pressures on natural resources such as land, water, minerals
and fossil fuels. Given these multiple challenges, India needs to move towards a
low carbon green growth future. In fact, apart from enhancing the adoption of low

3
http://www.ihdindia.org/ILERpdf/Highlights%20of%20the%20Report.pdf.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 57

PM2.5 (Dec, 2010)

40 104

30

20

10

0
ug/m3
1
1 93
December 1,2010 5:30:00
Min=0 at (66,80), Max=69 at (64,54)

Fig. 3.1 Concentration of PM2.5 in India as on December 2010. Source TERI Analysis (2010)

carbon options, India also needs to focus on green growth which spans much
beyond climate mitigation and adaptation and aim at achieving economic growth
that is socially inclusive and environmentally sustainable. As per the Thirteenth
Finance Commission Report (Para 3.15), green growth involves rethinking growth
strategies with regard to their impact(s) on environmental sustainability and the
environmental resources available to poor and vulnerable groups.

3.2 India’s Future Energy Scenarios

In order to analyse India’s future energy scenario and the implications of the
alternative energy options, we draw on 3 scenarios based on TERI’S MARKAL
model as used in the Energy Security Outlook and described in Table 3.1.
In a Reference Energy scenario, India’s primary energy supply would grow at
around 5 % (increasing from 717 Mtoe in 2011 to 1,950 Mtoe in 2031) in order to
sustain an economic growth rate of around 8 % from 2011 to 2031. India’s current
energy supply mix is largely dominated by fossil fuels, with coal, oil and gas
accounting for around three-fourths of the total primary energy supply in 2011.
Traditional biomass based resources such as firewood and dung-cake also have a
significantly high share at 26 %.
58 R. Mathur and M. Chakrabarty

Table 3.1 Description of alternative energy scenarios

Scenarios Description
RES—Reference Energy RES reflects how India’s energy pathway would evolve if
Scenario current trends in energy demand and supply remain
unchanged. Existing policies and implementation trends are
assumed to continue
ESM—Moderate Energy ESM envisages an energy trajectory that focuses on higher
Security Scenario level of energy security (reflected as lower import dependency)
and includes greater efforts to enhance efficiency both on the
supply and demand sides
ESA—Ambitious Energy The main objective in ESA is to drastically reduce India’s
Security Scenario energy imports by 2031. This entails faster implementation of
energy efficiency measures, rapid penetration of new
technologies, and increased electrification of the economy. The
role of renewables is also crucial in this scenario
Source Compiled from TERI (2015)

The total primary commercial energy supply in 2031 is estimated at 1,625 Mtoe
in the Moderate Energy Security (ESM) scenario and 1,446 Mtoe in the Ambitious
Energy Security (ESA) scenario, reflecting a scope for reduction in energy
requirements due to efficiency improvements.
However, given India’s development imperative, energy requirements continue
to grow rapidly, and despite considerable efforts to improve energy efficiencies and
diversification to other alternatives, India’s dependence on fossil fuels continues to
remain large in all scenarios even in 2031. In the RES scenario, India’s fossil fuel
dependence increases to 66, 91, and 60 %, for coal, oil and gas, respectively, by
2031 against the levels of 23, 76, and 21 %, respectively in 2011. Given the stress
on diversification of fuel mix, India’s import dependence on coal, oil and gas in
2031 is much lower in ESM than RES but still high at 40, 84, and 41 %, respec-
tively. In ESA also, India’s import dependence on coal, oil and gas continues to be
quite high at 22, 77, and 63 %, respectively (Fig. 3.2).

2,000
Traditional Biomass
1,800 Liquid Biofuel
1,600 Tidal
1,400 Geothermal
1,200 Waste to Energy
Mtoe

1,000 Biomass based Power

Wind
800
Solar
600
Hydro
400
Nuclear
200
Natural Gas
0 Oil
RES ESM ESA RES ESM ESA RES ESM ESA RES ESM ESA RES ESM ESA
Coal
2011/12 2016/17 2021/22 2026/27 2031/32

Fig. 3.2 India’s primary energy supply under three scenarios. Source TERI (2015)
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 59

Fig. 3.3 India’s final energy demand under three scenarios. Source TERI (2015)

On the final energy demand side, energy demand in the RES grows from 549
Mtoe in 2011 to 1460 Mtoe in 2031, increasing by almost thrice over a period of
20 years. With several demand management measures and fuel efficiency
enhancements across sectors, final energy demand in the Moderate Energy Security
(ESM) scenario, and the ESA scenario could reduce to 1,252 Mtoe and 1,158 Mtoe,
by 2031 (a reduction of 17 and 21 % in the ESM and ESA scenarios as compared to
the RES. Figure 3.3 shows that industry, transport and residential sectors continue
to remain the largest energy consuming sectors.
Figure 3.4 shows India’s power generation capacity (centralized and decen-
tralised) from 2011 to 2031 across scenarios. In the RES, there is a three-fold
growth in generation capacity from 239 GW in 2011 to 821 GW by 2031. Against

Fig. 3.4 Power generation capacity, across scenarios (centralized and decentralized). Source
TERI (2015)
60 R. Mathur and M. Chakrabarty

this level, the capacity in the ESM reduces to 778 GW due to efficiency
improvements and need for lower generation levels, but in the ESA scenario, the
generation capacity increases to 904 GW in 2031 as the efficiency improvement
gains realised in this scenario are offset with the need to set up much higher levels
of renewable based capacities to generate the required level of electricity.
Interestingly, the total energy system cost in the RES and ESM scenarios remain
fairly similar despite a shift to more efficient options as well as more renewable
energy capacities, because the additional upfront investment costs get negated with
the savings realised from efficiency gains and renewable fuels.
India’s energy security driven scenarios are primarily focused on 3 major areas
—viz. promoting energy efficiency, expanding the scope of renewable energy and
encouraging modal shift towards public transport and rail based movement in the
transport sector. Energy efficiency has significant scope for reducing energy
requirement by minimizing wastage in energy distribution, enhancing penetration
of efficient appliances and transportation modes, bringing in efficient building
design into new residential and commercial buildings and encouraging efficiencies
in energy end-use with rational energy pricing. Given India’s high import depen-
dence on fossil energy forms—coal, oil and gas, India also aspires to increase the
share of renewables, particularly solar. In the transport sector, increase in use of
private vehicles and road based freight movement has led to rapid increase in
petroleum consumption and vehicular emissions. Accordingly, it is in the country’s
interest to enhance efficiencies of both passenger and freight movement and
enhance the scope of alternative fuels in the sector, in order to reduce both local as
well as global environmental implications by moving to cleaner and more efficient
fuels and modes in this sector. Accordingly, India needs to promote investment in
mass passenger transportation systems and encourage modal shift towards railways
particularly in case of freight movement. Further, rail based movement needs to
gradually move towards electric traction which should be complemented by
renewable energy based power generation.
While the options are many and cut across sectors, diversification of energy requires
India to play a major role globally and better integrate with key energy market players.
At the same time, it needs to engage better at the global and regional levels to accelerate
diffusion of clean technologies by exploiting appropriate mechanisms and enabling
knowledge and experience sharing across countries.
Given the broad trends of the country’s future development and concomitant
energy and infrastructure needs, India’s Intended Nationally Determined
Contributions (INDCs) submission towards achieving the ultimate objective of the
United Nations Framework Convention on Climate Change (UNFCCC) is ambi-
tious, forward looking, and integrates well with the country’s overall development
objectives. India through its INDC seeks to aim at reducing emission intensity of
GDP by 33–35 % by 2030 compared to 2005 levels and aspires to achieve 40 %
non-fossil installed electricity capacity by 2030, along with improving sectoral
efficiencies and carbon sinks.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 61

India’s GHG emissions were 1.48 billion tonnes CO2 eq. in 2005. The INDC
emission intensity reduction targets imply that India’s GHG emissions would need
to be less than 7.3 billion tonnes CO2 eq. by 2030. In per capita terms, India’s
emissions would need to be less than 5 tonnes per capita by 2030 (much below the
per capita level of several of the developed countries today), while maintaining a
robust GDP growth of more than 8 % per annum on average. Moreover, for
ensuring equitable, inclusive and sustainable development, provision of reliable and
affordable energy and basic services to all is critical.
While listing out several measures that have already been put in place, India’s
INDCs clearly aspire to go beyond the existing pace of technological transforma-
tion, and tap the window of opportunity that could be tapped to leapfrog quickly to
efficient and cleaner options. In putting forward its vision for technological trans-
formation through a combination of domestic action and global collaboration,
India’s INDCs therefore also call for international support for achieving the goal of
increasing the share of non-fossil energy. This vision for technological transfor-
mation is appropriately complemented with the perspective on mobilizing finance.

3.3 Regional Cooperation for Low Carbon Energy

Systems and Green Growth

Moreover, promoting sustainable development in a climate constrained world

implies greater focus on the country’s energy sector, and the options that exist to
reduce energy requirements and emissions. This makes it all the more important to
tap opportunities for technological leapfrogging where possible, make best use of
mechanisms and instruments that enable scaling up of clean and efficient energy
technologies, and increasingly integrate success stories in other regions with plans
and measures in our own country. Enhanced regional cooperation between coun-
tries can play a major role in supplementing the efforts at the national level.
Given that much development is yet to take place in India, it can be climate
proofed and oriented towards sustainable development from the very start.
Secondly, with both climate change and sustainable development being high on the
global political agenda, there are opportunities to create institutions for global and
regional cooperation supporting national level policies. This chapter therefore
focuses on the possibilities of harnessing the power of regional cooperation for
sustainable development and green growth in Asia.
The need for greater regional cooperation in Asia stems from many reasons.
Firstly, economic gravity has shifted towards Asia in the last decade. Secondly,
with the spate of regional trade agreements, the economic ties between Asian
countries have also grown tremendously. Thirdly, most Asian countries are char-
acterized by mismatches between energy demand and energy resource endowments.
Therefore, enhancing the level of energy trade and cooperation can be mutually
beneficial to countries in the region. Also, most of the Asian countries have similar
62 R. Mathur and M. Chakrabarty

factor endowments or in other words, with the exception of Japan, most of the
Asian countries are characterized by an abundance of cheap labour while being low
on capital. Other important similarities in levels of development, business envi-
ronment, and infrastructure support also make solutions in one country more likely
to be successful in other similar countries.
There is also a need for much greater cooperation between countries of Asia
despite wide variations in economic development between countries in this region
—highly developed countries such as Japan, fast growing emerging countries such
as China and India, and less developed countries such as Nepal and Bhutan. One of
the foremost reasons behind the need for cooperation, as stated earlier, lies in the
fact that Asian countries are increasingly playing a role in the global economy and
global energy markets. China and India together are likely to have a significant
impact on energy use in the region based on how they choose to incorporate
alternative technologies and fuels in their development paths. The rise of Asia
coupled with sluggish growth in the North, warrants greater and more effective
cooperation between Asian countries for climate change and sustainable develop-
ment. Many of the Asian countries also have many similarities in socio-economic,
climatic and cultural conditions. Developing Asia is home to 49 % of the world’s
population which lacks access to electricity and 71 % of the world’s population
which relies on traditional use of biomass for cooking (IEA 2013). Regional
cooperation in climate smart technologies within Asia is also likely to be more
successful because of similar geo-climatic and socio-cultural conditions than
technologies which have been developed and applied purely in the North.

3.3.1 Regional Energy Cooperation

The need for regional energy cooperation in Asia also exists because of mismatches
between energy demand and energy resource endowments across regions. For
instance, Bhutan and Nepal have abundant hydropower resources while Indonesia
and Malaysia have major coal, oil and gas reserves respectively. On the other hand,
there are countries such as India where energy demand is fast outstripping supply.
Therefore, intensification of energy trade within the region could be beneficial for
all countries by enabling more optimal energy supply solutions in the region. The
need for energy cooperation in the region was recognized early on by South Asian
Association for Regional Cooperation (SAARC) member countries and numerous
attempts have been made since the Islamabad Declaration of the 12th SAARC
Summit in 2004. The 13th SAARC Summit, held at Dhaka in 2005, approved the
establishment of the SAARC Energy Centre to serve as the focal point for
increasing energy cooperation within the region as well as with neighboring
regional blocks in West Asia, Central Asia, East Asia and South-East Asia.
Recently India and other South Asian countries also signed a regional cooperation
agreement on electricity trade in the 18th SAARC Summit at Kathmandu which
will enable India, Pakistan, Sri Lanka, and Bangladesh to import electricity from
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 63

Nepal and Bhutan. Currently India is importing electricity from Nepal, Bhutan and
Bangladesh bilaterally while exploring options with Sri Lanka.
India and Nepal have already engaged in significant energy cooperation. Four
hydroelectric schemes, namely, Pokhra, Trisuli, Western Gandhak and Devighat
with an aggregated installed capacity of about 50 MW, have been implemented in
Nepal with financial and technical assistance from India. In 2010, Nepal supplied
75 GWh of electricity to India at a price of Rs. 604.87 million (Srivastava et al.
2013). The two countries have also signed an agreement worth US $1.04 billion
under which, Satluj Jal Vidyut Nigam (SJVN) Limited will develop a 900 MW
plant on the Arun river. This project will be beneficial to both the countries as Nepal
will get one-fifth of the electricity free of cost and also earn US $3.48 billion over
25 years in royalty. At the same time, it would also contribute to easing the elec-
tricity shortage in India.4 Further possibilities of expanding electricity trade
between India and Nepal exist with only 600 MW of hydro power capacity having
being developed until now against Nepal’s economically feasible hydropower
potential of about 40,000 MW (ibid.).
India is Bhutan’s top trade partner and energy is its main export to India.5 India
also has a long history of providing technical and financial assistance to Bhutan in
the development of hydro power resources. The 336 MW Chukha dam in south
Bhutan, commissioned in 1986–88 and entirely funded by India, was the first major
project,6 and paved the way for further cooperation between the two countries in the
energy sector. Bhutan currently exports about 1,000–1,200 MW surplus power to
India from its three hydro projects namely Chukha (336 MW), Kurichhu (60 MW)
and Tala (1020 MW) (ibid.). In addition to these three projects, three more projects
are currently under implementation (Table 3.2). The first ever CDM benefits were
realized by India-Bhutan hydro trade in 2010 (Rahman et al. 2011).
Bilateral cooperation between India and Bhutan aims at installing hydro-power
plants with a total capacity of 10,000 MW by 2020. India and Bhutan also signed
an Inter-governmental Agreement on Development of Joint Venture Hydropower
Projects in 2014, which seeks to implement four hydro-power projects
(Kholongchu, Bunakha, Wangchu and Chamkarchu), with a total capacity of
2,120 MW in a joint venture model between public sector undertakings of the two
countries. Four Indian companies with a combined investment of Rs. 2,000–
2,500 billion have been roped in by Thimphu for the JV with Bhutan’s state-owned
companies.7 India-Bhutan hydropower trade is expected to reduce the pressure on
coal based power generation, helping reduce not only the power generation related

4
http://www.allgov.com/india/news/india-and-the-world/india-and-nepal-agree-to-energy-
cooperation-ahead-of-saarc-summit-141125?news=854918.
5
http://www.gatewayhouse.in/hydropower-diplomacy/.
6
http://www.gatewayhouse.in/hydropower-diplomacy/.
7
http://www.observerindia.com/cms/sites/orfonline/modules/weeklyassessment/
WeeklyAssessmentDetail.html?cmaid=66286&mmacmaid=66287&volumeno=VII&issueno=18.
64 R. Mathur and M. Chakrabarty

Table 3.2 Hydroelectric projects under implementation under Indo-Bhutan cooperation

Name of the project Installed Total cost Funding pattern
capacity Rs. (Crores) Loan Grant
(MW)
1. Punatsangchhu HE 1,200 3,514.81 2,108.88 (60 %) 1,405.92 (40 %)
Project Stage-I
2. Punatsangchhu HE 990 3,777.80 2,644.46 (70 %) 1,133.34 (30 %)
Project Stage-II
3. Mangdechu HE 720 2,896.30 2,027.41 (70 %) 868.89 (30 %)
Project
HE: Hydroelectric
Source Press Information Bureau (PIB) (2015)

emissions but in also reducing the pressure on making available adequate coal to
fuel the power demands.
India also has bilateral energy cooperation with other neighboring countries such
as Bangladesh and Sri Lanka. Bangladesh had been keen on importing power due to
severe domestic power shortages. Discussions on the possibility of Bangladesh
connecting its electricity grid to India, Nepal, and Bhutan had been underway for a
number of years. In 2013, India and Bangladesh launched two collaborative power
projects, a 71 km transmission line from Berhampur in West Bengal to Bheramara
in Bangladesh and the Maitree Super thermal Power Project near Rampal. The
transmission link between the two countries would facilitate cross border electricity
transfer of about 500 MW from India to Bangladesh.8 The Maitree Super Thermal
Power project is being built by Bangladesh India Friendship Power Company Ltd
(BIFPCL), a joint venture between India’s National Thermal Power Corporation
(NTPC) and Bangladesh Power Development Board (BPDB). The total capacity of
the thermal power project is 1,320 MW and it is likely to be operational by 2018.9
Sri Lanka is also in the process of implementing almost 2,000 MW of coal-fired
power plants and considering a 500 MW High Voltage Direct Current (HVDC)
power transmission link with India (Wijayatunga et al. 2013).
Further, India has emerged as a major petroleum exporter. It is currently the 4th
largest petroleum exporter in the world and the largest in Asia with a market share
of 6.1 %. Figure 3.5 shows that India’s exports of fuels grew dramatically from
2001 onwards. The compound annual growth rate of India’s fuel exports to low and
middle income East Asian and Pacific countries and low and middle income South
Asian countries from 2001 to 2013 were 65.1 and 34.1 % respectively. India
currently supplies the entire demand for petroleum products in Nepal and Bhutan.

8
http://archive.indianexpress.com/news/indiabangladesh-power-transmission-link-open/1178942/0.
9
http://articles.economictimes.indiatimes.com/2014-07-26/news/52057740_1_ntpc-chairman-
generation-capacity-december.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 65

5,000
Low & Middle income East Asian &
4,500 Pacific countries
Low and Middle income South Asian countries
4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

Fig. 3.5 India’s exports of fuels to low and middle income East Asian and Pacific countries (in
US $ million). Source UNCOMTRADE data (Accessed 05.08.2015)

Indian Oil Corporation supplies petrol, diesel, domestic LPG, and ATF to Nepal. In
2014, India agreed to build a pipeline to supply fuel to Nepal at a cost of Rs.
200 crores.10 Smaller economies such as Nepal and Bhutan stand to gain from trade
in petroleum products with India because it helps to broaden their energy supply
options at a lower cost than would be possible if they operated independently.
Similarly, India also exports petroleum products to Bangladesh. Within the larger
region, Singapore is the largest importer of India’s fuels followed by Indonesia
(Fig. 3.6).
In addition to energy cooperation with neighboring countries, India has been
exploring energy cooperation options with neighboring regional blocks.
Discussions regarding the possibilities of importing natural gas from Turkmenistan,
which is the largest source of gas in Central Asia via Afghanistan and Pakistan, are
underway. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas project is
envisaged as a 1,800 km long gas pipeline project with a design capacity of
3.2 billion cubic feet (bcf) of natural gas.11 Significant progress has been made
since the TAPI Summit which was held in 2010, and the TAPI Gas Sales and
Purchase Agreement (GSPA) was signed in May 2012. Transit fee payable by India
to Pakistan and Afghanistan has also in principle been agreed to.12 While India is
looking forward to early implementation of the project and is envisaging multiple
options including the possibility of land-sea route through Iran, such projects have

10
http://articles.economictimes.indiatimes.com/2014-08-04/news/52428318_1_indian-oil-corp-
pipeline-amlekhganj.
11
http://www.thehindu.com/news/national/modi-pitches-for-early-implementation-of-tapi-gas-
pipeline-project/article7411290.ece.
12
http://www.eoi.gov.in/ashgabat/?0760?000.
66 R. Mathur and M. Chakrabarty

9,000
Bangladesh
8,000
Bhutan
Indonesia
7,000 Malaysia
Sri Lanka
6,000 Nepal
Singapore
5,000

4,000

3,000

2,000

1,000

Fig. 3.6 India’s exports of fuels to selected Asian countries (in US $ million). Source
UNCOMTRADE data (Accessed 05.08.2015)

continued to be hit by political uncertainties and delays on various accounts.13

Similarly, the Iran-Pakistan-India gas pipeline project, which aims to supply gas
from Iran to Pakistan and India, was originally supposed to supply 55 billion cubic
meters per year (BCM/y) for use in both India and Pakistan but the volume of
supply has now been revised downwards to 21 BCM/y (Wijayatunga et al. 2013).
India was also exploring the possibility of importing gas from Myanmar via
Bangladesh but the Myanmar-Bangladesh-India pipeline project faced numerous
hurdles due to disagreements with Bangladesh. In 2005, Bangladesh withdrew from
the project after India refused to accept its additional considerations,14 and uncer-
tainties regarding this regional gas grid continue to remain. Accordingly, working
towards smoothening some of the international relations issues and increasing the
political will towards greater energy cooperation is one of the key requirements for
advancing forward on this front.

13
http://www.eoi.gov.in/ashgabat/?0760?000.
14
http://indianexpress.com/article/business/business-others/official-talks-on-myanmar-india-
bangla-pipeline-to-start-soon/.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 67

3.4 Trade in Climate Smart Goods and Energy

Technologies

Given the importance of climate smart energy technologies in achieving a low

carbon green economy, this section focuses on the current status of trade in climate
smart energy technologies. Traditionally, the developed countries of the West were
the main exporters of climate-smart energy technologies but there has been some
convergence between developed and developing countries in recent years, with the
emergence of China as a major exporter of climate-smart energy technologies.
A number of studies such as Crawford (2011) and UNESCAP (2011a, b) find that
China and Japan are the leading Asian exporters of climate-smart energy
technologies.
Figure 3.7 shows that China’s exports of wind power technologies grew very
rapidly from 2005 onwards at an annual average rate of 21 %, and by 2013 it
overtook Japan. India’s exports also grew rapidly from 2005 to 2008, declining
briefly after that before picking up again. A similar trend was observed in case of
solar power technologies. China is currently the world leader in the exports of solar
photovoltaics. Its exports grew dramatically from US $571.8 million in 2002 to US
$26,735 million in 2014 at an average annual growth rate of 38 %. As shown in
Fig. 3.8, India’s exports of solar power technologies are miniscule as compared to
China. The remarkable growth of China’s solar industry can be traced to a number
of factors. Firstly, feed-in tariffs in European countries enabled China to step up its
production of cheaper solar panels. Secondly, China’s ascent as the world’s largest

3,000
China
2,500 Japan
India
2,000

1,500

1,000

500

Fig. 3.7 China, Japan and India’s exports of wind power technologies to the world (in US
$ million). Source UNCOMTRADE data. Note Wind power technologies includes HS codes
848340, 848360, and 850230
68 R. Mathur and M. Chakrabarty

35,000
China
30,000 Japan
India
25,000

20,000

15,000

10,000

5,000

Fig. 3.8 China, Japan and India’s exports of solar power technologies to the world (in US
$ million). Source UNCOMTRADE data. Note Solar power technologies includes HS codes
850720, 853710, 854140

solar manufacturing base is due in large part to its domestic financial and policy
support to the solar industry (Crawford 2011; UNESCAP 2011a). In fact, United
States has increased its tariffs on Chinese solar panels in response to China’s
domestic support for solar photo voltaic industry (Palmer 2009). China is also the
leading Asian exporter of energy efficient lighting technologies. Exports from other
major Asian countries such as Japan, India, Indonesia, and Thailand are miniscule
as compared to China.
Figures 3.7 and 3.8 indicate that India is way behind China and Japan in terms of
exports of climate smart energy technologies. However, in recent years it has an
emerged as an important destination of wind, solar, and energy efficient lighting
technologies and its imports have grown rapidly (Fig. 3.9). There was a nine fold
growth in India’s imports of wind power technologies from US $48.1 million in
2000 to US $424.4 million in 2008. China is one of the largest sources of wind
power technologies for India. Its share in India’s imports of wind power tech-
nologies expanded from a mere 0.9 % in 2000 to 30.8 % in 2014. Japan accounted
for about 9.2 % of India’s wind power technology imports. India’s imports of solar
power technologies also grew rapidly from 2003 onwards and peaked at US
$1,738.6 million in 2011. By 2014, China accounted for over 50 % of India’s
imports of solar power technologies. India’s imports of energy efficient lighting also
picked up from 2003 onwards. China is the leading supplier of energy efficient
lighting for India and accounts for over 80 % of India’s imports of energy efficient
technologies.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 69

Fig. 3.9 India’s imports of climate smart energy technologies from China, Japan and the World
(in US $ million). Source UNCOMTRADE data

3.4.1 Promoting Climate Smart Energy Technology

Industry in Asia

Although there has been a remarkable increase in the trade of climate smart energy
technologies in recent years, the volume of intra-region trade in climate smart goods
and technology is still a small proportion of global trade in climate smart goods and
technology. Many researchers such as Dinda (2011), have argued that free and
liberalised trade in climate smart goods and technologies will make such goods
available to countries which don’t have access to these goods because their
domestic industries are unable to produce them. However, other studies also pro-
vide evidence that free trade in climate smart energy technologies may not nec-
essarily address the issue of technology penetration appropriately in countries like
India. Firstly, a number of studies find that India’s tariff structure is already quite
favourable to climate smart energy technologies. India’s average tariff applied on
solar PV, clean coal technologies, energy efficient lighting, and wind technology is
not only lower than its industrial goods average but also lower than that applied by
many other Asian economies (Crawford 2011). Secondly, a number of studies also
note that tariffs on low carbon goods and services15 (LCGS) are already quite low in
Asia and any further reduction in tariffs will have little effect on trade volume

15
Climate smart energy technologies are a subset of low carbon goods and services.
70 R. Mathur and M. Chakrabarty

within the region (Kalirajan 2012; UNESCAP 2010, 2011b). In fact removal of
non-tariff barriers and behind the border obstacles to trade, investment and transfer
of technology are more likely to encourage the growth of trade in climate smart
energy technologies. Accordingly, increased collaboration towards innovative R&D
should also be simultaneously encouraged.
India’s renewable energy technology firms are at still at a nascent stage and do
not have the economies of scale that established players such as China and Japan
have, and therefore some argue that they need to be protected till they attain
economies of scale. The infant industry argument for trade protectionism is also
justified by the fact that India has a huge domestic market and it should attempt to
develop its own domestic industrial capacity by reducing import duties on Climate
Smart Green Technologies (CSGTs) components and maintaining higher duties on
finished CSGTs which will help domestic climate smart technology producing
companies access cheaper components and shield them from competition from
foreign imports where more value added CSGTs are concerned. This situation can
incentivize greater foreign direct investment (FDI) in the country, as it will be more
cost-effective for foreign companies to set up production units in India to supply the
increased domestic market demand than to have their products face high import
duties at the border. Currently FDI up to 100 % is permitted under the automatic
route for renewable energy generation and distribution projects in India.

3.5 Way Forward

3.5.1 Exploring Possibilities for Greater Technology

Diffusion in Asia

The importance of rapid diffusion of efficient and clean technologies as a means to

furthering sustainable development and climate resilient growth in developing
countries can hardly be overstated. Most developing countries in South Asia are
highly vulnerable to the impacts of climate change, not only on account of poverty
and low capacities to adapt, but also because they generally have a high dependence
on natural resources for their livelihoods. Therefore, access to technology which
can support or enhance both adaptation and mitigation capacities is critical to
addressing climate change concerns and for sustaining rapid economic development
and the concomitant increase in energy requirements. Accordingly, the need for
technologies in countries like India ranges from improved biomass cookstoves for
rural communities, and from affordable green building design or efficient informal
public transport modes in urban centers to the application of decentralized
renewable options across different sections of society.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 71

3.5.2 Learning from Other Developed Countries

in the Region

To move to an energy secure and low carbon development pathway, it is extremely

important for countries to learn from success stories and best practices in other
countries. For instance, India could learn a lot from the technologically advanced
countries in Asia like Japan. In Japan, Toyota has been researching and developing
environmentally-efficient mobility solutions for more than 40 years. As a result, it
has established a significant lead in the design and production of full hybrid
technology. Also, it is well known for its waste management techniques and use of
land—which is a scarce resource for the country. Japanese ODA is playing an
important role in urban transport projects particularly Metro projects,16 and JICA
has disbursed a loan of Rs. 6900 crore for the Ahmedabad Metro Rail Project,17
apart from undertaking a feasibility study on an Mass Rapid Transport System
(MRTS) between Gurgaon and Bawal in Haryana.

3.5.2.1 South-South Technology Cooperation in Asia

Much of the discussion around technology transfer has traditionally focused on

North-South technology transfer and the scope of South-South technology coop-
eration has hardly got the attention it deserves. South-South technology transfer in
Asia could offer many advantages such as low cost of transfer, faster diffusion and
adaptation. Unfortunately, progress on the issue of technology transfer at the
multilateral level has been far less than satisfactory. In case of international climate
change negotiations, CDM projects have either been too small or too convoluted to
deliver technology to the extent required by developing countries. Moreover CDM
projects are also concentrated in a small number of developing countries. Moreover,
the extent of technology gap between the countries of North and the South is greater
than between the southern countries. Technologies that were developed in the west
may not be most suited or applicable in the Indian context because of climatic and
socio-economic differences between countries. For instance, European green
buildings are designed for very cold temperatures which may be completely
inappropriate for India because of the warm climate in India. Therefore, it will be
beneficial if India could draw learnings from success stories in other Asian coun-
tries. China, for instance has now emerged as the world leader in exporting wind,
solar and efficient lighting technologies.

16
http://pib.nic.in/newsite/PrintRelease.aspx?relid=109224.
17
http://timesofindia.indiatimes.com/city/ahmedabad/Metro-on-track-as-Japanese-agency-gives-
Rs-5900cr-loan/articleshow/41734274.cms.
72 R. Mathur and M. Chakrabarty

3.5.2.2 Role of India

India also occupies an important role with respect to technology transfer and
cooperation. There are many instances of south-south technology transfer initiated
by India. For example, India’s technology cooperation with Maldives for deploying
mitigation and adaptation measures for climate change as well as capacity building
of key stakeholders on climate change related issues. India is also helping Nepal in
converting waste agricultural biomass into energy, and in drought- and flood-
resistant seeds (Saxena 2014).18 India leads the BIMSTEC initiative on environ-
ment and natural disaster management and it has funded solar energy projects in
Afghanistan. Indian corporates are also playing an important role in south-south
technology transfer. Suzlon Energy established a factory in Tianjin, China in 2007
to manufacture rotor blades, generators, hubs and other wind turbine components.
This partnership is estimated out a capacity equivalent to 600 MW per annum. It
also includes a plan for setting up an on-site R&D centre. In addition, Suzlon has
partnered with domestic investors for Chinese wind installations, and has opened
office in Korea. Organizations such as The Energy and Resources Institute (TERI)
have also played a key role in furthering technology cooperation and diffusion
across Asia. Box 3.1 highlights some of TERI’s activities in this regard.

Box 3.1: TERI’s initiatives in south-south technology transfer

1. TERI has disseminated efficient rice husk combustion technologies in
Vietnam and Bangladesh with the help of DfID.
2. It is also involved in promoting renewable energy for sericulture in Nepal,
which also generates employment opportunities in rural areas apart from
providing environmental benefits.
3. It has been involved in the application of biomass gasification systems in
Thailand and Myanmar and has been engaged in exploring the possibil-
ities of expanding the market for biomass gasifiers in Cambodia.
4. It is providing technical support to Pakistan’s programme of Lighting a
Million Lives which aims to provide clean and reliable lighting to 5000
villages by 2017.
5. It is engaged in providing solar powered lighting, water heating and water
pumping in Kabul and the installation of 100 and 173 MVA solar power
plants in Mazer-e-Sharif with the support of the Asian Development Bank.
6. It has sought to improve energy efficiency of brick kilns in Vietnam, and
has also worked towards improving efficiency in Bangladesh’s foundry
sector and small scale rice mills.

18
http://www.unep.org/south-south-cooperation/case/casefiles.aspx?csno=63.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 73

3.5.3 Reducing IPR Induced Costs

Various factors such as differences in climatic conditions, availability of local raw

materials and socio-economic conditions may influence the choice of appropriate
technologies in different country contexts. For example, given the difference in climatic
conditions, building materials and technologies appropriate in most Western countries
may not be the most ideal for buildings in India. With most housing structures being
wood based in the US, while Indian houses are made with bricks and concrete, sharing
of technologies for efficient building design may be more meaningful between Asian
countries with similar climatic and socio-economic conditions.
Therefore, regional cooperation within the Asian economies in the areas of
housing, infrastructure etc. may be especially useful. Similarly, city planning needs
are likely to be significantly different in the West and in Asian regions. Smart cities
in developing countries may need to focus on providing smart infrastructure,
meeting energy demands and developing information technology for cities with
large and dense populations, while smart cities in developed countries may have
been designed with abundant availability of land and supporting a much lower
population density.
Lighting accounts for nearly 6 percent of global CO2 greenhouse gas emissions,
and transitioning to more energy efficient lighting systems can play a key role in
containing electricity requirements as developing countries in Asia improve their
spread and level of electrification.19 Street lighting is a critical concern for devel-
oping countries like India because of its strategic significance for economic and
social stability. Low carbon LED (light-emitting diode) lighting systems are
increasingly becoming an attractive street lighting solution for city planners. There
is tremendous potential to improve lighting quality while reducing energy use,
costs, and greenhouse gas emissions—through energy-efficient retrofits for street
lighting and improved operation and maintenance (O&M) practices.20 The Climate
Group supported by British High Commission worked in India in the states of West
Bengal, Maharashtra and Orissa, to install LED projects and design supportive
policy frameworks for its scale-up. The experience with urban local bodies in the
states’ cities of Haldia, Burdwan, Thane and Cuttack, showed that LEDs demon-
strate a potential for huge savings in electricity consumption and energy bills. In
Haldia, West Bengal, for example, 1,020 LEDs were installed by the Haldia
Development Authority (HDA), delivering monthly savings of about 70,000 kWh
of electricity and INR 500,000 in energy bills.21 Similarly, the Thane Municipal
Corporation retrofitted 310 of its HPSVs with LEDs, resulting in electricity savings

19
http://www.theclimategroup.org/what-we-do/news-and-blogs/data-from-street-lighting-pilots-in-
india-prove-leds-save-money/.
20
http://www.beeindia.in/schemes/documents/ecbc/eco3/DSM/Energy%20Efficient%20Street%
20Lighting%20Guidelines.pdf.
21
http://www.theclimategroup.org/what-we-do/news-and-blogs/data-from-street-lighting-pilots-in-
india-prove-leds-save-money/.
74 R. Mathur and M. Chakrabarty

of 47 %.22 However, high upfront costs of such appliances continue to be a

deterrent to their rapid adoption, and innovative ways to scale up the adoption of
such options is a key requirement. Some ways in which this may be attempted
include:
• Patent buy-outs: Patent buy-outs or compulsory licensing of appropriate
technologies such as solar cells and super-critical boilers is likely to reduce the
cost of technologies and enable industries to move to the next stage of attaining
economies of scale in production or use of the technology.
• Collaborative R&D on patent sharing/patent free basis: Lessons can be
drawn from successful examples of international collaborations in specific
technologies in agriculture such as Global Rice Science Partnership (GRiSP).

3.5.4 Enabling Economies of Scale

• Innovative cooperative programs to enhance dissemination of products

particularly relevant for SD and adaptation benefits to the poorest com-
munities: There have been several examples of innovative cooperative initia-
tives in the past to distribute products on a large scale to the poorest and
vulnerable communities on a subsidized basis e.g. Roll Back Malaria program,
and the Global Alliance for Vaccines and Immunization. Adaptation related
initiatives could be pursued in a similar way.
• Market guarantee to new products at global level through public pro-
curement: Economies of scale can bring down prices sharply. Public pro-
curement is one of the most effective ways to guarantee a level of demand. With
large markets, developing countries like India could create a strong demand pull
for green products and technologies if prices could be brought down to more
affordable levels. Such large scale technological transformation can be brought
about by sending strong signals to the private sector for investing in deployment
of clean and efficient technologies and products. BEE’s large scale procurement
of LEDs and adapting them in the Indian context in terms of affordability and
suitable design has been an important success story.
• Support for early demonstration projects: as part of coordinated implemen-
tation: In complex and uncertain markets different actors are skeptical in
adopting new technologies. This is even more pronounced when the scale of
operation is too small (SMEs) or too large (e.g. IGCC). Early demonstration
projects can help in building confidence among stakeholders as well as devel-
oping necessary guidelines and procedures for its successful implementation
at-scale. In the process, it also identifies the various national and international

22
http://www.theclimategroup.org/what-we-do/news-and-blogs/data-from-street-lighting-pilots-in-
india-prove-leds-save-money/.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 75

cooperation and capacity building needs and an appropriate business model. The
experience with the glass foundry SME cluster in India is a good example of
such demonstration projects in a few units which led to other units following
suit and eventual scale-up of the new technologies and processes.
• Public finance mechanisms/financial credit lines that ensure affordability:
Credit availability is critical to build private sector interest and confidence in
new technologies/high cost projects. Experience shows that targeted public
finance mechanisms (PFMs) such as financial credit lines are able to expand the
credit availability by a 3–15:1 leverage ratio. The credit lines provided to
IREDA by GEF and ADB for promoting RE and EE technological solutions in
India are good examples of such mechanisms. Provision of partial risk guar-
antees to financing agencies to encourage them for financing projects that
promote SD with long term economic gains but do not show economic viability
in traditional short-term assessment based on balance-sheet analysis is another
way of incentivizing projects.
• Strong manufacturing base: For rapid diffusion of technologies it is imperative
that sufficiently large local manufacturing capacities are installed. These man-
ufacturing facilities may be jointly set up by international collaborations, local
companies or may be subsidiaries of foreign companies. Besides saving the
transportation costs of the product reducing its market price, local manufac-
turing facilities also play an important role in enhancing domestic technological
capabilities by way of creating conditions for generating necessary tacit
knowledge through accelerated adoption of technologies to domestic conditions.
Strong manufacturing base in developing countries may also enable develop-
ment of products that are suitable to the general context of developing countries.
In order to set-up local manufacturing facilities a wider agreement among
countries is desirable setting broad guidelines and support mechanisms. Some of
the important general agreements in this direction could be (a) provision of
financial capital from multilateral, bilateral channels at concessional rates for
setting up these facilities, and (b) provision of appropriate policy and regulatory
incentives by the host country, including protection of relevant IPRs.

3.5.5 Building Absorptive Capacity

• Transfer of analytical tools and knowledge: In order to enhance capabilities to

understand and identify appropriate technologies global cooperation on
knowledge sharing is necessary.
• Training of Trainers programmes cutting across educational and training
institutes: Availability of skilled and informed human resources is fundamental
to improve various aspects of absorptive capacity. Advanced training for active
and future professionals is imperative. In order to enhance capabilities to
understand and identify appropriate technologies, regional cooperation and
76 R. Mathur and M. Chakrabarty

knowledge sharing can play a key role. Direct training of experts and stake-
holders and making the tools and knowledge available in the form suitable for
use by various stakeholders is important. However, availability of skilled and
informed human resources is fundamental to improve various aspects of
absorptive capacity and enabling long term capacities for planning and imple-
mentation. Advanced training for active and future professionals is essential,
which could be done through collaborations with relevant educational and
training institutes in developing countries.

3.5.6 Finance for Low Carbon Energy Systems and Green

Growth

Finance is one of most the critical barrier to green growth in Asia. Despite the fact
that many Asian countries such as India and China have emerged as economic
powerhouses, individually they will not be able to bear the upfront costs of com-
bating climate change and putting the energy sector on a cleaner trajectory. The
Green Climate Fund (GCF) is the main vehicle to access financing for developing
countries. However, it is critical to ensure that GCF is programmatically aligned to
make the best use of resources. One of the ways to ensure a more efficient use of
GCF resources is to create programmes with a specific regional focus rather than
only focus on needs of an individual country. Regional focus will be specially
helpful in the mitigation front and would go a long way in reducing competition
between countries for funds. SAARC and the International Centre for Integrated
Mountain Development (ICIMOD) can play a crucial role in this regard (Bhatiya
2015).
For renewable energy to flourish successfully in the Asia region, banks like The
New Development Bank (formerly known as the BRICS bank), Asian Development
Bank (ADB), Asian Infrastructure Investment Bank (AIIB), etc. are ideal for
financing renewable projects. Also, given the large pool of savings which the region
has, financing green projects, infrastructure, construction of grid connections and
sharing technology know-how will be beneficial for the entire region. Creation of
the Asia Infrastructure Investment Bank (AIIB), shall focus on the development of
infrastructure and other productive sectors in Asia, including energy and power,
transportation and telecommunications, rural infrastructure and agriculture devel-
opment, water supply and sanitation, environmental protection, urban development
and logistics, etc.23

23
http://www.aiibank.org/html/aboutus/AIIB/.
3 A Multi-level Experience of Designing Low-Carbon Energy Systems … 77

3.6 Conclusion

With limited financial resources and wherewithal for stepping up the pace of
technological transformation, developing countries in Asia such as India face
enormous challenges in addressing the issues related with climate change. At the
same time, it is amply clear that several mitigation options offer strong synergies
with the long term sustainable development goals of these countries, and aspirations
of accelerating the transition to clean and efficient energy choices are therefore high.
Key elements of regional cooperation that could provide a boost to emission
intensity reduction include strengthening of physical energy infrastructure (regional
electricity transmission network, natural gas pipeline etc.), workable financing
options, innovative schemes for developing markets for clean production,
stepped-up regional energy trade and innovative platforms and methods for
knowledge sharing in the region.
In the long term sustainable future for Asia, a regional financing facility sup-
porting adaptation initiatives should also be considered. Private investment in the
form of venture capital and mutual funds focusing on low-carbon and energy
efficient technologies should play a key role in funding adaptation and mitigation.24
Asian countries could also consider creating a regional emissions trading scheme
(ETS) in the longer term.25 Overarching political differences between countries in
the region, and lack of consensus on the benefits of joining hands are among the key
barriers to more effective regional cooperation in the region. Therefore, there is an
urgent need for more effective leadership and political will in the region.

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http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR004/ADB.pdf.
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South Asia: Opportunities and challenges. Manila: Asian Development Bank (ADB).
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Chapter 4
Toward a Low-Carbon Economy
for Indonesia: Aspirations, Actions
and Scenarios

Arianto A. Patunru and Arief Anshory Yusuf

4.1 Introduction

This chapter discusses the recent development of climate change initiatives in

Indonesia. It starts with an overview of Indonesian economy, followed by a
highlight of the four key challenges: slower economic growth, slower poverty
reduction, increased inequality, and the risk of climate change. We then analyze the
trends of green house gas emission in Indonesia and discuss its key drivers. This is
followed by a detailed analysis on three possible scenarios towards low carbon
economy in Indonesia, namely fossil-based fuel subsidy elimination, cost-saving
connectivity improvement, and improvement in the access to public transportation.
The next section identifies the recent policies relevant to the mitigatin and
adaptation of climate change in Indonesia. We address the challenges in pursuing
these policies and offer some proposals, including that in relation to supra national
cooperation.

4.2 Indonesian Economy: Overview and Challenges

Indonesia was one of the development success stories in the mid 1990s. It recorded
a fourfold increase in income per capita and significant poverty reduction in only
two decades (1976–1996). This was attributed to the stable economic growth of
7 % per year.

A.A. Patunru (&)

Australian National University, Canberra, Australia
e-mail: [email protected]
A.A. Yusuf
Padjadjaran University, Jatinangor, Indonesia
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 79

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_4
80 A.A. Patunru and A.A. Yusuf

Fig. 4.1 Poverty incidence in Indonesia, Thailand and Cambodia. Source World Development
Indicators 2013

This high economic growth has contributed to the rising importance of Indonesia in
the world economy. By 2013, Indonesia ranked as the 16th largest economy in the
world. In fact, if purchasing power parity (PPP) exchange rate is used, Indonesia is
currently among the 10 biggest economies.1 It is bigger than Italy, Korea and Canada.
Despite the consistently high economic growth, particularly in the 80s and 90s,
Indonesia still belongs to the lower-middle income countries group. It is richer than
its neighbours like Cambodia and the Philippines, but still behind Thailand and
Malaysia in terms of per capita income. Indonesian government aspires to boost the
income per capita so as to graduate to higher middle income group within two
decades from now (Bappenas 2014).
The Asian financial crisis (AFC) in 1998, triggered by the collapse of Thai
currency Baht, changed the course of the story. Since then, Indonesian economy
never experiences high economic growth comparable to the 1980s and 1990s.
Economic growth has slowed down to less than 6 % per year. More recently, it has
come down to 5 % per year. This runs counter to the country’s aspiration to reach
higher-middle income status in the near future. The slower economic growth is one
of the main setbacks in Indonesia today.
The slowing down of poverty reduction as well as the rising inequality constitute
the second setback. It is now often argued that Indonesia’s success in eradicating
poverty was overrated because the national poverty line does not reflect the real
conditions on the ground. Figure 4.1 compares the poverty incidence of various

1
Using data from the World Bank’s World Development Indicators.
4 Toward a Low-Carbon Economy for Indonesia … 81

countries (Indonesia, Thailand, Cambodia) using various poverty line standards,

including the national poverty line, $1.25/day, and $2/day poverty line. Thailand is
better in all poverty indicators. Indonesia fares better than Cambodia in poverty
incidence using the national poverty line. However, when $2/day is used as the
poverty line, Indonesia and Cambodia are in par. Furthermore, almost 40 % of the
Indonesian population still lives below $2/day (or roughly Rp 11,000/day).
Philippines and Vietnam has less (in proportion to its total population) people living
below $2/day poverty line compared to Indonesia.2
Another recent challenge to the Indonesian development is the rising inequality.
Yusuf and Sumner’s (2014) estimates suggest that inequality in Indonesia has been
rising quite significantly. This is predominantly visible in the last decade after the
AFC, which coincided with the era of political reform and democratisation. The
Gini coefficient has risen from 0.33 to the record high of 0.41 between 1993 and
2013.
One of the important characteristics of inequality in Indonesia is inter-regional
disparity. The process of economic development has been regionally unbalanced.
Java Island, particularly the capital Jakarta, has long been the epicenter of economic
growth. The large population has attracted investment in labor-intensive industry
and itself is a lucrative market for many commodities. Industry was the main driver
for Indonesia in its high growth period. Most infrastructures essential to growth
were developed in Java to support running the engine of growth. At the same time,
people move into Java to find better life. Islands out of Java, particularly eastern
Indonesia were therefore left behind.
Today, almost 60 % of Gross Domestic Product (GDP) is generated in Java
Island. Jakarta, the Indonesian capital, produced 16 % of the national output. In
2012, GDP per capita of the richest province, Jakarta, is 46 times the GDP per capita
of the poorest province, Maluku in the east. Proportion of people who live below the
national poverty line (headcount poverty incidence) is also highly diverse, ranging
from only 3.7 % in Jakarta to almost 31 % in the Province of Papua.
Indonesian regions are typically grouped into six main islands. Figure 4.2
illustrate how the development outcome, in terms of GDP per capita (left panel) and
poverty incidence (right panel) is distributed into these regions. Recent develop-
ment in the natural resource sectors such as coal and palm oil has made Kalimantan
to have the highest income per capita and the lowest poverty incidence in 2012.
However, within the island of Kalimantan, this is disproportionately contributed by
one of the richest provinces in Indonesia, East Kalimantan. Thanks to the recent
commodity boom, Indonesian export commodity like coal and palm oil has con-
tributed to the improvement in the average prosperity of resource-rich islands like
Kalimantan and Sumatera. In terms of per capita income, Java is now behind these

2
Yusuf and Rum (2013) calculated the percentage of people living below international poverty line
of $2 per person per day for each of the years during the period of 1990–2012. This estimates
improved the previous World Bank estimate because it incorporates regional variations in the cost
of living. The analysis suggests the sluggishness in the welfare improvement at the very bottom of
the distribution.
82 A.A. Patunru and A.A. Yusuf

Fig. 4.2 GDP per capita and poverty incidence in 6 main islands (2012). Source Authors’
calculation

two resource-rich regions. Again, this should be taken with caution, as the gap
within Kalimantan and Sumatera itself can be quite large.
In terms of poverty incidence, eastern regions are still the highest, particularly
Maluku and Papua provinces (Fig. 4.2, right panel), that recorded a rate twice the
national average. Java, Sumatera, and Sulawesi are generally at the average while
Kalimantan is the lowest.
Has there been any improvement, in the last five years, in terms of the regional
distribution of development outcome? Figures 4.3 and 4.4 shed some light to this
question. Two indicators are used, namely the GDP per capita for each province and
the province’s head count poverty incidence. The initial levels in 2007 are plotted
against the annualized changes from 2007 to 2012. A negative, significant rela-
tionship implies a tendency towards a convergence, that is, an improvement in the
distribution of development outcome.
The relationship between the initial GDP per capita and its growth is not clear, as
Fig. 4.3 suggests.3 There is no sign of divergence, widening gap among province’s
GDP per capita, nor of convergence, or narrowing gap among province’s GDP per
capita. Jakarta, the province with the highest initial (2007) GDP per capita grew as
fast as Maluku (or Maluku Utara), the provinces among the lowest levels of initial
GDP per capita. We can say therefore that in general the regional disparity stays the
same in the last five years.
In terms of poverty incidence, however, there is an evidence of convergence. As
Fig. 4.4 suggests, provinces with higher initial poverty incidence experienced a
larger decline in the subsequent poverty incidence. In other words, high poverty did
not persist during the period of 2007–2012. The gap in poverty incidence between
provinces in Indonesia has been narrowing down for the last 5 years.

3
The relationship is also not statistically significant.
4 Toward a Low-Carbon Economy for Indonesia … 83

8.0

7.0
Annual change in GDP per capita 2007- 2012 (%)

6.0

5.0

4.0

3.0

2.0

1.0

0.0
0 5 10 15 20 25 30 35

-1.0

-2.0
GDP per capita in 2007 (Million 2000 Rupiahs)

Fig. 4.3 Relationship between GDP per capita in 2007 and its annual change from 2007 to 2012.
Source Authors’ calculation

0
0 5 10 15 20 25 30 35 40
Annual change in poverty incidence 2007- 2012 (%)

-0.5

-1

-1.5

-2

-2.5
Poverty incidence in 2007 (%)

Fig. 4.4 Relationship between poverty incidence in 2007 and its annual change from 2007 to
2012. Source Authors’ calculation

The above three main challenges in Indonesian economy (slowing economic

growth, poverty reduction, and inequality increase) are now complemented by
another new challenge with regard to the climate change. As Table 4.1 shows,
84 A.A. Patunru and A.A. Yusuf

Table 4.1 Carbon emissions in Indonesia and other countries

Country Aggregate Aggregate Annual Kg per PPP $ Kg per PPP $
(kt) 2000 (kt) 2010 average rate of GDP, 2000 of GDP, 2010
(%)
Indonesia 263,419 433,989 5.1 0.29 0.23
Cambodia 1,977 4,180 7.7 0.15 0.12
Lao PDR 972 1,874 6.8 0.10 0.08
Malaysia 126,603 216,804 5.5 0.43 0.38
Myanmar 10,088 8,995 −1.1 – –
Philippines 73,307 81,591 1.0 0.28 0.16
Thailand 188,355 295,281 4.6 0.43 0.35
Vietnam 53,644 150,229 10.8 0.69 1.73
Source World Development Indicators (2013)

Table 4.2 Forest cover in Indonesia and other countries

Country Forest area (1,000 ha), Forest area (1,000 ha), Change (% annual
2000 2010 average rate)
Indonesia 99,409 94,432 −0.5
Cambodia 11,546 10,094 −1.3
Lao PDR 16,432 15,751 −0.5
Malaysia 21,591 20,456 −0.5
Myanmar 34,868 31,773 −0.9
Philippines 7,117 7,665 0.8
Thailand 19,004 18,972 0.0
Vietnam 11,725 13,797 1.8
Source Shively and Smith (2015)

Indonesia is the largest producer of carbon dioxide in Southeast Asia. It is estimated

that Indonesia’s total emissions contributes around 7 % of the global emission
(MOF 2009). Furthermore, while the carbon intensity in the economic production
has decreased (as in other countries), the level remains relatively high.
Sectors that contribute the most to Indonesia’s emissions are deforestations,
forest degradations, and peat fires, which together accounted for as much as 80 %
of the national emissions in 2005 (DNPI 2009). As Table 4.2 shows, Indonesia’s
forest area has srunk at the rate of 0.5 % every year during 2000–2010, while
countries like the Philippines, Thailand, and Vietnam on the contrary experienced
reforestation.
Climate change is also inextricably linked to the production and consumption of
fossil fuel (Shively and Smith 2015). Albeit to a lesser extent, fossil fuel con-
sumption in Indonesia also contributes to the country’s carbon emissions. The role
of fossil fuel is still very important, as shown in Table 4.3. Recent policies have
aimed to reduce dependency on this resource, however, every adminstration faces
mounting challenge to cut the fuel subsidy.
4 Toward a Low-Carbon Economy for Indonesia … 85

Table 4.3 Fossil fuel consumption in Indonesia and other countries

Country Total use Total use % Per capita Per capita %
(kt of oil (kt of oil change use (kg of use (kg of change
equiv.), equiv.), oil equiv.), oil equiv.),
2000 2010 2000 2010
Indonesia 155,128 207,849 34.0 743 864 16.3
Cambodia 3,412 5,024 47.2 279 350 25.4
Malaysia 47,110 72,645 54.2 2,012 2,569 27.7
Myanmar 12,841 13,997 9.0 265 270 1.89
Philippines 39,872 40,477 1.5 514 433 –15.7
Thailand 72,284 117,429 62.5 1,160 1,768 52.4
Vietnam 28,736 59,230 106.1 370 681 84.1
Source Shively and Smith (2015)

4.3 Indonesian GHG Emissions: The Trends and Its

Drivers

In this section, we identify the main drivers of carbon emissions in Indonesia. To do

this, we use the long-run time series data of Indonesian carbon emissions from 1970
to 2010. We use the IPAT (Impact, Population, Affluence, Technology) equation
popularized by Ehrlich and Holdren (1971) in early 1970s and was recently
extended as Kaya’s identity (Kaya and Yokoburi 1997) as the following:

C ¼ ½P  ½Y=P  ½E=Y  ½C=E; or

C ¼ ½P  ½y  ½e  ½c

where P is number of population, Y is GDP, E is energy used, C is carbon emis-

sions, y is GDP per person, e is energy intensity (energy used per GDP) and c is
carbon content of each energy unit used.
We apply the equations for the long-run evolution data of 1970–2010, as well as
for decadal growth and for some relevant other country for comparison. The result,
for Indonesia, is shown in Fig. 4.5.
The results show that Indonesia experienced 6.2 % annual growth in its carbon
emission over four decades. It is almost twice the growth of GDP per person.
Affluence has always been the main driver of Indonesian emissions, whereas the
contribution of population growth falls and energy intensity falls over time.
Except in the 1980s, there has not been much change in the composition of the
drivers. In the 1980s, Indonesia experience a sudden decline of oil production due
to external factor. Carbon intensity of its energy rise most rapidly in the 1970s and
the 1990s, due to oil boom the utilization of the country’s coal resources,
respectively.
86 A.A. Patunru and A.A. Yusuf

Fig. 4.5 Growth of carbon emissions and its drivers (annual percentage change). Source Authors’
calculation

In the 2000s, the growth of carbon intensity per unit of energy has contributed
almost 40 % to the total growth of carbon emissions, surpassing the contribution of
population growth for the first time.
Figure 4.6 shows Indonesia’s emissions in comparison with other countries. It
suggests at least two things. Firstly, during the last decade, Indonesian emissions
growth is relatively high. It is higher than the world emissions and lower middle
income countries. Secondly, the growth rate of its energy carbon intensity is among
the highest in the world. This has contributed to the fact that in 2010 Indonesia’s
total CO2 emissions (even excluding LUCF) is among the largest in the world. It is
fourteenth biggest emitters in the world.
Based on this analysis we conducted several scenarios for Indonesia’s future
emissions.4 The results can be summarized as follows:
1. If all the historical trends in its drivers continue toward 2030, then in terms of
total carbon emissions, Indonesia will rank sixth in the world.
2. If Indonesia achieve higher growth (8 % per year) as targeted in its national
development plan, then Indonesian will rank fifth in the world in terms of
carbon emissions.
3. Reducing the growth of Indonesia’s carbon content of its energy will reduce the
carbon emissions by 22 % below BAU. If on top of that, the energy intensity growth
is brought down to the lower middle income country average, the emissions will be
lowered by 31 % below BAU. Indonesia’s rank in world emissions will then drop to
ninth rank.

4
Details are available upon request.
4 Toward a Low-Carbon Economy for Indonesia … 87

Fig. 4.6 Emissions driver of selected countries/regions 2000–2010. Source Authors’ calculation

Reducing carbon intensity is likely to have a downward pressure to the overall

economic growth—and hence poverty eradication. This issue is addressed in next
section.

4.4 Selected Low-Carbon Economy Scenarios

4.4.1 Methodology: IndoTERM CGE Model

The computable general equilibrium (CGE) model is an economic model that

represents the whole (national) economy by aggregating detailed microeconomic
behaviours. The model itself is represented in a system of n non-linear equations
with n endogenous variables and many more exogenous variables. The system of
equations determines prices and quantities of commodities and inputs (including
primary inputs e.g., labor, capital, and land as well as intermediate inputs). The
equations specified in the CGE model is a representation of optimizing rational
economic agents—in this case producers and consumers that interact in a com-
petitive market economy. These form the demand for and supply of commodities
that are cleared in the marketplace represented in the model as the market clearing
conditions or equilibrium.
IndoTERM is a “bottom-up” multi-regions computable general equilibrium
model. Bottom-up means that the national economy is an aggregation of
sub-national economies. Unlike the other kind of multi-regional model namely
88 A.A. Patunru and A.A. Yusuf

top-down multi-regional CGE, in the bottom-up model, each commodities has

different market clearing equations for each regions. Therefore, prices for each
commodity will be differentiated across regions. With this kind of model,
region-specific shocks can be easily formulated within the model.
IndoTERM is a member of TERM model, an inter-regional model of the
Australian economy. TERM (The Enormous Regional Model) is a bottom-up CGE
model of Australia that treats each region as a separate economy. TERM was
created specifically to deal with highly disaggregated regional data while providing
a quick solution to simulations. This makes it a useful tool for examining the
regional impacts of shocks that may be region-specific (Horridge et al. 2003).
IndoTERM development is a collaborative effort of various institutions that
include Center for Economics and Development Studies (CEDS), Universitas
Padjadjaran, Indonesia; Center of Policy Studies (CoPS), Monash University,
Australia; Asian Development Bank; AusAID; and Indonesian Ministry of National
Development Planning/BAPPENAS.

4.4.1.1 Theoretical Structure5

The theoretical structure of IndoTERM model is conventional for static general

equilibrium models. The strongest feature is how sub-national economies are linked
to each other through inter-regional trade of commodities and factors. In particular,
the equations in IndoTERM model represent the following economic behaviour:
• In each region, the production sectors are to minimize the cost of production,
given a constant elasticity of substitution (CES) technology. A system of factor
demand equations is derived and specified in the model. This relates the demand
for each primary factor (labor, capital, land, and intermediate inputs) to industry
outputs and prices. This reflects the assumption that factors of production may
be substituted for one another in ways that depend on factor prices and on the
elasticities of substitution between the factors.
• In each region, users of commodities which include industries, households,
investors, government sectors form a system of demand equations. This demand
system for each of these users consists of three layers (hence a “nested demand
system”). First, in each region, for each of the commodities, they optimally
choose the best combination of the origin of the commodities responding to the
different prices they have to pay for commodities coming from other region or
from their own. Here, the users are cost minimizing given the CES demand
specification. Second, consumers/users choose the optimal combination of
domestically-produced and imported commodities. In the last layer they choose
the optimal combination of different commodities in response to the prices and

5
Readers who are interested in more technical discussion about the theoretical structure of this
model can refer to Horridge et al. (2003) or Horridge (2000).
4 Toward a Low-Carbon Economy for Indonesia … 89

budget constraints that they face. For household, a linear expenditure demand
system (LES) is specified.
• The household supplies of skilled and unskilled labor as well as capital and land.
• There are four types of labor: agricultural labor, manual/production worker,
clerical workers, and managerial workers. These are nested within the industry
production functions. In each industry, all types of labor enter a CES production
function to produce ‘labor’, which itself enters into a further CES production
function for industry output.
• There is a set of export demand functions, indicating the elasticities of foreign
demand for Indonesia’s exports to the rest of the world.
• The following are assumed, to reflect the structure of the Indonesian tax system:
rates of import tariffs and excise taxes across commodities, rates of business
taxes, value added taxes and corporate income taxes across industries, and rates
of personal income taxes across household types.
• There is a set of macroeconomic identities, which ensures that standard
macroeconomic accounting conventions are observed.
In general, the demand and supply equations for private-sector agents are
derived from the solutions to these agents microeconomic optimization problems
(cost minimization for firms and utility maximization for households). The agents
are assumed to be price-takers, with producers operating in competitive markets
with zero profit conditions, reflecting the assumption of constant returns to scale.

4.4.1.2 Database and Its Construction

The data that forms the parameters of the IndoTERM model come from various
sources including:
1. Indonesian national Input Output Table 2005.
2. Indonesian Inter-regional Input Output Table 2005.
3. Regional share of production for each commodity, in various years.
4. Indonesian Social Accounting Matrix (SAM) 2005.
5. Other data sources.
The process of the construction of the IndoTERM database can be found in
Horridge et al. (2003) and Horridge and Wittwer (2007).

4.4.1.3 Scenarios and Simulation Strategy

We carry out three scenarios using the IndoTERM model: (1) elimination of fuel
subsidies; (2) cost-saving connectivity improvement; (3) improvement in the access
to public transportation.
90 A.A. Patunru and A.A. Yusuf

Simulation 1: Elimination of fuel subsidies

Elimination of fuel subsidy scenario (started in 2015) is simulated with two
variations of assumptions: (1) additional fiscal space is retained as a government
budget surplus; (2) additional fiscal space is returned to the economy through a
reduction in overall value added tax rate applied uniformly to all commodities. This
revenue recycling mechanism can translate the saving of government budget from
the subsidy into its output-expansion equivalent.
The simulation is carried out by changing the exogenous tax-rate variable. This
tax rate is a sales tax rate as a proportion to producer’s price and it is user (pur-
chaser) specific, which means for every user (such as households, transportation
sectors, or other industries) we can specify different change in the sales tax rate.
In IndoTERM there is only one petroleum refinery product. To eliminate the
subsidy, first the initial rate of sales tax is calculated from the database. Then, this is
used to determine the level of shock to represent the elimination of the subsidy. The
shock is implemented to all users except air transportation that does not use sub-
sidized fuel. The effective initial sales tax rate for households is roughly −40 %
(minus indicates subsidy).
The impact of the shock on household consumption will be affected by the
demand behaviour of the households. Demand elasticities (both income and price
elasticities) will have much impact on the results (see the Appendix for details on
this demand system).
The elimination of the fuel subsidy is implemented instantaneously (as a
“one-off”) in 2015. Another option would have been gradual elimination. Under
this option, however, the direction of the effect will be the same as the one-off
elimination, except that its magnitude will be lower.
In the second scenario, the budget neutrality assumption is implemented through
a uniform increase in the sales tax for all commodities across users and across
regions. The amount of the increase in the sales tax is in such a way that the net
revenue from the indirect tax rate received by the government is zero.
IndoTERM model only specifies one representative household for each region.
This prevents the analysis of distributional impact across households. Such distri-
butional impact, however, is more relevant when the total impact on the repre-
sentative household is negative and the analysis of compensation targeting in
therefore called for. It is less relevant in the scenario that results in positive impact
for the nationally representative household. The majority of fossil fuel is consumed
by the top income households, so the elimination of the subsidy will affect mostly
the top income households (we disregard possible revenue recycling mechanism).
Simulation 2: Cost-saving connectivity improvement
The scenario of transport cost reduction (which was started in 2015) is applied
through a reduction in the demand for transportation of all modes of transport (road,
rail, water, and air transportation) from all origins and to all destinations. The 25 %
reduction means that when, for example, in the baseline the transport cost
4 Toward a Low-Carbon Economy for Indonesia … 91

component is 20 % of purchaser’s price, the simulation involves a reduction of

25 % of that 20 % transport cost component. The final transport cost component
would then become 15 %.
The exogenous variables to be shocked in the model are the demand for all
transportation. In IndoTERM model, all prices have three components: basic (or
producer) price, transportation costs (distinguishable by 4 modes namely road, rail,
water, and air) and sales tax. The increase in the demand for the use of trans-
portation services for delivering goods to final user (transportation ‘margin’), ceteris
paribus, will reduce such margin component in the final prices. The shocks are
applied to all components of margins including all types of transportation mode
specified in IndoTERM model (road, rail, water, air transportation). The propor-
tional reduction is assumed to be the same for all regions. It should be noted that
with this shocks specification, no iceberg cost reduction is implemented. The timing
of the shocks is one-off starting in 2015 and the years onward until 2030.
As the scenario is modeled through the reduction in demand for transportation
margins, the economic benefits do not come from the increase in supply or
investment in transportation sector but from increased efficiency in the use of
transportation services. In this typical simulation, ceteris paribus, the output of the
transportation sector will contract instead of expanding. The source of this effi-
ciency improvement can come from debottlenecking of transport infrastructure such
as regulatory reform and better governance or institution.
Simulation 3: Improvement in the access to public transportation
This simulation consists of two sub-simulation. Firstly, household changes its
preference from private vehicles to public transports. This is implemented by
reducing the expenditure on fuel and increasing spending on public transportation
(road transportation and rail transportation) by an equal amount.
In this simulation, the exogenous variable to be shocked is the preference shifter
in the household demand system. The size of the shocks is in such a way that it will
reduce the household real consumption of fuel by 20 % and increase the household
real consumption of road and rail transportation by the same amount.
Secondly, the encouragement of the use of public transportation (road and rail
transportation) through a price subsidy (25 %). It is done in two variations, first in
SIM2A scenario, it is implemented through running a budget deficit, whereas in
SIM2B it is done through a reduction in the subsidy on the use of fuel by house-
holds (to represent fuel used for vehicle). The budget remains neutral in SIM2B.
In this simulation the exogenous variable to be shocked is the sales tax rate of
purchase of transportation services by households (SIM2A). In SIM2B in addition
to the decrease in the sales tax rate on transportation service, the subsidy rate on fuel
consumption is also reduced to maintain the overall indirect tax revenue remains the
same.
92 A.A. Patunru and A.A. Yusuf

4.4.2 Results and Discussions

4.4.2.1 Fuel Subsidy Elimination

Indonesian economy in terms of GDP and real consumption will be better-off when
fuel subsidy is eliminated when the revenue from the subsidy reduction is returned
to the economy (Fig. 4.7). In 2030 GDP will be 0.7 % higher and the real
household consumption will be 0.5 % higher compared to the baseline where fuel
subsidy is not eliminated. The main reason why the national output is higher with
the elimination of fuel subsidy is because the pre-existing distortion that created
sub-optimal allocation of resource is reduced through the reduction of fuel subsidy
as well as the overall sales tax rate. There will be output of some sectors that will be
lower (such as oil refinery product and other sectors that are fuel-sensitive), but
some other sectors will expand due to the reduction in the indirect tax rate. The net
output impact as a response to this changing relative prices is positive.
In general household consumption of petroleum refinery will be reduced
(Fig. 4.8). In 2030, the reduction in household consumption on petroleum refinery
product in every region will be around 20–35 % relative to the baseline.
Increase in consumer’s price index may deteriorate household welfare (in terms
of real consumption) but only in the short-run (with revenue neutral scenario).
Negative initial impact on real consumption is temporary because of the delay in the
capital accumulation. Investment will translate into next-period capital for each

Fig. 4.7 Impacts of fuel subsidy elimination. Source Authors’ calculation

4 Toward a Low-Carbon Economy for Indonesia … 93

Fig. 4.8 Fuel subsidy removal and household consumption. Source Authors’ calculation

sectors and the magnitude of the increase in investment follows the change in each
sector’s profitability.
Indonesian carbon emissions will be a lot lower with the elimination of fuel
subsidy. With the revenue returned, Indonesian carbon emissions will be 5 % lower
than the baseline in 2030. This is the result of more emission-efficient economy as
the emissions intensity is 5.5 % lower than the baseline without the subsidy
elimination.
Transportation sector will be among the hardest-hit from the fuel subsidy
elimination particularly water (sea) transportation sector (Fig. 4.9). However,
almost 70 % of the adverse impact can be mitigated when the revenue from the

Fig. 4.9 Fuel subsidy removal and the output of transportation sectors. Source Authors’
calculation
94 A.A. Patunru and A.A. Yusuf

Impact on GDP of Indonesian regions in 2030

Deviation from baseline (%)
1.5
1
0.5
0
0.5
1
1.5
2
WestSumatra

EastSumatra

NorthWestJava

EastJava

WestKalimantan

EastKalimantan

NorthSulawesi

SouthSulawesi

Bali

NusaTeng

Maluku

Papua
Budget surplus Budget neutral

Fig. 4.10 Fuel subsidy removal and regional GDP. Source Authors’ calculation

subsidy is recycled as expansion of the economic activities increase the demand for
almost all transportation sectors. Air transportation sector is not adversely impacted
but in fact benefits from the policy as they are not among the recipients of fuel
subsidy.
All regions experience increase in GDP except some with heavy reliance on oil
or petroleum industries such as regions in Kalimantan (Fig. 4.10). The biggest
beneficiary is Java region, particularly the northwest part of Java (the province of
Jakarta, West Java, and Banten).

4.4.2.2 Cost-Saving Connectivity Improvement

A 25 % transport cost reduction across-transports-mode and economy-wide has a

large positive impact on the Indonesian economy, with the potential of making
Indonesian GDP in 2030 1.7 % higher than that without the transport cost reduction
(Fig. 4.11).
The transport efficiency scenario reduces the fiscal burden from fuel subsidy.
Across the year from 2015 toward 2020, Indonesia saves as much as IDR 21.4
trillion (in constant 2005 prices, without discounting).
Because of the large economic expansion due to transport-cost reduction,
Indonesian carbon emissions is inevitably higher. However, due to transport effi-
ciency, Indonesia can have a higher growth without emissions growing as fast. This
is shown by the lower carbon intensity as a result of the transport cost reduction
scenario.
The impact on output by sectors varies (Fig. 4.12). The winning industries are
basic chemical, pulp and paper, chemical, machineries and other manufacturing
products. All transportation sectors experience significant output contraction due to
the overall economic efficiency in the use of transportation services, being the
largest reduction is of water transportation.
Other than transportation sector, the largest reduction is in oil refinery sector.
The improved efficiency of goods delivery has reduced the demand for fuel
4 Toward a Low-Carbon Economy for Indonesia … 95

Selected impacts on national economy

2

Deviation from baseline (%)

1.5

0.5

-0.5

-1

-1.5

-2
2015 2020 2025 2030
GDP 1.16 1.444 1.651 1.664
Household consumption 0.791 1.07 1.456 1.602
CPI 0.433 0.397 0.392 0.403
Carbon emissions -0.319 -0.114 0.05 0.056
Carbon intensity -1.48 -1.555 -1.594 -1.601

Fig. 4.11 Impacts of connectivity improvement. Source Authors’ calculation

Fig. 4.12 Connectivity improvement and sectoral outputs. Source Authors’ calculation

(−1.24 % relative to baseline in 2030) and as discussed previously contribute the

decline in fuel subsidy.
In terms of GDP, the islands outside Java (except western Sumatra) are the
beneficiaries of the transport cost reduction scenario (Fig. 4.13). Maluku and Papua
regions experience the largest GDP increase and the largest real consumption
increase. As the price of commodities sold in these two regions include the largest
transportation components, the same proportional reduction in the transportation
margin give them the largest benefit.
96 A.A. Patunru and A.A. Yusuf

Fig. 4.13 Connectivity improvement and its macro impacts. Source Authors’ calculation

The CPI figures increase in some regions but decrease in others. This is the net
effect of two opposing impacts. The first is the deflationary effect of the decline in
purchasers price due to lower transportation cost. The second is the inflationary
impact of increasing overall demand due to income effect. In some regions like
Maluku and Papua, the former outweighs the latter.

4.4.2.3 Improvement in the Access to Public Transportation System

An exogenous preference shift toward public transportation has a notable carbon

emissions-reduction benefit (Fig. 4.14). A 20 % reallocation of expenditure from
private vehicle to public transportation reduces emissions by 1.8 % (in 2030) rel-
ative to the baseline where the switching does not take place. It is a confirmation
that private transportation is a lot carbon intensive. Under this scenario, carbon
emissions will grow slower than economic growth as carbon intensity is 1.9 %
lower than the baseline. This preference shift does not have a negative impact on
GDP; in fact resulting GDP is slightly higher than the baseline.
When price is used as instrument for encouraging the use of public transport, it is
important to combine the subsidization of public transport with the reduction of fuel
subsidy. If it is ignored (SIM2A), carbon intensity and carbon emissions will be
higher than the baseline. On the other hand, when the public transportation subsidy
is funded by reallocating fuel subsidy (with budget neutrality), the carbon emissions
reduction is materialized.
As expected, public transportation sector’s output expands in all simulations
(Fig. 4.15). Train transportation expands larger than road transport, but this reflects
4 Toward a Low-Carbon Economy for Indonesia … 97

Selected impacts on national economy

1

Deviation from baseline (%)

0.5

-0.5

-1

-1.5

-2

-2.5
2015 2020 2025 2030
GDP - SIM1 0.219 0.151 0.172 0.191
GDP - SIM2A 0.206 -0.129 -0.174 -0.183
GDP - SIM2B 0.166 0.086 0.102 0.113
Carbon emissions - SIM1 -1.591 -1.76 -1.76 -1.765
Carbon emissions - SIM2A 0.51 0.269 0.277 0.296
Carbon emissions - SIM2B -1.439 -1.751 -1.862 -1.956
Carbon intensity - SIM1 -1.825 -1.927 -1.948 -1.972
Carbon intensity - SIM2A 0.306 0.403 0.456 0.485
Carbon intensity - SIM2B -1.619 -1.854 -1.981 -2.087

Fig. 4.14 Improvement in the access to public transportation and its economic impacts. Source
Authors’ calculation

the small initial share of output relative to road transportation. An increase (of
25 %) in the subsidy to public transportation funded by the reduction in fuel
subsidy increases the output of road transportation and rail transportation by 7.2 and
14.8 % respectively in 2030 relative to the baseline.
The output of petroleum refinery product is not lower than the baseline due to
the offsetting effect of reduced household consumption and increase of its use by
public transportation sectors.

4.5 Existing Policies Toward Low-Carbon Economy

4.5.1 Policies

In the G20 conference in Pittsburgh in 2009, President Yudhoyono announced that

Indonesia would reduce its carbon emissions below business-as-usual projections
by 26 % by 2020 unilaterally, or by 41 % if the actions received international
support. To help meet these targets, the government launched several initiatives,
including the establishment of Indonesian Climate Change Trust Fund (ICCTF), the
98 A.A. Patunru and A.A. Yusuf

Impact on selected output of industries

16

Deviation from baseline (%)

14

12

10

0
2015 2020 2025 2030
Petroleum - SIM1 0.271 0.539 0.576 0.548
Petroleum - SIM2A 0.524 0.721 0.749 0.756
Petroleum - SIM2B 0.263 0.505 0.572 0.574
Rail Transportation - SIM1 12.877 13.551 13.641 13.623
Rail Transportation - SIM2A 11.314 12.767 13.631 14.302
Rail Transportation - SIM2B 11.379 13.117 14.104 14.847
Road Transportation - SIM1 6.646 6.644 6.667 6.672
Road Transportation - SIM2A 5.977 6.286 6.675 7.029
Road Transportation - SIM2B 5.814 6.351 6.809 7.194

Fig. 4.15 Improvement in the access to public transportation and sectoral outputs. Source
Authors’ calculation

issuance of Indonesia Climate Change Sectoral Roadmap (ICCSR). The passing of

the Law 32/2009 on Environmental Protection and Management gave more support
to subsequent policies.6
In 2011 the Government launched the National Action Plan for Greenhouse Gas
Emissions mitigation (or Rencana Aksi Nasional Gas Rumah Kaca/RAN-GRK)
through the introduction of Presidential Decree 61/2011.7 This is a detailed plan of
action on how to achieve the 26 % emissions reduction target in 2020 with own
resources, or 41 % with international support. Table 4.4 summarizes the plan. It
shows that the emission reduction target relies heavily on land-based sectors (for-
estry, peat land, and agriculture), which are expected to contribute almost 90 % of
the emissions reduction target, or around 680 million ton CO2e. Most of this will

6
Before the Pittsburgh speech, the climate change policy development had gained momentum as
Indonesia hosted the UNFCCC 13th COP in Bali in 2007. As a follow up to this event the
government established the National Council on Climate Change (DNPI) and Reducing Emissions
from Deforestation and Forest Degradation Commission (REDD and later REDD + Task Force) in
2008. In 2015, however, President Jokowi dissolved both agencies into the Ministry of
Environment and Forestry (the amalgam of the merged Ministry of Environment and the Ministry
of Forestry).
7
Together with its sub-national counterpart, RAD (Rencana Aksi Daerah, Local Action Plan), the
plan became RAN/RAD-GRK, which then served as the basis for Indonesia’s NAMA (Nationally
Appropriate Mitigation Actions), in line with the UNFCCC process.
4 Toward a Low-Carbon Economy for Indonesia … 99

Table 4.4 Emissions reduction target of the national action plan

Sector 26 % reduction (GT Share 41 % reduction (GT Share
CO2e) CO2e)
Agriculture 0.008 1.04 0.011 0.93
Forestry and peat land 0.672 87.61 1.039 87.38
Energy and transport 0.038 4.95 0.056 4.71
Industry 0.001 0.13 0.005 0.42
Waste management 0.048 6.26 0.078 6.56
Total 0.767 100.00 1.189 100.00
Source Presidential Decree 61/2011

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

BAU emission (est. trajectory) Target emission Actual emissions

Fig. 4.16 Emission: actual versus target, 2010–2012 (Mt CO2e). Source Medrilzam (2015)

come from better peat land management (41 %), sustainable forest management
(34 %), avoiding deforestation (18 %), and forest plantations (8 %).
The progress so far has been below the target trajectory, however. Figure 4.16
shows that the emissions in 2010–2012 lie between the business-as-usual trajectory
and the target trajectory. On average the emissions reduction in these years is
around 107.6 million ton CO2e per year, or about 4.23 % per year reduction rel-
ative to the baseline (Medrilzam 2015).8
In 2012 the government established the Climate Change National Coordination
Team (CCNT) with a mandate to optimize the implementation and to increase the
effectiveness of RAN-GRK as well as to coordinate the climate change mitigation
and adaptation. Table 4.5 summarizes the main activities in the RAN-GRK
program.

8
The estimations exclude communities and private reductions.
100 A.A. Patunru and A.A. Yusuf

Table 4.5 Main activities in RAN-GRK

Sector Activities
Agriculture Land optimization, application of crop production technologies, use of
organic fertilizers and bio-pesticides, development of estate crops, use of
animal manure/urine and agriculture waste for biogas, management of
abandoned and degraded peat lands
Forestry and peat Development of forest management unit, improvement of forest estate use,
land development of environmental service utilization, rehabilitation and
reclamation of forest and land in priority watersheds, social forestry
development, forest fire control, development of conservation areas,
improvement of plantation forest business
Energy Energy conservation partnership program, new and renewable energy
supply management, biogas utilization, natural gas for public
transportation, natural gas for households via pipes, bio-diesel utilization
Industry Technology improvement in cement industry, energy conservation
Waste Improved management in temporary transfer station, reduce-reuse-recycle,
management and final disposal, urban waste water management
Source Bappenas (2014)

The national mitigation plan (RAN-GRK) is complemented by the local plans

(RAD-GRK) with activities ranging from rice intensification system, carbon stock
enhancement, and green building to car free day program and intelligent transport
system.
In February 2014 the government officially launched another action plan,
RAN-API (Rencana Aksi Nasional untuk Adaptasi Perubahan Iklim, National
Action Plan for Climate Change Adaptation). This set of adaptation plans is aimed
at (1) developing economic security, (2) developing livelihood resilience to climate
change, (3) developing ecosystem resilience to climate change, and (4) strength-
ening regional or special area resilience especially in urban areas, coastal areas, and
small islands. The activities are now being piloted in 15 cities and regions in
Indonesia. Table 4.6 shows some example of the actions that fall into RAN-API.

Table 4.6 Examples of main activities in RAN-API

Sector Activities
Economic security (food security Trainings for farmers, establishment of farmers’
sub-sector) cooperatives, supply of prime seeds (e.g. Bali
Province)
Livelihood resilience (settlement Tidal flood control (e.g. Semarang City)
sub-sector)
Livelihood resilience (infrastructure Developing drinking water network, retention basin,
sub-sector) and irrigation (e.g. Malang District)
Special area resilience (coastal areas Anticipation of tidal and abrasion hazards (e.g.
and small island sub-sector) Lombok Island)
Source Bappenas (2014)
4 Toward a Low-Carbon Economy for Indonesia … 101

4.5.2 Intended Nationally Determined Contributions

(INDCs)

Based on the agreements from the UNFCCC 20th Conference of Parties (COP-20)
in 2014, countries around the globe have agreed to outline their post-2020 climate
actions so as to be consistent with a new climate agreement was concluded in the
UNFCCC Conference of the Parties (COP21) in December 2015. These outlines are
known as Intended Nationally Determined Contributions (INDCs). Indonesia
derives its INDCs as a by-product of its national mitigation policy review process
(Thamrin 2015). The approaches taken include extending the emissions reduction
projection trajectory to 2045, evaluating the results of the existing national miti-
gation policies, and reviewing the proposed medium-term policies in line with the
2014-2019 Indonesia’s development plan. In doing so, the Bappenas has
acknowledged some challenges in developing Indonesia’s INDC: (1) lack of
understanding of the entire process of the UNFCCC initiatives, as a result of
administration change in Indonesia, (2) limited time (the INDC is to be submitted in
September 2015), (3) limited data, as the various databases in Indonesia are yet to
be integrated, (4) lack of knowledge and capacity to model and estimate the
emissions trajectory, (5) lack of coordination among ministries and agencies, and
(6) lack of examples as the INDC was just introduced in 2014 (Darajati 2015).
However, the Ministry of Environment and Forestry managed to submit the draft
INDC to the President on 31 August 2015 (MEF 2015). The key message of the
plan is that Indonesia is ready to commit to unilateral (unconditional) emission
reduction target of 29 % under BAU scenario by 2030, or 41 % if assisted. There is
no way to verify these targets as being realistic or not, given that the model and key
quantitative assumptions are not provided. But if the trajectories shown in Fig. 4.16
continue, such targets would appear very ambitious. For example, while the doc-
ument recognizes that 63 % of emissions come from peatland and forest destruc-
tion, there is no explanation as to what measures are to be implemented. The
document mentions the moratorium on primary forests clearing and the prohibition
of peat land conversion in 2010–2016—but it is not clear what will follow until
2030. It is also stated that a total of 12.7 million hectares of forest area has been
designated for forest conservation—again with unclear measures. On energy, the
government aims to have at least 23 % of energy mix come from new and
renewable energy sources by 2025. This is at odds with government’s ambition to
reach 35,000 megawatt power capacity, of which 60 % will use coal and only
2000 MW will come from new and renewable resources.9
It is stated that Indonesia’s INDCs will be based on four foundational principles,
namely: (1) employing a landscape approach by recognizing that climate change
adaptation and mitigation efforts are multi-sectoral in nature, covering terrestrial,
coastal, and marine ecosystems, (2) highlighting existing best practices with an

9
As reported in The Jakarta Post, 3 September 2015.
102 A.A. Patunru and A.A. Yusuf

intent to scale up innovative climate change mitigation and adaptation efforts by

government, private sector, and communities, (3) mainstreaming climate agenda
into development planning by including key climate change indicators in formu-
lating development program targets, and (4) promoting climate resilience in food,
water and energy.
The document also states that the INDC preparation took the Post-2015
Sustainable Development Goals (SDG) into account. This includes “taking urgent
action to combat climate change and its impacts, ending poverty, promoting food
security and sustainable agriculture, achieving gender equality, ensuring the
availability and sustainable management of water, providing access to affordable
and renewable energy for all, maintaining sustainable and inclusive economic
growth, providing resilient infrastructure, maintaining sustainable consumption and
production patterns, maintaining conservation and sustainable use of the oceans,
seas, and marine resources, and protecting terrestrial ecosystem”. The measures and
challenges to achieve each of these goals are not yet provided.
Finally the document needs more elaborate analysis on the financial aspect. It is
stated that the estimated cost for mitigation to achieve the 29 % emission reduction is
USD12.98 billion in 2030, while adaptation cost is to be determined based on “thor-
ough analysis of adaptation needs and with disaster risk reduction”. There is no dis-
cussion that relates this aspect to the state budget and other financial resources.

4.5.3 Challenges

The initiatives for the climate change mitigation and adaptation as discussed above
are only part of the requirements to establish a low carbon economy. In addition to
the complexity in its implementation (due to institutional and financial constraints,
for example), other challenges are present. Below we list the most important
challenges—many of which are interrelated.

4.5.3.1 Lack of Awareness

Despite abundant media publications, the concept of low-carbon economy has not
been well understood, especially at the grass root level. Part of this is due to the
wrong pricing mentioned above—people do not appreciate the scarcity of
non-renewable energy because the existing price is set too low, an indication of
abundance. Another reason is the resistance of policy makers to deviate from status
quo. The lack of willingness to report environmental degradation and natural
resource depletion as additional information to the common measurement such as
GDP keeps the public from adjusting their behavior. On the contrary, the publi-
cation of indicators such as ‘Green GDP’ or ‘Green Budget’ might provide support
for change in institutional setting as well as the behavior of the public at large in
favor of low carbon economy (Patunru 2013).
4 Toward a Low-Carbon Economy for Indonesia … 103

4.5.3.2 Incorrect Pricing

‘Wrong’ price sends wrong signal and hence leads to misallocation of resources.
Any intervention might not be effective without any change in the economic
incentives. In a market-driven economy, it is difficult to cut carbon intensity without
adjusting the carbon price. Nevertheless carbon pricing (and other economic
instruments necessary for an effective emissions reduction strategy) is not well
elaborated in any of the official government documents. This makes the initiatives
only rely on quantitative management such as imposing a cap on carbon emission.
But in the absence of proper pricing, there is little incentive for both producers and
consumers to comply.
Land use problem with regards to oil palm is another example. The lucrative
profits from estate crop plantation such as oil palm have been a key driver of
deforestation. As some of the authority in land use management has been shifted to
local government and the risk of illegal activity remains high, central government
initiative needs to compete with the stronger market incentives.
As for the energy sector, there is no sufficient incentive for development of
renewable energy such as geothermal as long as fossil fuel-based energy is still
subsidized. Therefore the bold policy taken by President Joko Widodo early this
year to remove the subsidy is commendable.

4.5.3.3 Institutional Rigidity

Changes in the regulatory regimes to support low-carbon economy may hurt some
industries, particularly, those industries that have been making profits from natural
resource or environmental degradation. But more importantly, the government institu-
tions also need to change. With regard to climate change initiatives, for example, there
have been issues about coordination across agencies and ministries. The recent fusion of
the Ministry of Environment and the Ministry of Forestry and the absorption of DNPI
and REDD + Task Force into the new ministry has yet to prove its increased efficiency.
But one of the objectives of such reorganization is to allow better coordination.
Harmonization of policies and programs across government agencies is neces-
sary to help implement a low-carbon economy strategy. A good example of the
problem due to sub-optimal coordination and harmonization is that in geothermal
development. First, geothermal is planned to be a good substitute of fossil fuels, yet
its competitiveness relative to fossil fuels is still low due to bad pricing policies and
excessive development of cheaper fossil energy like coals. Second, geothermal
development undertaken by central government often time is in conflict with land
acquisition regulated by regional or local government. Another example of
sub-optimal harmonization is related to the policy for natural gas sale. The current
system gives more incentives for export than for domestic use, despite the high
104 A.A. Patunru and A.A. Yusuf

demand from the latter. Natural gas is relatively cleaner compared to other fossil
fuel like coals. Therefore, its consumption is preferable from low-carbon econ-
omy’s point of view.

4.5.3.4 Unsuccessful Scaling up

Failures in scaling-up of many well-intended initiatives may prevent their wide-

spread adoption. Some good initiative by the Ministry of Environment and Forestry
like green loan, for example, cannot extend to a larger scale due to the problem of
financing. The traditional financial market does not value such investment highly—
partly due to lack of awareness and wrong price signals. Therefore, scaling-up a
program like green loan will not work without appropriately adjusting the financial
market.

4.5.3.5 Coordination and Regional Cooperation Issues

Coordination problem is pervasive, both domestically and in regional or global

cooperation. The new administration in Indonesia has just merged two ministries,
Ministry of Environment and Ministry of Forestry. In addition, the government
dissolved the two agencies dealing with climate change, DNPI and REDD + Task
Force and absorbed them into the new ministry. The advantages of these institu-
tional adjustments are yet to be seen, but it is expected that it will help cut the
coordination cost.
As for coordination at supra national level, Indonesia has been actively partic-
ipating in regional as well as global cooperation for climate change initiatives. The
main problem with such coordination, however, is the political will from all parties.
Garnaut (2009) has argued that the most difficult dimension of climate change
policy is that there can be no effective mitigation without all countries of substantial
size making major contributions to the solution. In ASEAN, Indonesia participates
in the establishment of the ASEAN Economic Community in 2015. One of the
common goals within this community is to reduce carbon emission by using a
uniform carbon tax. Using a CGE modeling, Nurdianto and Resosudarmo (2015)
find that such measure will be effective; however, the environmental gain might
come at a cost in terms of GDP loss as well as a reduction in household income.
Indonesia can still benefit from carbon tax as such policy will counteract price
distortions due to heavy energy subsidies.
Another regional cooperation initiative is the Regional Comprehensive
Economic Partnership (RCEP). This initiative involves the ten ASEAN countries
and their bilateral trade partners, namely Australia, China, India, Japan, Korea, and
New Zealand. According to its guiding principles, the RCEP will include provi-
sions to facilitate trade and investment and to enhance transparency in trade and
4 Toward a Low-Carbon Economy for Indonesia … 105

investment relations between the participating countries, as well as to facilitate

engagement in global and regional supply chains.10 The RCEP negotiations are to
be concluded in December 2015. While important trade issues that include envi-
ronment and labor standards should be discussed in the negotiations, the lack of
commonality across the existing bilateral FTAs among the participating countries
might pose a great challenge. Opportunities might arise from economic and tech-
nical cooperation, nevertheless. For example, Indonesia can learn about geothermal
management from New Zealand, in particular the grid connected geothermal
technology.
Yet another cooperation recently formed is the Trans-Pacific Partnership
(TPP) whose founding membership consists of Australia, Brunei, Canada, Chile,
Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and
Vietnam. Unlike RCEP, TPP specifically mentions environment as one of the issues
covered in the negotiations. In particular, TPP agreement is to address important
trade and environmental challenges while enhancing the mutual supportiveness of
trade and environment. It is also said that TPP countries should discuss proposals
on new issues including climate change.11 While there is therefore an opportunity to
improve cooperation leading to low carbon economy, TPP potentially sees two
major challenges. First, the absence of India, China, Indonesia might be a hurdle in
setting a common agenda in the region. Second, the TPP also allows investor-state
dispute settlement. This might complicate low carbon economy initiatives that rely
on standards imposed by the sovereign power of the member states.
Finally, Indonesia can use its regional and global commitment to push reform
domestically. For example, Indonesia’s commitment to SDG (Sustainable
Development Goal) can serve as a basis to accelerate electricity development in
Indonesia. It is ironic that a country endowed with abundant natural resources
(including alternative energy sources such as geothermal) has one of the lowest
electrification rates in the region (currently 80 %, compared to for example 96 % in
Vietnam and 99 % in Malaysia).12 The seventh goal of SDG is to “ensure access to
affordable, reliable, sustainable and modern energy for all”. This commitment
provide a cause for Indonesia to help improve its energy mix target. In addition,
Indonesia can engage itself in international cooperation to facilitate access to clean
energy research and technology.

10
As stated in the Guiding Principles and Objectives for Negotiating the RCEP, available at: http://
www.asean.org/images/2012/documents/Guiding%20Principles%20and%20Objectives%20for%
20Negotiating%20the%20Regional%20Comprehensive%20Economic%20Partnership.pdf.
11
The official document of TPP is not yet available. This is based on Outlines of TPP, available
from the Office of the United States Trade Representatives: https://ustr.gov/tpp/outlines-of-TPP.
12
As reported in the Southeast Asia Energy Outlook (2013).
106 A.A. Patunru and A.A. Yusuf

4.5.4 Some Proposals

Financing low-carbon economy is a big issue. We do need shifting financial

resource from other use if we are serious with low-carbon economy. In the current
fiscal system, some elements of inter-governmental fiscal relation can be exploited
for low-carbon economy purpose. As politically, all actions and decisions making
are at district level, it does make sense that more environmentally-friendly district
policies are rewarded accordingly. The special allocation fund (DAK)—which its
size grows more and more over time—can potentially serve this purpose. Current
inter-governmental fiscal mechanism can potentially be used as a means to incen-
tivize low-carbon economy. Other example of alternative financing is realizing the
payment for environmental services (PES). This scheme does not use tax-payers
money.
Based on the identification of the key challenges above, we propose the
following.
1. We need to promote low-carbon investment by private financing with com-
plementary public capital expenditure. Investment in geothermal sector, for
example, needs a major government role due to the high risk involved in the
phase of exploration and exploitation. Private-public partnership (PPP) should
be exploited as a strategy to promote green investment in other areas. The
Indonesian Infrastructure Guarantee Fund (IIGF) can provide good instrument
for managing fiscal risks. Private sector initiatives in low-carbon economy
activities need to be further encouraged. This is done by improving the regu-
latory framework, so as to comply with the following characteristics: (1) the
regulation or the change in the regulation needs to have clear objectives and
important (non-negligible, big in size relative to the economy) and measurable
impacts; (2) the regulation need to minimize the deterioration of our industries’
competitiveness especially to our foreign trading partners; (3) a guarantee that
the changing in regulation will be consistent across the long period of time.
2. Despite the success of removing the fuel subsidy in 2015, challenges remain.
The government has not established an automatic adjustment mechanism with
regard to world oil price dynamics. Therefore the risk of reversion to subsidy
regime is still present in the event of significant increase in the world crude oil
price. An automatic adjustment will reduce political transaction costs of
adjusting fuel prices regularly. In addition, there is a need for better allocation of
the additional fiscal resources as a result of the subsidy removal. To help achieve
low carbon economy these resources should in part be directed toward devel-
oping renewable energy.
3. We need to induce behavioral change in favor of low carbon economy.
Publishing the estimates of environmental degradation and natural resource
depletion as appendix to the existing GDP reports, along with budget restruc-
turing in favor of low carbon economy (e.g. the fuel subsidy removal) will be a
first step in this direction. Other policies should follow, for example
revenue-neutral tax substitution. It is a policy of increasing some taxes, such as
4 Toward a Low-Carbon Economy for Indonesia … 107

that to discourage polluting or resource-intensive activities, while at the same

time reducing other taxes (or subsidizing) such as that to encourage low-carbon
economy or green investment.
4. The inter-governmental fiscal relation need to be improved to promote
low-carbon economy in the regions. Although low-carbon economy is often
referred to a strategy of national scale, in Indonesia, local governments, despite
their financial dependency on transfers from central government, have greater
authority in spending as well as other critical authorities. Without overlooking
the potential of local governments in autonomously creating favourable envi-
ronment toward low-carbon economy or green local/regional economic growth,
there is also more rooms to devise a specific fiscal relation that can create a
system of incentives among local governments to motivate them even more in
the pursuit of low-carbon economy. The potential element in the current setting
of the inter-government fiscal relation is the allocation of special allocation fund
(Dana Alokasi Khusus or DAK). This DAK can be utilized for the promotion of
low-carbon economy by creating a specific allocation scheme that will reward
local government whose policies/programs are in favour of low-carbon econ-
omy and discourages local governments whose policies/programs endanger or
creating bottleneck for a greener local growth.
5. Indonesia can improve its involvement in regional and global initiative towards
low carbon economy. For example, it can suggest refining the APEC’s list of
environmental goods in such a way to reflect level of CO2 emission rather than
the climate-friendliness of traded goods. This then can be proposed for
accommodation in the WTO schemes. Alternatively, if Indonesia is to engage in
FTAs (and as WTO is not working properly at present), Indonesia could suggest
that trade preferences towards low carbon intensive products, low carbon new
technologies and input to low carbon processes (Dong and Whalley 2010). The
challenge of this approach, however, is that is might run counter to the WTO’s
MFN principle. Furthermore, it can lead to even more complicated and
conflicting rules of origins. Finally, Indonesia should keep push for unilateral
initiatives. This will require a good ‘PR’-ship from the policy makers. For
example, climate change initiatives in Indonesia should always be addressed as
part of a larger objective to eradicate poverty and other livelihood vulnerabili-
ties, for example via food security, food accessibility, and employment gener-
ation measures.

4.6 Conclusion

The chapter starts with identification of Indonesia’s recent key development chal-
lenges: slower growth, slower poverty reduction, increased inequality, and the
climate change problem. This chapter focuses on the latter. Our assessment on
the GHG emission and its drivers conclude that the major contributor is still the
108 A.A. Patunru and A.A. Yusuf

land-based sectors (forestry and peat land and agriculture), but the trend in energy
and transportation sector is rapidly increasing. Based on this, and also given the
recent policies, we conducted a series of simulation to see the impact of fuel subsidy
elimination, connectivity improvement, and public transportation improvement.
The results support that fuel subsidy emission contributes to carbon emission
reduction.
We also identify challenges with regard to the existing policies (or lack thereof).
We propose to (1) encourage more private participation (but this require correct
pricing and better PPP schemes), (2) find an automatic adjustment mechanism with
regard to fuel pricing (and energy pricing in general), (3) induce more behavioral
change in favor of low carbon economy (for example, with ‘green’ GDP),
(4) simplify institutional complexity to cut coordination costs, and (5) increase
involvement in regional and global initiatives (e.g. via APEC and WTO), but also
pursue unilateral initiatives.

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Chapter 5
Greening the Economy with Low Carbon
Energy System: Developments, Policy
Initiatives and Lessons from Malaysia

V.G.R. Chandran Govindaraju

5.1 Introduction

The global energy demand is likely to grow significantly whereby it is set to grow by over
37 % by 2040 (IEA 2014). Likewise, the planet should not emit more than 1000 GT of
carbon dioxide (CO2) from 2014 onwards if one is to limit temperature increase to 2 °C
globally. Such targets, if not met, will have significant pressure on the climate and the
environment. Similarly, given that economic activities are now concentrated more in
Asia and the structure of energy demand has changed whereby Asia accounts for 60 % of
the total global energy demand,1 it is timely to analyse the current progress in terms of
policies and the initiatives of Asia in implementing low carbon energy systems. Of
interest are the Associate of Southeeast Asian Nations (ASEAN) blocks that have been
vibrant and have emerged as one of the economic hubs within Asia. As ASEAN’s
economic growth improves, ASEAN has to ensure that the rapid growth will not seri-
ously affect the environment. It has to ensure that Gross Domestic Product (GDP) growth
is driven in a more sustainable manner. Many of the ASEAN members have already
taken mitigation measures to achieve a low energy system path. However, little is known
on the effectiveness of these measures. Indeed, the successes and failures should be
well-documented in the region so as to learn from one another. As a form of motivation,
this chapter attempts to document the experience of Malaysia in moving towards the
green growth path. Malaysia, being a developing and middle income country, is no
exception to strategizing its path towards a green economy. Indeed, various initiatives,
policies and institutions have been formulated and established in order to reach a sus-
tainable growth in its commitment towards sustainable development goals.

Energy use in Europe, Japan, Korea and North America has been flat (IEA 2014).
1

V.G.R. Chandran Govindaraju (&)

University of Malaya, Kuala Lumpur, Malaysia
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 111

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_5
112 V.G.R. Chandran Govindaraju

Malaysia was successful in transforming its economy from an agricultural-based

sector to an industrial-based one. Malaysia’s growth has been impressive over the
years, recording an annual average growth rate of 5.8 % in the period of 2010–2014.
Indeed, through the establishment of export processing zones, Malaysia has been
successful in attracting foreign direct investment and relocating the Multinational
Corporation’s (MNC) activities, especially in assembling, testing and manufacturing
activities to further boost the industrial sectors. The development in the industrial
sectors has also indirectly promoted the transportation sectors. Indeed, manufacturing
sectors have been the catalyst for the income growth in Malaysia. Consequently, given
the income growth, vehicle ownership in Malaysia has been one of the highest in the
region.2 The progress and development over the years have subsequently contributed
to the environmental issue as well as the emission profiles of Malaysia in many ways.
Malaysia is committed to reduce its carbon footprints by 40 % in 2020 begin-
ning in 2005. Given this target, Malaysia has been active in promoting and initi-
ating efforts and policies to meet its target. Since 2001, Malaysia has been
promoting renewable energy (RE) as one alternative and the efforts have intensified
since 2009 with the establishment of three major policies. With this aforementioned
background, this chapter aims to review the energy and emission profile of
Malaysia and subsequently analyse the success of Malaysia in moving forward to a
low carbon energy system in the future. The chapter identifies policy failures and
why such failures occurred. Consequently, the roles of international cooperation
were further analysed. This chapter contributes in the following ways. First, the
chapter critically analyses Malaysia’s potential to move and establish a low carbon
energy system. Second, the critical policy intervention assessment provides lessons
for other developing countries, especially ASEAN members to study their own
policies and initiatives that are established to encourage low carbon energy systems.

5.2 Energy Consumption, Production and Emissions

in Malaysia

Malaysia’s real GDP growth in 2014 was 6 %, which was much higher than other
ASEAN economies, namely Singapore (2.9 %), Indonesia (5 %) and Thailand
(0.7 %) (see Table 5.1). In terms of emission, Malaysia’s emission of CO2 per
capita tonne was recorded at 6.66 in 2011, much higher than Thailand, Indonesia
and the Philippines. Given the impressive economic growth, the demand for energy
has grown in tandem with the economic growth. Indeed, CO2 emission trends have
closely followed the GDP growth trends. It suggests that the growth in income
contributes significantly to CO2 emissions. CO2 emissions (kg per 2005 of GDP) in

2
Malaysia has recorded a double digit growth between 2005 and 2012 in passenger car demand
recording 0.55 million cars in 2012. Indeed, Malaysian car ownership per 1,000 of its population
is relatively high compared to other regions, especially in the emerging markets.
5 Greening the Economy with Low Carbon Energy … 113

Table 5.1 GDP growth and CO2 emission, selected economies

Country Real GDP growth GDP per Emission per capita CO2 emissions (kg per
(USD) (2014) capita tones of CO2 per capita 2005 PPP US$ of GDP),
(%) (USD) (2014) (2011) (2013)
Malaysia 6.0 10,803.5 6.66 10,538.1
Thailand 0.7 5,444.6 4.04 5,778.9
Singapore 2.9 56,319.3 40.48 55,182.5
Indonesia 5.0 3,533.5 1.73 3,475.3
Philippines 6.1 2,865.5 0.80 2,765.01
Taiwan 3.7 22,597.7 12.65 N/A
Korea 3.3 28,100.7 12.53 25,976.9
China 7.4 7,589.0 6.52 6,807.4
Source IMF World Economic Outlook (WEO), (2015)

2013 were 10,538, much higher compared to any of the selected ASEAN econo-
mies except Singapore with regards to the more developed economic trends. If this
persists, further economic development would significantly increase the CO2
emissions. As such, more proactive measures are needed to reduce the emissions.
Decomposing the energy demand and CO2 emission by sectors in Malaysia reflects
the following. In terms of energy demand, in 2013, the transport and industrial sectors
were the main consumers of energy. Nevertheless, one should note that the industrial
sector has been the main energy consumer together with the transportation sector even
before 2009. However, after 2009, the energy consumption of the industrial sector started
to decline. In 2009, the economic crisis slowed down the progress of the industrial sector
and consequently, its energy consumption. Indeed, the share of the industrial sector
outputs over the total GDP also decreased given that Malaysia has moved into the service
sector. For instance, in 2005, the manufacturing and mining sectors altogether contribute
41.2 % to the GDP of Malaysia but the contribution declined drastically to 33.7 % in
2013 whereas the contribution of the service sector increased from 47 to 55 % in the same
period. The change in the sectorial composition has consequently decreased the energy
demand of the industrial sector. As such, in 2013, the transport sector accounted for 43 %
of the total energy demand while the industrial sector accounted for 26 %. The
non-energy and the residential and commercial sector each consumed nearly 14 % of the
total energy demand (see Fig. 5.1). From 2000 to 2013, the average annual energy
demand growth in Malaysia was 4.4 %. This growth rate indicates that Malaysia’s
energy demand in 2020 and 2030 would be 67.8 and 100 Mtoe respectively.3 The
projected energy demand in 2030 would be twice the 2013 level.
In 2013, the energy production by fuel type shows natural gas accounted for
nearly 44 % (39,973 ktoe) of the energy production while crude oil (27,154 ktoe)
and coal (15,067 ktoe) accounted for 30 % and 19 % respectively. The contribution
of renewable energy, namely solar, biodiesel, biogas and biomass was only 0.6 %.
As a whole, Malaysia is currently using conventional non-renewable energy, pri-
marily the natural gases and crude oil. This scenario was different in 1992 whereby

3
Author’s calculation.
114 V.G.R. Chandran Govindaraju

Final Energy Demand (Ktoe)

Fig. 5.1 Final energy demand by sectors, Malaysia, 1978–2013. Source Energy Commission of
Malaysia (2015)

crude oil accounted for 61 % of the total energy production while natural gas only
accounted for 37 %. The transition from crude oil to natural gas was deliberate due
to the introduction of the Four-Fuel Diversification Strategy policy, namely oil,
natural gas, coal and hydro in 1981. Indeed, with the discovery of natural gas in
1983, the natural gas volume increased significantly and is expected to sustain for
years to come.4 Given that crude oil and coal account for nearly 49 % of the energy
production, it is imperative that Malaysia finds a mix of energy resources that is
affordable and effective in reducing the adverse impact on the environment. Indeed,
technological progress is important to further reduce the energy consumption
especially by improving energy efficiency.
In line with the energy demand, the emission profile shows that Malaysia’s main
source of CO2 emissions from fuel combustion is largely contributed by electricity
and heat5 (54 %), transportation, especially road transport (23 %) and manufac-
turing and construction sectors (17 %). These sectors nearly account for 79 % of
the total CO2 emission in Malaysia (see Fig. 5.2). In the electricity sector, energy
production is mainly from natural gas (50 %), coal (45 %) and hydropower (5 %).

4
It is expected that natural gas will last for 25 years.
5
Emission from electricity generation and combined heat and power generation and heat plants.
5 Greening the Economy with Low Carbon Energy … 115

Fig. 5.2 Sector wide CO2 emission Source Malaysia, 2010

5.3 Scenario of Green House Gas Emissions in Malaysia

In response to Malaysia’s commitment to reduce CO2 by 40 %, Malaysia’s Second

National Communication (NC2) to the United Nations Framework Convention on
Climate Change proposed a mitigation analysis. A follow-up study was undertaken
by Matsuoka and Ho (2013) in response to the above call. Three scenarios were
projected, namely Business as Usual (BaU) (without any low carbon measures),
EXT (introduction of low carbon measures mentioned in the NC2) and APS where
intensive low carbon measures were introduced.6 Figure 5.3 shows the results of
the projections. At a BaU level, Greenhouse Gas (GHG) emissions is expected to
increase to 534 and 741 MtCO2 equivalent in 2020 and 2030 respectively from the
2005 level of 271 MtCO2 equivalent (see Fig. 5.3). If the existing measures pro-
posed in NC2 are adopted, GHG emissions can be reduced up to 22 % (419) and
42 % (429) from the BaU level in 2020 and 2030 respectively. With a more
intensive mitigation level (APS), reduction can reach up to 40 % in 2020 and 51 %
in 2030. The study shows that in order to significantly reduce GHG emissions,
energy efficient technology is the most important long term measure. Also, forest
management and deforestation avoidance in land use and forestry as well as
renewable energy and waste recycling are other significant options in reducing
GHG emissions. It seems that Malaysia has to considerably improve the demand

6
This includes energy efficiency improvement in the energy demand and power supply sectors, use
of renewable energy in the transport and power supply sectors, modal shift, avoiding deforestation
and waste recycling.
116 V.G.R. Chandran Govindaraju

Fig. 5.3 GHG emissions in Malaysia. Source Matsuoka and Ho (2013)

side management, especially in promoting efficient energy in the household as well

as commercial sectors. Nevertheless, energy, industrial and transport sectors require
specific attention if Malaysia intends to achieve its target of reducing GHG emis-
sions and CO2 emission by 40 %.
One of the questions that is of interest is analyzing whether the growth of
emissions in Malaysia had slowed down after the announcement and the commit-
ment from various efforts in Malaysia to reduce CO2 by 40 % in 2009. In this
chapter, various scenarios were projected based on the average annual growth of
CO2 emission in various time intervals. This will provide some indications as to
whether Malaysia is moving in the right direction. The annual average growth rate
of CO2 emissions after 2009 seems to be lower than any other period (see
Table 5.2). This may indicate that Malaysia is able to significantly reduce its CO2
emissions. Indeed, if the annual average growth is sustained at 3 %, the total CO2
emission in 2020 would be 280 Mtoe. This would translate to 58 % reduction from
the 2005 level which is more than the 40 % target commitment by Malaysia. By the
end of 2013, Malaysia had already achieved 33 % reduction (Malaysia 2015). This
achievement was achieved even without receiving any financial and technology
transfer assistance pledged by the developed countries that was conditional for

Table 5.2 Average annual growth of CO2 emissions, Malaysia

Time intervals Average annual growth (%)
1990–2013 6.9
2000–2013 5.8
2006–2013 3.4
2010–2013 3.0
Source Author’s calculation
5 Greening the Economy with Low Carbon Energy … 117

Malaysia’s commitment to reduce CO2 emissions. The impressive reduction rate

was achieved through deliberate policy and institutional interventions. Among them
include the National Green Technology Policy, Renewable Energy Policy as well as
various institutional settings such as the Green Technology Corporation and the
Green Technology Council.

5.4 Policy Intervention and Its Effectiveness in Malaysia:

Market and Non-market Approaches

Malaysia, at the initial stage, has taken a market-based approach in managing its green
growth path especially by solely encouraging private sector participation and
involvement in renewable energy production without much deliberated public facili-
tation in terms of regulatory framework. However, evidence shows that without proper
regulations and an intermediary institution setting, market-based approaches will not
be effective enough in securing Malaysia’s path to green growth. Given this experi-
ence, since 2009, Malaysia has combined the non-market based instruments along with
the market-based approach in promoting its green growth path. This section analyses
Malaysia’s attempts to develop a green economy especially in terms of the policies and
their effectiveness in achieving its transition towards the green growth path.
Table 5.3 shows a summary of the relevant policies and initiatives that the
Malaysian government had put forward to develop a green economy. More con-
centrated efforts had been carried out since 2001 and in 2009, more policy
instruments were designed and implemented whereby Malaysia showed serious
efforts in transforming its economy to a greener path. Among the important policies
in place are the National Green Technology Policy, National Renewable Energy
Policy and National Policy on Climate Change.
In various Malaysia Plans, Malaysia targeted renewable energy as one of the
alternatives to achieve low carbon economy. In the 8th Malaysia Plan (2001–2005),
RE was set as the 5th fuel and a target of 5 % RE in energy mix was established.
The efforts in the plan are to promote a greater utilization of RE through demon-
stration projects, commercialisation of research findings and financial and fiscal
incentives. Consequently, the 9th Malaysia Plan (2006–2010) targeted RE capacity
connected to power utility grid were 300 and 50 MW in Peninsular Malaysia and
Sabah respectively. The plan also targeted a power generation mix whereby RE
accounted 1.8 % of the total energy mix.7 The plan emphasized on fuel diversifi-
cation through a greater utilisation of RE. In ensuring an efficient allocation of
resources, the approach taken for these initiatives was more of a market-based
approach. Targets were properly set since 2001; however, despite various efforts,
the progress of RE development and the achievements at the end of the 9th

7
Other sources include Natural Gas (56 %), Coal (36 %), Hydro (6 %) and Oil (0.2 %)
respectively.
118 V.G.R. Chandran Govindaraju

Table 5.3 Policies, commitments and initiatives of Malaysia

Policy, commitments and initiatives Year
committed
National energy policy: 1979
Guidelines on long-term energy objectives and strategies to ensure efficient,
secure and environmentally sustainable supplies of energy
National depletion policy: 1980
Formulate to prolong the life span of the nation’s oil & gas reserves
Four-fuel/diversification policy: 1981
Aim at ensuring reliability and security of supply through diversification of
fuel (oil, gas, hydro and coal)
Malaysian Energy Centre (PTM): 12th May
Fulfil the need for a national energy research centre that will co-ordinate 1998
various activities, specifically energy planning and research, energy
efficiency, and technological research, development and demonstration (R,
D and D) undertaken in the energy sector due to the length of time needed
for energy projects to come on stream
Five-fuel policy: 2001
Encourage efficient utilization of renewable resources such as biomass, solar
and mini hydro
Small renewable energy power programme (SREP): 11th May
Promote a wider use of the huge amount of renewable energy resources 2001
available in Malaysia, particularly its utilisation in power generation
1st National physical plan: 20th April
The Physical plan includes measures to tackle climate change and conserve 2005
natural resources and biological resources in the country, including
establishing carbon sinks for sequestration, establishing sustainable forest
and water management and a central forest spine to link key ecological areas
in Peninsular Malaysia
National urbanization policy: 8th August
Promoting transit oriented development and compact cities will encourage 2006
greater use of public transport and non-motorized transport
National biofuel policy 2006
Promote biofuel as the fifth fuel along with fossil fuel and hydropower.
Government started promoting 5 % processed palm oil in diesel for
government consumption and issuing of manufacturing licenses
The national committee on clean development mechanism (NCCDM) is 18 December
formed to oversee CDM practices in Malaysia 2008
National green technology policy (NGTP): 24th July 2009
5 strategic trusts are developed including public awareness in the tenth
Malaysia plan. In addition, the national green technology policy (NGTP)
also has the initiative to implement a green technology, which may be able
to reach a low greenhouse gas (GHG) emission. Green financing is
emphasized
Renewable energy (RE) and the adoption of energy efficiency (EE): Sept 2009
Implement sustainable development by granting increasingly attractive fiscal
incentives for the energy users to reduce their cost of doing business and to
maintain their competitive edge in the international market
(continued)
5 Greening the Economy with Low Carbon Energy … 119

Table 5.3 (continued)

Policy, commitments and initiatives Year
committed
Malaysia national policy on climate change: November
43 key action plans are outlined in this policy to transform this document 2009
into practical actions whereby some of these 43 key action plans include
setting up environmental committee and watchdog groups, developing laws
to regulate the environmental aspects of the country, allocating financial
assistance, producing greenhouse gas emission reports, increasing
collaborations of NGOs in the said subject, promoting renewable resources,
increasing research and development, adapting greener technologies and
promoting regional corporations with regards to combating climate change
CO2 voluntary reduction of emission intensity of GDP by 40 % in 2020 17 December
compared to the 2005 level 2009
Low carbon cities programme: Apr 2014
Serves as a guide for developers, local councils, town planners or
non-governmental organisations to reduce the levels of carbon emission in
cities. The ultimate goal is to achieve zero carbon emission
Source Compiled by author from various sources

Malaysia Plan were minimal. In other words, the effectiveness of the approach was
less significant. For instance, in the Small Renewable Energy Power Program
(SREP), RE was projected to contribute 5 % of the generation capacity by 2005.
However, only 12 MW capacity was achieved. Consequently, in the 9th Malaysia
Plan, the 350 MW target was also not achieved. Nevertheless, valuable lessons
were identified based on the previous RE initiatives, including the viability of the
approaches taken previously. Evidence based on the past RE initiatives which
include the Small Renewable Energy Power (SREP) program8 and the Biogen and
the Malaysia Building Integrated Photovoltaic Technology Application (MBIPV)
projects indicated certain issues and lessons for Malaysia. Given the private ini-
tiative approach, market failure was significant when it failed to set the right
platform as well as pricing to stimulate the renewable energy market. The market
failure was also unrestraint due to a lack of institutional facilitation including
regulatory and policies needed to govern the market. Among others, specifically,
failures and the limited success of the earlier projects in promising good outcomes
were due to the following reasons.
1. Lack of regulatory framework to execute proper legal actions.
2. Misuse of monopsony power, information asymmetries, financial as well as
technological barriers has constrained the development of the RE market. This
includes setting RE price arbitrarily without sound economic barring.
3. Lack of institutional support for informational and technological needs.

8
Small Renewable Energy Power (SREP) Program was announced in May 2001. Small power
generation plants were encouraged to produce RE and were allowed to sell generated electricity to
electricity distributors or retailers such as TNB.
120 V.G.R. Chandran Govindaraju

4. Poor governance detrimentally affects the participation of stakeholders and

legitimacy of the action.
5. Lack of concerted oversight of implementation problems.
6. Over reliance and expectation on utility in bearing the higher costs of RE power
given the high RE price.
The Malaysian National Renewable Energy Policy and Action Plan was laun-
ched in 2009 under the 9th Malaysia Plan. Among the goals of the plan was to
increase the RE contribution in power generation mix and enhance the growth of
the RE industry. Five strategic trusts were identified, namely setting up a regulatory
framework, providing a conducive RE business environment, human capital
development, research and development as well as RE awareness outreach. In the
9th Malaysia plan, achievement was limited given the limited financial accessi-
bility. Therefore, in June 2011, the Renewable Energy Act was launched to
establish and implement the Feed-in Tariff (FiT) system. In order to accelerate the
renewable energy mix, under the Renewable Energy Act 2011, the Feed-in Tariff
was implemented and the RE installed capacity grew from 53 MW in 2009 to
243 MW in 2014. This helped reduce GHG emission by 432,000 tons of carbon
dioxide equivalent (tCO2eq). Table 5.4 shows the power generation based on the
commissioned RE installation under the FiT system. Most of the power generation
comes from biomass followed by solar and small hydro.
However, this achievement is far below the target set in the 10th Malaysia Plan
as well as in the RE roadmap. The target is 985 and 2080 MW by 2015 and 2020
(see Fig. 5.4). An impact study indicates that the approved FiT applications were
able to generate a total of 536 MW RE capacity as of the first quarter of 2015. This
translated into 11,420 jobs with a total capital investment of 4.3 billion and
1,509,500 tonnes CO2 emission avoidance.
Among others, pockets of success and achievements in the 10th Malaysia Plan
were recorded. Malaysia was successful in reducing 33 % of the GHG intensity of
GDP compared to the 2005 level in 2013. The household recycling rate increased to
10 % in 2012 and is expected to be 15 % in 2015 as opposed to 5 % in 2010. In

Table 5.4 Power generation (MWh) of commissioned RE installations, 2012–2015

Year Biogas Biogasa Biomass Biomass (solid Small Solar PV
waste) hydro
2012 98.1 7,465.4 101,309.9 3,234.5 25,629.8 4,714.0
2013 12,217.2 9,477.6 209,407.6 11,144.3 73,032.1 48,629.8
2014 18,521.8 27,702.9 192,984.0 4,347.8 64,453.5 177,351.0
2015b 1,509.3 2,285.7 72,530.8 0 10,606.8 22,775.9
Total 32,346.4 46,931.6 576,232.3 18,726.6 173,722.2 253,470.7
% of 2.9 4.3 52.3 1.7 15.8 23.0
Total
Source SEDA (2015)
a
Landfill/Agri Waste
b
Until May 2015
5 Greening the Economy with Low Carbon Energy … 121

Fig. 5.4 Renewable energy targets, 2011–2050, Malaysia. Source SEDA (2009)

2013,9 the Energy Performance Standards (MEPS) for domestic appliance was
gazetted and through the Sustainability Achieved via Energy Efficiency program
(2011–2013), energy consumption was reduced by 306.9 GWh resulting in GHGs
avoidance of 208705 tCO2eq. In the transportation sector, the government gazetted
EURO 4 M standards in 2013 including the construction of 35 depots to support the
implementation of bio-diesel B5 program (5 % bio-diesel blending in automotive
fuel).10 The initiatives reduced GHGs emission by 1.4 million tCO2eq. However,
the widespread use of biodiesel was not significant and demand considerably
dropped. Indeed, the feed stock cost was high and many licenced manufacturers did
not start their operations.
Another important policy is the National Green Technology Policy which was
established in 2009 and it aims to minimize growth of energy consumption while
enhancing economic development. The policy also aims to facilitate the growth of
green technology industry, increase national capability and capacity for innovation
in green technology development, promote sustainable development and environ-
mental conservation and enhance public awareness and education on green tech-
nology and its use. The policy was much addressed in the sense that it targeted four
important sectors namely, energy, building, water and waste management and
transportation sectors.
Green Technology Corporation, a non-profit organization under the Ministry of
Energy, Green Technology and Water initiated various activities, namely the
National Green Technology and Climate Change Council (MTHPI), ASEAN

9
This was done through the Reuse, Reduce and Recycle (3R) program.
10
Malaysia has also introduced the B7 program (7 % bio-diesel blending).
122 V.G.R. Chandran Govindaraju

Energy Manager Accreditation Scheme, Green Technology Financing Scheme,

Green Township and Green Labelling in order to support the green technology
applications in Malaysia. The green technology financing scheme was given to both
the producers and user companies. The scheme allows the participation of the
companies to develop and apply the application of products, equipment and system
that minimize the negative impact on the environment. The companies may not
necessarily be high technology firms but those which can develop products or
processes that minimize the degradation of the environment, generate zero to low
greenhouse gas emissions, converse energy use and promote renewable energy
resources. The scheme offers 60 % guarantee of the financing amount by the
government and a rebate of 2 % on interest charged by financial institutions to
reduce the financial burden of the green technology investments by the companies.
The companies which are eligible will be issued a green certification for loan
application purpose. The scheme ends on December 2015 or when the maximum
allocation of 3.5 billion ringgit is achieved. To date, 2.2 billion ringgit has been
approved by the Green Technology Corporation. Nevertheless, despite the fact that
Green Technology Corporation, Malaysia11 has awarded green certifications to
nearly 300 projects, only 127 (42 %) of the projects have received financing worth
1.66 billion ringgit from 23 financial institutions as of September 2014.12 The
Green Technology Financing Scheme was projected to reduce GHGs emission by
93,000 tCO2eq (Malaysia 2015). Nevertheless, financing is still a major problem in
the initiation of the green technology industry given that the rate of financing is still
low. This is due to the fact that financial institutions lack knowledge and expertise
for the evaluation of green technologies. Indeed, green technological awareness is
still low. This has resulted in uncertainty in the financing of green sectors by the
financial institutions.
The Ministry of Energy, Green Technology and Water also drafted the National
Energy Efficiency Action Plan 2011.13 The plan is a revamp of the National Energy
Efficiency Master Plan. Being cost effective, improving energy efficiency (EE) will
also reduce expensive investments in a new generation capacity. Energy commis-
sion projected that the domestic sectors account for 20 % of electricity demand and
emit 12.17 million tonnes of CO2, and if they adopt a 20 % increase in EE, they
would be able to reduce 36.3 million tonnes of CO2. Although EE is technologi-
cally feasible and economically efficient, the penetration rate in Malaysia is still
low. The following reasons were identified for the low penetration rate. Among
them include low energy prices, lack of finance for energy efficiency, lack of overall
national plan for energy efficiency, lack of top-notch leaders to drive energy effi-
ciency; and lack of consistency in embarking on energy efficiency (Kettha 2014).

11
A not-for-profit organization under the purview of the Ministry of Energy, Green Technology
and Water, Malaysia.
12
Syed (2014).
13
The anticipated plan was delayed for a few years and it was never launched. It is indeed still in
the draft stage.
5 Greening the Economy with Low Carbon Energy … 123

For some critics, the plan is not comparable with that of Thailand’s 20 years’
energy efficiency development plan that is more focused and goal-oriented. The
National Energy Efficiency Action Plan requires more depth so that action plans can
be executed. The plan also seems to overlook the implementing aspects of energy
efficiency of business and domestic consumers. The energy efficiency efforts in
Malaysia require greater coordination both domestically and internationally.
Indeed, regional cooperation is important whereby collectively, Thailand and
Malaysia can share the expertise and develop a more appropriate path way to be
energy efficient regions.
The following initiatives were proposed under the respective Malaysia Plans. In
the 10th Malaysia Plan, emission regulations with new emission standards for
specific industries as well as self-regulatory measures with the use of pollution
control and monitoring systems including auditing were proposed. This was carried
out in the 11th Malaysia Plan. Additionally, green certification with green rating
systems and standards was proposed to initiate the greening of industries. Among
others, the plan also highlighted the importance of introducing the Enhanced Time
of Use tariff scheme and the gradual abolishment of the Special Industrial Tariff for
energy intensive industries.
In terms of sectors, the energy sectors recorded some progress in renewable
energy. RE is targeted as part of the energy mix and it is expected that in 2020,
11 % of the energy will come from RE.14 Indeed, the promotion of renewable
energy requires an adequate supply of energy to sustain the RE sectors. In this
aspect, effective energy efficiency strategies are needed to promote awareness
among industry players. Other initiatives include improving the energy efficiency in
the energy and power sectors by promoting the use of better energy efficient
equipment and processes within the energy and industrial sectors. Nevertheless, the
success is limited to demonstration projects as well as the establishment of energy
audit mechanism in collaboration with international organizations. In the industry
sector, for instance, more need to be done to further reduce the energy consumption
given the energy intensity of the sector (energy use over output) has not been
significantly reduced over the years (see Fig. 5.5). Indeed, energy efficiency was
targeted more on consumer products than the industrial sector. Old and
second-hand equipment in the industrial sector are still rampantly used and this
consequently contributes to the carbon footprint. However, one positive progress is
that the trading imports of environmental goods and services have been on the
increase in Malaysia. As a whole, the issue of energy utilization and efficiency in
this sector needs to be emphasized further.

14
Given the dominance of the National Power Producing Company, the grid connected renewable
energy is still slow.
124 V.G.R. Chandran Govindaraju

Fig. 5.5 Industrial energy intensity, 1990–2012. Source KETTHA (2014)

In the transportation sector, Malaysia has made little progress in moving the
sector towards the green growth path. The fuel subsidy rationalization15 exercise in
Malaysia which is carried out for economic reasons rather than environment is one
progressive measure taken by Malaysia. While the impact is higher in the energy
intensive sectors like petrol refinery, electricity and gas, its impact on transportation
is minimal given that there is no viable alternative for the consumers to shift to
other modes of transportation e.g. public transportation.16 In fact, greater compe-
tition in the passenger car market has necessitated automotive producers to offer
discounts, making car ownership affordable. In the National Green Technology
Policy, the transport sector has been identified as one of the important sectors for
green initiatives given that the sector is the second largest CO2 contributor. The
National Automotive Policy emphasized on the promotion of hybrid and electric
vehicles together with infrastructure development. Additionally, in October 2009,
Malaysia was featured as the regional hub for green cars and technologies in the
revised National Automotive Policy. Generous incentives were given, namely the
exemption of 100 % import duty and 50 % excise duties on imported new hybrid
vehicles with engine capacity below 2,000 cc. Tax exemptions especially import
tax exemptions played an important role and promoted the demand for hybrid and
fuel efficiency cars. In 2011, Japanese car manufacturers, namely Honda and
Toyota were able to capture the hybrid car market with each selling 3,800 and 1,301
units respectively. Nevertheless, the tax exemption for imported energy efficient
cars ended in 2013 since it was not able to lure foreign investments into the country.
The exemption will only continue for locally-assembled hybrid cars until 2015 and
electric vehicles until 2017. It is projected that 80 % of the locally-produced cars
will be energy-efficient vehicles by 2020. Consequently, this has attracted invest-
ment for assembling and manufacturing cars locally but demand for such cars has

15
Malaysia removed its fuel subsidy on the 1st of December 2014. It now uses the managed float
system to set the fuel price based on the average cost of fuel in the market monthly.
16
Study shows that the fuel subsidy removal will have an impact on GHG emissions and the
magnitude of impact varies greatly between sectors (Solaymani et al. 2015).
5 Greening the Economy with Low Carbon Energy … 125

slowed down. In the first half of 2014, demand for hybrid cars was 6,007 units
compared to 6,803 units in 2013 for the same period.17 A drop of 12 % has been
recorded.
As a whole, in the case of Malaysia, it shows that there has been some success
recorded in promoting the green growth path through the policies and programs.
Nevertheless, the effectiveness of the policies and programs showed mixed reviews
whereby in some areas, they have been significantly successful while in others, they
have not. However, what is important is that Malaysia has taken the initiative and is
currently learning through trial and error to promote the green agenda. This con-
tinuous learning will result in better outcomes in the future. However, a better
regional cooperation is needed to escalate the learning process including technology
transfer. Lessons learnt from the initiatives carried out in Malaysia indicate the
following. Firstly, establishing a well-planned regulatory framework is important
for the success of the policies and plans to move into a low energy system.
Secondly, institutional setting and support are equally important especially for
information dissemination, regulatory implementation, coordination, facilitation as
well as a supporting role including research and development as well as providing
the needed human capital in newly-formed industries. For instance, energy effi-
ciency measures had faced difficulties in Malaysia since there is not any one-stop
center for businesses to coordinate their activities. Thirdly, the involvement of
private sectors is of paramount importance to accelerate any planned moves by the
government. For instance, in the RE targets set by the government, only the solar
installation capacity was achieved ahead of time.18 This was made possible due to
the participation of the private businesses, from module producers to system inte-
grators. Indeed, since Malaysia was able to attract adequate foreign direct invest-
ments and promote the industry, industrial participation including domestic sectors
was active. Given the promotion of the industry and Malaysia being one of the top
exporters of solar panels, financing is relatively better for this industry compared to
other RE sectors.
The Malaysian effort in implementing low carbon energy system through its
various initiatives is evolving and still in progress as the efforts were only inten-
sified starting 2009. However, what are apparent are the challenges that Malaysia
faces in various programs and initiatives. As a whole, the major challenges include
financing, institutional framework including regulatory, technological capabilities
and promoting private sector participations. Some of these challenges may require
regional cooperation. Indeed, with the ASEAN Economic Communities, Malaysia
can play a more proactive role in promoting trading in green technologies e.g. solar
since it is one of the established solar PV hubs in Asia.

17
71 % of the demand in the first half of 2014 came from locally manufactured hybrid cars by
Honda.
18
The target set for solar is 175 MW by 2020. But, beginning from 2015, Malaysia already has
achieved 200 MW. Although FiT also offers other renewable energy (e.g. biogas, biomass and
biodiesel), the success in solar is much better.
126 V.G.R. Chandran Govindaraju

5.5 Implications for Regional Cooperation

Given the progress of Malaysia in low carbon technologies and green industry
investments, there seems to be opportunity for Malaysia as well as other regions to
form regional cooperation, especially for the green industry. The following section
discusses the implications for regional cooperation.

5.5.1 Trade in Low Carbon Goods and Service

As Malaysia’s green industry has already reached 20 billion ringgit with an annual
growth of 6 % between 2010 and 2011, Malaysia’s participation in low carbon
goods and services within ASEAN will be imperative. In 2013, the total invest-
ments of the green industry were valued at 920 million ringgit and it has generated
nearly 33.1 billion ringgit in revenue. ASEAN as a whole can benefit significantly
in terms of the trading of green products, with Malaysia given the liberalization
efforts within ASEAN. For instance, given Malaysia’s strong presence in the
electrical and electronics industry, it has also successfully developed the solar PV
industry and the industry is one of the major world exporters. In 2013, the main
export markets of Malaysia were the United States, China, Japan and Taiwan with
total export values of 10 billion ringgit. The promotion of regional sourcing for
green products is an important aspect. Malaysia being the ASEAN chairman in
2015, could possibly lead some of these initiatives through its economic integration
agenda. With regards to this, Malaysia will also be able to participate in human
resource development as well as capacity building given that it has started to build
capability in solar and related research and development.
As the ASEAN Ministers on Energy have agreed to intensify cooperation in
potential energy resources within the ASEAN region, investment and trade in
renewable energy can also serve as a platform. Indeed, issues of attracting private
sectors, technology transfer and financing opportunities can be further deliberated.
Malaysia’s aspiration to be a green technology hub can be better positioned to
benefit ASEAN at large if better cooperation is established. Promotion of energy
efficiency can be further accelerated, especially with regards to industrial energy
efficiency. The ASEAN Plan for energy cooperation should include cooperation in
promoting industrial energy efficiency and research and development. Technology
transfer and know-how facilities should be included. Given Malaysia’s slow pro-
gress in promoting industrial energy efficiency, Malaysia can greatly benefit from
this agenda.
As for the Regional Comprehensive Economic Partnership (RCEP), since
Malaysia is already trading 50 % of its exports with RCEP countries, it presents
more opportunities for the country. Indeed, it also can secure more foreign direct
5 Greening the Economy with Low Carbon Energy … 127

investment for Malaysia especially from China and Japan. Malaysia’s expectation
of TPP is to take part in shaping the global trade as well as to create market access
opportunities and to build capacity. In this regard, renewable energy sectors may
have the opportunity to have more market access. Indeed, SMEs that were devel-
oped and had participated in renewable energy projects would be able to integrate
themselves into the global supply chain through the TPP. However, negotiation
should also focus on allowing respective countries in developing its own capacity to
develop green industries where possible. The Asia-Pacific cooperation agreement to
reduce tariffs on green goods to less than 5 % by 2015 should also provide
opportunities as it will promote trade in green goods and consequently impact the
environment positively.

5.5.2 Regional Financial Information Platform and Funds

for Low-Carbon Technologies

Challenges faced by Malaysia also set the platform for regional cooperation as it
will reduce some of the barriers faced by Malaysia in moving towards a green
economy. One of the greatest challenges includes financing the green sectors and
the green economy respectively. More importantly, financing is lacking because
banks and financial institutions are risk adverse and are not prepared to finance new
emerging sectors due to an information asymmetry especially when it comes to risk
assessment. Banks and financial institutions lack the information needed to process
the financing request of the green sectors. Nevertheless, the more experienced
nations which have dealt with instruments and the risk assessment methods would
be able to help in providing the needed information collectively. As such, regional
cooperation should focus on how best the financial information platform can be
established and how sharing of these crucial information can be disseminated
within the cooperating nations. Apart from establishing the regional financial
information platform, regional cooperation should also focus on establishing the
financial access where collectively, members of the cooperation could pledge to
support the financing initiatives through the involvement of private sectors. Indeed,
the proposed China’s Asian Infrastructure Investment Bank could likely be
expanded to finance renewable infrastructure projects with Malaysia and ASEAN.
Also, the green technology financing scheme can be further expanded to regional
level including identifying effective financing channels through private-public
partnership. Financing should also enable the facilitation of innovators, especially
in financing the research and development eco-system within the low carbon
systems.
128 V.G.R. Chandran Govindaraju

5.5.3 Regional Center for Capability and Learning

Opportunities in Low Carbon Technologies

As a starting point, information sharing would be important. In this regard, the

creation of expert directories, technology and technical directories as well as human
capital mobility and exchange programs is vital. The existing regional coordination
institutions and organizations can be used for this purpose. Many of the ASEAN
regional coordinating agencies have not incorporated sustainable development, in
particular, low carbon initiatives as their main priorities. This can be one oppor-
tunity that can be explored further as a regional program. Among others, when
considering the establishment of the regional center for capacity and learning,
mechanisms to overcome the current challenges should be explored. Among the
challenges include the lack of financing to organize knowledge transfer activities,
rigid intellectual property regulations that limit knowledge and technology sharing.
Lack of standard and well-coordinated monitoring and evaluation processes, too
much dependence on the chair and leadership and a change of leadership will result
in changes in priority and different priorities in different countries. Aside from
these, there is no mechanism in which the poor can participate in the process (from
the planning to defining the project and the implementation); there is limited
communication to transfer the research benefits to the people; the culture of science
and technology (S&T) is not embedded in the psyche of the people and there are no
follow-ups after workshops or trainings which make initiatives unsustainable
(Chandran et al. 2015). Researchers’ mobility can also be one aspect that requires
attention and this should include issues related to immigration rules and regulations.
For instance, in the case of Malaysia, one of the major concerns is to get adequate
human resources and expertise to undertake research activities. With stringent
immigration regulations, mobility is not possible and companies end up having
difficulties in recruiting qualified researchers and engineers for research and
development activities.
Regional institutions can also provide ‘surrogate ties’ by serving as functional
substitutes for a firm’s lack of ‘bridging ties’ in a network or with the global value
chain (Howells 2006). In establishing the regional initiative, the participating
countries should align the commitments and priorities with the countries’ agenda,
identify common issues in learning and capacity building and make funding
commitments, report and monitor the capacity development programs.

5.6 Conclusion

The chapter discusses Malaysia’s attempt to move towards green energy growth,
using various policies, initiatives and approaches. The findings are useful for other
developing countries that is aiming to promote low carbon economy. Lessons show
that success largely depends on public-private partnership. Indeed, challenges with
5 Greening the Economy with Low Carbon Energy … 129

regards to financing, human capital and technological learning would require

effective regional cooperation. This chapter also paves the way forward
for Malaysia to further identify opportunities for regional cooperation.

References

Chandran, V. G. R., Kwee, N. B., Yuan, W. C., & Kanagasundaram, T. (2015). Science,
technology and innovation for inclusive development: Reorganizing the national and regional
systems of innovation, Tech Monitor, Asia-Pacific Tech Monitor. Asian and Pacific Centre For
Transfer of Technology, United Nations.
Howells, J. (2006). Intermediation and the role of intermediaries in innovation. Research Policy,
35, 715–728.
International Energy Agency (IEA). (2014). World energy outlook 2014. International Energy
Agency.
International Monetary Fund (IMF). (2015). World economic outlook. April 2015.
Kementerian Tenega Teknologi Hijau Dan Air (KeTTHA). (2014). National energy efficiency
action plan. Putrajaya: Ministry of Energy, Green Technology and Water.
Malaysia. (2015). 11th Malaysia plan. Putrajaya, Malaysia.
Matsuoka, Y., & Ho, C. S. (2013). Low carbon society scenarios Malaysia 2030. Japan: Universiti
Teknologi Malaysia, Kyoto University, Japan and National Institute for Environmental Studies.
Sustainable Energy Development Authority (SEDA). (2009). National renewable energy policy
and action plan. Putrajaya, Malaysia.
Sustainable Energy Development Authority (SEDA). (2015). Renewable energy generation.
Available at http://seda.gov.my/
Solaymani, S., Kardooni, R., Kari, F., & Yusoff, S. (2015). Economic and environmental impacts
of energy subsidy reform and oil price shock on the Malaysian transport sector. Travel
Behaviour and Society, 2(2), 65–77.
Syed, M. (2014). Green technology financing scheme. Paper presented at the Asia leds partnership
workshop, Vietnam, 12–14 March, 2014.
Chapter 6
On the Dynamics of Low Carbon Green
Growth in Thailand

Qwanruedee Chotichanathawewong

6.1 Introduction

East Asia Summit (EAS) countries are at the center of a paradigm shift towards
low-carbon green growth. This shift must incorporate energy security, economic
growth and carbon emission reductions in the strategic policy making and imple-
mentation. Many ASEAN member states have started this paradigm shift, bringing
clean and renewable energy access, industrial and household energy efficiency
improvement, competiveness, developing green technology markets, and support-
ing decent job creation.
This chapter firstly reviews Thailand economic, energy and emission profile and
provides scenario analysis on business as usual, Power Development Plan 2010 and
Climate Change Plan Scenario up to 2030. Then, the existing policies and policy
effectiveness of low—carbon interventions, including Thailand Power
Development Plan (PDP), 20-Years Energy Efficiency Development Plan (EEDP)
and Alternative Energy Development Plan (AEDP), are discussed. Grounded in
theories of decoupling and energy security, this chapter focus on the technology and
financial aspects of supply side (clean coal, renewable energy) and demand side
(energy efficiency in industry and household sectors) energy management and
needed regional cooperation initiatives (trade and investment, capacity building).
Furthermore, this chapter addresses the needs for and contributions to regional
cooperation (market and non-market) on free trade in low-carbon technology and
services, pooling of regional public and private financial resources, integration of
carbon markets, strengthening regional innovation systems and collective learning
and capacity building. Moreover, other regional cooperation issues are discussed
such as energy trading, energy efficiency standard and labeling and environmental

Q. Chotichanathawewong (&)
Thailand Environment Institute, Nonthaburi, Thailand
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 131

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_6
132 Q. Chotichanathawewong

justice. In addition, this chapter also focuses on institutional measures needed,

including the establishment of responsible agency and institutional capacity
building.
Lastly, this chapter summarizes key recommendations discussed throughout the
chapter which are (1) the most effective policies in Thailand in reducing carbon
emissions in the time frame considered in supply and demand side, (2) types of
regional cooperation efforts (market and non-market) that will be advantageous for
low carbon interventions and (3) besides existing institutional set ups/measures,
additional measures that will be needed to assist in low carbon development.

6.1.1 Thailand Economic, Energy and Emission Profile

6.1.1.1 Thailand Economic Overview

Thailand with a population almost 70 million has shifted from having an

agriculture-based economy to an industry-driven and export oriented emerging
economy. Thailand is an upper middle income country with the total Gross
Domestic Product (GDP) in 2013 nearly 13 trillion baht as shown in Table 6.1.
Manufacturing sector is the most important which accounts for about 30 % of GDP,
following by wholesale and retail trade about 13 %; transport, storage and com-
munication approximately 7 %. Agriculture also makes a significant contribution
approximately 12 % of GDP. According to the National Economic and Social
Development Board (NESDB), Thailand has an averaged GDP annual growth rate
about 3.70 % from 1990 until 2013.

6.1.1.2 Thailand Energy Overview

Thailand total primary energy supply is the sum of domestic production primary
energy (47 %), import energy (59 %) and stock change (6 %) minus export energy
(12 %) as shown in Fig. 6.1.
From 2009 until 2012, the total primary energy consumption has increased by 4–
7 % per year. As shown in Fig. 6.1, natural gas was the largest consumption share
about 44 %, following by oil consumption around 37 %. The coal consumption
accounted for 11 %, following by lignite and hydro/imported electricity approxi-
mately 5 and 3 %, respectively. Primary energy production from 2009 to 2012 was
around 1,000 KBD. Thailand mostly depends on import energy as the proportion of
import energy and energy consumption is over 50 % as shown in Table 6.2.
For energy consumption by economic sector, industrial and transportation are
the largest consumption sector equally about 27,000 ktoe or about 35 % of total
energy consumption in 2013, following by residential sector approximately 11,000
ktoe or around 15 % of the total energy consumption (Table 6.3).
Table 6.1 Gross national product, gross domestic product and national income at current market prices by economic activities (Unit millions of baht)
Industrial origin (1990) (1995) (2000) (2005r) (2010r) (2011r) (2012r) (2013p)
Agriculture 226,046 383,074 431,081 700,380 1,137,577 1,310,995 1,429,362 1,459,150
Agriculture, hunting and forestry 196,024 301,392 312,708 594,289 1,036,203 1,201,017 1,315,871 1,357,522
Fishing 30,022 81,682 118,373 106,091 101,374 109,978 113,491 101,628
Non-agriculture 2,037,421 3,834,535 4,638,743 6,914,027 9,664,819 9,989,488 10,925,293 11,450,888
Mining and quarrying 38,254 57,619 118,757 222,124 366,998 400,574 484,261 495,341
Manufacturing 618,476 1,116,261 1,449,598 2,268,623 3,358,274 3,294,332 3,478,562 3,578,425
Electricity, gas and water supply 47,873 102,008 147,023 223,971 296,568 303,287 326,942 353,767
Construction 135,577 306,832 152,324 226,654 302,791 306,622 338,360 345,955
Wholesale and retail trade; repair of motor 429,733 753,232 868,316 1,135,238 1,568,569 1,628,794 1,779,692 1,813,321
vehicles, motorcycles and personal and
household goods
Hotels and restaurants 101,128 157,883 199,020 231,321 311,910 349,523 413,838 477,212
Transport, storage and communications 156,879 293,886 417,876 584,153 766,599 789,570 859,811 899,475
Financial intermediation 125,104 339,151 193,228 417,155 580,687 644,852 731,948 845,227
Real estate, renting and business activities 126,501 203,738 375,920 563,549 688,097 741,399 841,578 888,118
Public administration and defence; 83,965 191,880 300,002 437,976 640,814 680,654 732,992 769,725
6 On the Dynamics of Low Carbon Green Growth in Thailand

compulsory social security

Education 71,085 145,750 203,391 289,227 421,307 458,310 507,704 529,995
Health and social work 26,110 53,646 78,157 125,326 174,296 184,976 198,331 204,972
Other community, social and personal service 68,316 99,848 118,298 171,043 170,003 186,092 208,651 226,058
activities
(continued)
133
Table 6.1 (continued)
134

Industrial origin (1990) (1995) (2000) (2005r) (2010r) (2011r) (2012r) (2013p)
Private households with employed persons 8,420 12,801 16,833 17,667 17,906 20,503 22,623 23,297
Gross domestic product, (GDP) 2,263,467 4,217,609 5,069,824 7,614,407 10,802,396 11,300,483 12,354,655 12,910,038
Plus : Net property income from the rest of the −31,879 −81,529 −99,964 −341,440 −476,312 −248,144 −505,861 −719,462
world
Gross national product, (GNP) 1/ 2,231,588 4,136,080 4,969,860 7,272,967 10,326,084 11,052,339 11,848,794 12,190,576
Less: Consumption of fixed capital 262,942 532,494 909,850 1,134,099 1,590,776 1,738,526 1,955,858 2,081,526
Taxes on products less subsidies 292,284 490,561 477,190 781,572 1,111,475 1,107,641 1,277,940 1,325,499
National income, (NI) 2/ 1,676,362 3,113,025 3,582,820 5,357,296 7,623,833 8,206,172 8,614,996 8,783,551
Per capita GDP (Baht) 40,536 71,543 81,459 118,877 163,869 170,666 185,807 193,394
Per capita GNP (Baht) 39,965 70,160 79,853 113,546 156,643 166,918 178,199 182,617
Per capita NI (Baht) 30,021 52,806 57,566 83,638 115,651 123,934 129,564 131,579
Population (1,000 Heads) 55,839 58,952 62,238 64,053 65,921 66,214 66,492 66,755
Note: 1/GNP GNI (gross national income), 2/NI NNP (Net national product) at factor cost, p preliminary based on annual figure, r Revised
Source Energy Policy and Planning Office (n.d.)
Q. Chotichanathawewong
6 On the Dynamics of Low Carbon Green Growth in Thailand 135

Fig. 6.1 Thailand total primary energy supply. Source Energy Policy and Planning Office (n.d.)
136 Q. Chotichanathawewong

Table 6.2 Consumption, production and import of primary commercial energy (Unit KBD of
crude oil equivalent)
2009 2010 2011 2012 Growth rate (%)
2010 2011 2012
Consumption 1,663 1,783 1,855 1,981 7.2 4.0 6.8
• Petroleum 643 652 674 709 1.5 3.3 5.2
• Natural Gas and LNG 682 784 810 888 15.0 3.3 9.6
• Coal 205 211 204 230 3.2 −3.4 12.4
• Lignite 98 99 112 98 0.7 13.9 −12.6
• Hydro/imported 35 36 54 55 2.8 48.5 3.0
electricity
Production 895 989 1,018 1,082 10.6 2.9 6.2
Import (net) 922 1,001 1,018 1,079 8.5 1.7 6.0
Import/consumption (%) 55 56 55 54
GDP (%) 7.8 0.1 6.5
Source Energy Policy and Planning Office (n.d.)

Table 6.3 Energy consumption by economic sector (Unit ktoe)

Economic sector 2006 2008 2009 2010 2011 2012 2013
Agriculture 3,448 3,446 3,477 3,499 3,686 3,790 3,906
Mining 131 121 110 123 130 139 142
Industrial 23,536 24,195 23,798 25,281 24,603 26,653 26,930
Construction 114 105 152 167 112 118 121
Residential 9,533 9,958 10,089 10,963 11,040 10,305 11,367
Commercial 4,482 4,968 4,940 5,621 5,511 6,081 5,805
Transportation 23,622 23,097 24,132 24,594 25,480 26,230 26,943
Total 64,866 65,890 66,698 70,248 70,562 73,316 75,214
Source Energy Policy and Planning Office (n.d.)

6.1.1.3 Thailand Economic, Energy and Carbon Emission

Relationship

Figure 6.2 shows a percentage of final energy consumption value over GDP at
current market prices, in terms of Baht. From 1988 until 2012, the percentage has
increased from 9 to 19.
Figure 6.3 shows energy elasticity (EE) which is a percentage change in final
energy consumption to a percentage change in real GDP. In the last 20 years, from
1993 to 2012, the averaged EE was around 0.97. During 1993–2002, the EE was
greater than 1.00 to be at 1.29. In contrast, in a period of 2003–2012, EE was much
lower than 1.00 to be about 0.71. It demonstrated that Thailand had an improve-
ment in energy efficiency during the last two decades.
From 1989 to 1997, there was an increasing trend of carbon emission from 1.66
thousand tons to 2.25 thousand tons 1 ktoe−1 of primary energy consumption, or at
6 On the Dynamics of Low Carbon Green Growth in Thailand 137

Fig. 6.2 Final energy consumption value and GDP (at current market prices). Source Energy
Policy and Planning Office (n.d.)

Fig. 6.3 Energy elasticity (yearly). Note Final energy demand including renewable energy.
Source Energy Policy and Planning Office (n.d.)

an average annual growth rate of 3.9 % as shown in Fig. 6.4. Since 1998, the
emission had continuously and significantly declined. In 2012, CO2 emission level
was at 2 thousand tons 1 ktoe−1 of primary energy consumption, or a reduction at
an average annual rate of 0.6 %.
Figure 6.5 shows a rather high growth rate of CO2 emission per capita during
1989–1997, with an average annual growth rate of 10.6 %, before decreasing
slightly in 1998 due to the reduction in energy consumption caused by the eco-
nomic crisis. In 1999, the increasing trend resumed and continued in the following
years. In 2012, the CO2 emission per capita was at 3.53 tons, accounting for an
average annual growth rate of 2.9 %.
As shown in Fig. 6.6, during the period of 1989–1999, CO2 emission per GDP
used to have an increasing trend, from 0.88 to 1.22 kg US Dollar−1 with an average
growth rate of 4.2 % per annum. In 1998, it was the highest rate in the past 25 years
at 1.28 kg US Dollar−1. After that, the rate slightly decreased around 0.6 % per
138 Q. Chotichanathawewong

Fig. 6.4 CO2 emission per primary energy consumption. Source Energy Policy and Planning
Office (n.d.)

Fig. 6.5 CO2 emission per capita. Source Energy Policy and Planning Office (n.d.)

annum until 2011. Nevertheless, in 2012, it bounced back the highest rate for
second time at 1.28 kg−1 US Dollar−1.
As shown in Fig. 6.7, CO2 emission fluctuated in accordance with the propor-
tions of fuel used in power generation, i.e. the emission grew from 0.547 kg/kWh in
1989–0.685 kg/kWh in 1991. After that the emission declined as a result of greater
use of natural gas in power generation. In 2012, CO2 emission was at
0.542 kg/kWh.
As shown in Table 6.4, in 1998 CO2 emission from oil, coal/lignite and natural
gas were about 65, 18 and 17 % of the total emission, respectively. However, as
there has been a swift increasing in CO2 emission from coal/lignite and natural gas,
consequently, in 2012 the proportion of CO2 emission from oil declined to 37 %,
following by a growing in the percentage of CO2 emission from coal/lignite and
natural gas at about 28 and 35 %, respectively.
For CO2 emission from energy consumption by sector, in 1988 the transport
sector accounted for the most CO2 emission at 37 %. However, in 2012 the
majority of CO2 emission mainly derived from power generation approximately
40 % as shown in Table 6.5.
6 On the Dynamics of Low Carbon Green Growth in Thailand 139

Fig. 6.6 CO2 emission per GDP. Source Energy Policy and Planning Office (n.d.)

Fig. 6.7 CO2 emission per unit of power generation (kWh). Source Energy Policy and Planning
Office (n.d.)

6.1.2 Business as Usual and Low-Carbon Energy Policy

Scenarios Up To 2030

6.1.2.1 Thailand’s GDP Projection

The national economy is predicted to continuously increase at a slower rate until

2030. The National Institute of Development Administration projected that
Thailand’s GDP would grow by 3–5 % annually from 2010 to 2030 (based on
electricity demand) (Table 6.6) (Chotichanathawewong and Thongplew 2012).
Based on the GDP projection (GDP data from 2031 to 2050 are assumed to be
the same as GDP in 2030, and sector GDP data are assumed based on expert
opinions) and other key data for each sector, greenhouse gas emission projection
until 2050 was carried out by the Joint Graduate School for Energy and
Environment (JGSEE) for the Thailand Greenhouse Gas Management Organization
(TGO). The study projected GHG emissions for three scenarios: business as usual,
power development plan 2010, and climate plan scenario (Chotichanathawewong
and Thongplew 2012).
140 Q. Chotichanathawewong

Table 6.4 CO2 emission by energy type (Unit 1,000 Tons)

Oil Growth Coal/lignite Growth Natural Growth Total Growth
rate (%) rate (%) gas rate (%) rate (%)
1988 36,609 13.9 9,824 3.0 9,777 20.0 56,210 12.8
1989 43,910 19.9 11,964 21.8 10,047 2.8 65,921 17.3
1990 53,221 21.2 16,594 38.7 9,987 −0.6 79,802 21.1
1991 56,495 6.2 19,425 17.1 12,835 28.5 88,756 11.2
1992 62,417 10.5 20,790 7.0 13,754 7.2 96,962 9.3
1993 70,672 13.2 23,109 11.2 15,601 13.4 109,382 12.8
1994 78,419 11.0 26,664 15.4 17,793 14.1 122,876 12.3
1995 88,777 13.2 30,339 13.8 18,576 4.4 137,692 12.1
1996 96,916 9.2 36,777 21.2 21,860 17.7 155,553 13.0
1997 95,440 −1.5 38,024 3.4 27,593 26.2 161,058 3.5
1998 85,309 −10.6 30,637 −19.4 29,400 6.6 145,345 −9.8
1999 84,552 −0.9 32,373 5.7 32,855 11.8 149,780 3.1
2000 79,242 −6.3 33,100 2.2 38,385 16.8 150,727 0.6
2001 75,082 −5.3 36,810 11.2 41,570 8.3 153,462 1.8
2002 78,851 5.0 39,244 6.6 45,377 9.2 163,472 6.5
2003 83,762 6.2 39,903 1.7 48,291 6.4 171,956 5.2
2004 91,671 9.4 44,763 12.2 50,902 5.4 187,336 8.9
2005 90,750 −1.0 48,333 8.0 53,404 4.9 192,486 2.8
2006 87,210 −3.9 51,313 6.2 54,613 2.3 193,136 0.3
2007 84,577 −3.0 57,629 12.3 58,232 6.6 200,439 3.8
2008 78,416 −7.3 62,154 7.9 62,624 7.5 203,195 1.4
2009 79,756 1.7 62,401 0.4 66,045 5.5 208,202 2.5
2010 80,694 1.2 63,856 2.3 75,833 14.8 220,383 5.9
2011 84,528 4.8 65,334 2.3 74,520 −1.7 224,382 1.8
2012 90,013 6.5 67,623 3.5 82,132 10.2 239,769 6.9
Notes (a) CO2 emission factors reference from IPCC 2006, (b) Emission estimation excluded
Bunker Oil for Oversea, Jet Oil for International Flight and Renewable Energy
Source Energy Policy and Planning Office (n.d.)

6.1.2.2 Business-As-Usual Scenario

Under the business as usual (BAU) scenario, GHG emissions from all economic
activities were estimated without any implementation of GHG emission reduction
activities. Key factors used to determine the GHG emissions projection under the
BAU scenario are GDP and electricity generation sources. The electricity genera-
tion source ratio is assumed to remain the same until 2050, with natural gas at 71 %
and coal at 20 % (Chotichanathawewong and Thongplew 2012). Other assumptions
and factors for the BAU scenario are in Table 6.7.
With such factors, Thailand’s greenhouse gas emissions under the BAU scenario
are estimated to be 498.7 million tons of carbon dioxide equivalent (MtCO2eq) in
2020, 715.2 MtCO2eq in 2030, 985.7 MtCO2eq in 2040, and 1,398.7 MtCO2eq in
Table 6.5 CO2 emission from energy consumption by sector (Unit 1,000 Tons)
Power generation Growth rate (%) Transport Growth rate (%) Industry Growth rate (%) Other Growth rate (%) Total Growth rate (%)
1988 18,380 11.5 21,047 16.3 9,419 10.9 7,364 8.8 56,210 12.8
1989 20,771 13.0 25,202 19.7 11,803 25.3 8,145 10.6 65,921 17.3
1990 28,149 35.5 28,354 12.5 14,460 22.5 8,838 8.5 79,802 21.1
1991 34,750 23.5 28,978 2.2 16,062 11.1 8,966 1.4 88,756 11.2
1992 37,799 8.8 30,912 6.7 18,775 16.9 9,476 5.7 96,962 9.3
1993 40,967 8.4 36,534 18.2 23,092 23.0 8,789 −7.2 109,382 12.8
1994 45,559 11.2 40,939 12.1 26,929 16.6 9,450 7.5 122,876 12.3
1995 49,014 7.6 48,211 17.8 31,031 15.2 9,436 −0.1 137,692 12.1
1996 56,887 16.1 52,711 9.3 35,211 13.5 10,744 13.9 155,553 13.0
1997 61,242 7.7 55,235 4.8 33,718 −4.2 10,863 1.1 161,058 3.5
1998 57,974 −5.3 46,741 −15.4 27,746 −17.7 12,884 18.6 145,345 −9.8
1999 59,659 2.9 46,893 0.3 29,455 6.2 13,774 6.9 149,780 3.1
2000 62,405 4.6 45,560 −2.8 29,267 −0.6 13,495 −2.0 150,727 0.6
2001 62,749 0.6 46,537 2.1 30,338 3.7 13,839 2.6 153,462 1.8
2002 65,265 4.0 49,245 5.8 34,352 13.2 14,609 5.6 163,472 6.5
2003 67,884 4.0 53,003 7.6 35,478 3.3 15,591 6.7 171,956 5.2
6 On the Dynamics of Low Carbon Green Growth in Thailand

2004 74,099 9.2 56,546 6.7 40,321 13.7 16,371 5.0 187,336 8.9
2005 76,893 3.8 57,520 1.7 42,599 5.7 15,474 −5.5 192,486 2.8
2006 81,028 5.4 54,831 −4.7 41,057 −3.6 16,220 4.8 193,136 0.3
2007 84,080 3.8 55,571 1.4 43,770 6.6 17,017 4.9 200,439 3.8
2008 85,160 1.3 52,538 −5.5 48,060 9.8 17,438 2.5 203,195 1.4
2009 83,231 −2.3 56,380 7.3 50,685 5.5 17,906 2.7 208,202 2.5
2010 89,965 8.1 57,587 2.1 54,173 6.9 18,658 4.2 220,383 5.9
2011 87,816 −2.4 59,215 2.8 57,477 6.1 19,873 6.5 224,382 1.8
2012 95,734 9.0 63,145 6.6 58,963 2.6 21,927 10.3 239,769 6.9
141

Notes (a) CO2 emission factors reference from IPCC 2006, (b) Emission estimation excluded Bunker Oil for Oversea, Jet Oil for International Flight and Renewable Energy
Source Energy Policy and Planning Office (n.d.)
142 Q. Chotichanathawewong

Table 6.6 Thailand gross domestic product projection (Unit Percent)

Year Low scenario Base scenario High scenario
2010 3.41 3.41 3.41
2011 3.88 4.02 4.28
2012 3.84 4.24 4.78
2013 3.50 4.06 4.24
2014 4.32 4.78 5.12
2015 3.97 4.46 4.83
2016 3.82 4.28 4.61
2017 3.85 4.28 4.60
2018 3.68 4.10 4.43
2019 3.75 4.15 4.49
2020 3.87 4.24 4.58
2021 3.82 4.18 4.53
2022 3.63 4.01 4.37
2023 3.60 3.95 4.31
2024 3.58 3.92 4.28
2025 3.58 3.92 4.28
2026 3.58 3.92 4.28
2027 3.58 3.92 4.28
2028 3.58 3.92 4.28
2029 3.58 3.92 4.28
2030 3.58 3.92 4.28
Notes Figures in the table represent GDP growth. GDP projection for each year is projected under
three scenarios (low scenario, base scenario, and high scenario). Each scenario reflects the
possibility of economic growth, e.g., the low scenario refers to low economic growth and high
scenario refers to high economic growth
Source National Institute of Development Administration (2010)

2050 (Chotichanathawewong and Thongplew 2012). Details of greenhouse gas

emission projections for the BAU scenario is in Fig. 6.8.

6.1.2.3 Power Development Plan 2010 Scenario

The Power Development Plan (PDP) 2010 scenario takes the PDP 2010 into
consideration for projecting greenhouse gas emissions. As a result, it is only the
power sector that shows any change from the BAU scenario. To extend this sce-
nario to 2050, the ratio of energy sources for electricity generation from 2031 to
2050 is assumed to be the same as the ratio in 2030 (Chotichanathawewong and
Thongplew 2012).
6 On the Dynamics of Low Carbon Green Growth in Thailand 143

Table 6.7 Key assumptions and factors for the business as usual scenario
Sector Assumptions and factors
Energy sector: transport Economic growth, population, crude oil price, economic crisis,
GDP growth 3.7 %
Energy sector: energy use Economic growth, population, crude oil price, coal price,
in industry electricity price, economic crisis, GDP growth 3.7 %
Energy sector: residence Economic growth, population, crude oil price, economic crisis,
GDP growth 3.7 %
Industry sector: cement Economic growth, clinker production is not more than 50 million
industry tons, GDP growth 4 %
Industry sector: iron Upstream iron production, middle and downstream iron
industry production, GDP growth 4 %
Agriculture sector: Economic growth, population, meat price, raw milk price, cow
livestock price, buffalo price, poultry price, GDP growth 3 % (equivalent to
4 % of national GDP)
Agriculture sector: rice Irrigated area, area of seasonal rice, fertilizer use
Agriculture sector: Irrigated area, area of double-crop rice fields, GDP growth 3 %
agricultural land (equivalent to 4 % of national GDP)
Agriculture sector: open Irrigated area, area of double-crop rice fields
burning
Land use change and Forest statistics, population
forestry sector
Waste sector Economic growth, population, GDP growth 4 %
Note: GDP gross domestic product
Source Joint Graduate School for Energy and Environment (2010)
Million Tones Carbon Dioxide equivalent

1,600
1,400
1,200
1,000
800
600
400
200
0
10 012 014 016 018 020 022 024 026 028 030 032 034 036 038 040 042 044 046 048 050
08

20
20

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Year

Electricity Generation Waste GDP LULUCF Industrial Process

Agriculture Transport Petroleum Refining ManuF. Industrial and Cons.
Comm and Residential Agriculture Forestry Fis

Fig. 6.8 Greenhouse gas emission projections under the business as usual scenario. Note
Agriculture Forestry Fis = agriculture, forestry, and fishery; Comm and Residential = commercial
and residential; LULUCF = land use change and forestry; ManuF. Industrial and
Cons. = manufacturing, industrial processes, and construction. Source Joint Graduate School for
Energy and Environment (2010)
144 Q. Chotichanathawewong

Table 6.8 Key assumptions and factors in the power development plan 2010 scenario
Sector Assumptions and factors
Power sector: PDP In 2020, natural gas at 55 % and coal at 12 % (including lignite at
2010 7.3 %)
In 2030, natural gas at 40 % and coal at 21 % (including lignite at
3 %)
From 2031 to 2050, the ratio remains the same as at 2030
Note: PDP power development plan
Source Joint Graduate School for Energy and Environment (2010)

Table 6.9 Estimated carbon dioxide emissions under the power development plan 2010, 2010–
2030
Year Estimated CO2 emissions (kgCO2/kWh)
2010 0.482
2011 0.471
2012 0.470
2013 0.462
2014 0.468
2015 0.448
2016 0.423
2017 0.408
2018 0.398
2019 0.401
2020 0.387
2021 0.374
2022 0.373
2023 0.381
2024 0.361
2025 0.341
2026 0.357
2027 0.354
2028 0.363
2029 0.367
2030 0.368
Note: kgCO2/kWh kilograms of carbon dioxide per kilowatt-hour
Source Electricity Generating Authority of Thailand (2010)

Under the PDP 2010, the power sector will undergo changes in terms of primary
energy sources-decreased use of natural gas and lignite and increased use of coal
(Table 6.8).
In the PDP 2010 scenario, it is estimated that the amount of greenhouse gas
emissions from electricity generation per kilowatt-hour (kWh) of electricity will
reduce from 0.482 kg of carbon dioxide (CO2) per kWh in 2010 to 0.368 kgCO2/kWh
in 2030 (Table 6.9) (Chotichanathawewong and Thongplew 2012).
6 On the Dynamics of Low Carbon Green Growth in Thailand 145

Million Tones Carbon Dioxide equivalent 1,400

1,200
1,000
800
600
400
200
0

2042
2044

2048
2050
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2008

2046
2010

2012
2014
2016

Year
Electricity Generation Waste GDP LULUCF Industrial Process
Agriculture Transport Petroleum Refining ManuF. Industrial and Cons.
Comm and Residential Agriculture Forestry Fis

Fig. 6.9 Greenhouse gas emission projections under the power development plan 2010 scenario. Note
Agriculture Forestry Fis = agriculture, forestry, and fishery; Comm and Residential = commercial and
residential; LULUCF = land use change and forestry; ManuF. Industrial and Cons. = manufacturing,
industrial processes, and construction. Source Joint Graduate School for Energy and Environment (2010)

With such expected changes in the power sector, greenhouse gas emissions from
the power sector are projected to increase due to the increasing electricity demand.
However, greenhouse gas emissions per kWh of electricity are projected to
decrease. As a result, national greenhouse gas emissions under the PDP 2010
scenario are estimated to be lower than in the BAU scenario, with 472.9 MtCO2eq
in 2020, 654.4 MtCO2eq in 2030, 899.5 MtCO2eq in 2040, and 1,276.5 MtCO2eq
in 2050 (Chotichanathawewong and Thongplew 2012). Details of greenhouse gas
emissions projected under the PDP 2010 scenario are in Fig. 6.9.

6.1.2.4 Climate Change Plan Scenario

The climate change plan scenario takes possible measures for greenhouse gas
emissions mitigation into account in predicting the future greenhouse gas emissions
profile. Mitigation measures include activities in electricity generation, industry
(industrial process and manufacturing industries), transport, commercial and resi-
dential sector, agriculture sector, land use change and forestry sector, and waste
sector (Chotichanathawewong and Thongplew 2012).
With a series of measures in many sectors, greenhouse gas emissions for each
sector are estimated to decrease. As a result, national greenhouse gas emissions under
the climate change plan scenario are estimated to be lower than in the BAU scenario
and PDP 2010 scenario, at 391.5 MtCO2eq in 2020, 497.1 MtCO2eq in 2030,
669.2 MtCO2eq in 2040, and 955.7 MtCO2eq in 2050 (Chotichanathawewong and
Thongplew 2012). The details of greenhouse gas emission projections for the climate
plan scenario are in Fig. 6.10.
146 Q. Chotichanathawewong

Million Tones Carbon Dioxide equivalent 1,200

1,000
800
600
400
200
0

-200
2010

2012
2014
2016
2018
2020
2022
2024
2026
2028

2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2008

Year

Electricity Generation Waste GDP LULUCF Industrial Process

Agriculture Transport Petroleum Refining ManuF. Industrial and Cons.
Comm and Residential Agriculture Forestry Fis

Fig. 6.10 Greenhouse gas emission projection under the climate change plan scenario. Note Agriculture
Forestry Fis = agriculture, forestry, and fishery; Comm and Residential = commercial and residential;
LULUCF = land use change and forestry; ManuF. Industrial and Cons. = manufacturing, industrial
processes, and construction. Source Joint Graduate School for Energy and Environment (2010)

Greenhouse Gas Emissions Reduction

GDP projections for Thailand for the next 40 years suggest that there will be
moderate economic growth. Increasing economic activity is likely to increase the
consumption of energy and increase greenhouse gas emissions, which are projected
to continue increasing under all three scenarios (Chotichanathawewong and
Thongplew 2012).
Table 6.10 compares greenhouse gas emissions under the BAU, PDP 2010, and
climate plan scenarios. In short, if Thailand can implement greenhouse gas emission
reduction measures as listed in the climate plan scenario, the level of greenhouse gas
emissions will be approximately 956 MtCO2eq in 2050. This is a reduction of 30 %
from the BAU scenario (Chotichanathawewong and Thongplew 2012).

Table 6.10 Greenhouse gas emissions and percent reduction for projection scenarios
Scenario 2020 2030 2040 2050
GHG Percent GHG Percent GHG Percent GHG Percent
emission reduction emission reduction emission reduction emission reduction
(MtCO2eq) from BAU (MtCO2eq) from BAU (MtCO2eq) from BAU (MtCO2eq) from BAU
BAU 498.7 715.2 985.7 1,398.6
PDP 472.9 5.2 654.4 8.5 899.5 8.7 1,276.4 8.7
2010
Climate 391.5 21.5 497.1 30.5 669.2 32.1 955.7 31.7
plan
Note: BAU business as usual, MtCO2eq million tons of carbon dioxide equivalent, PDP power development plan
Source Joint Graduate School for Energy and Environment (2010)
6 On the Dynamics of Low Carbon Green Growth in Thailand 147

6.2 Effectiveness of Current Policy Instruments—

Regulations, Technological, Fiscal and Financial

6.2.1 Existing Policies and Policy Effectiveness

of Low-Carbon Interventions

In Thailand, primary actions and pledges concerning greenhouse gas emissions

reduction are associated with power generation, alternative energy and energy
efficiency. Progress toward low carbon energy system is driven by Power
Development Plan (PDP), 10-Year Alternative Energy Development Plan (AEDP)
and 20-Year Energy Efficiency Development Plan (EEDP).

6.2.1.1 Power Development Plan (PDP)

The objectives of Power Development Plan 2010–2030 (PDP 2010) substantially

focused on security and adequacy of power system along with the policies of the
Ministry of Energy (MoEN) on the aspects of environmental concern, energy
efficiency and renewable energy promotion to be in line with the 15-Year
Renewable Energy Development Plan (REDP 2008–2021). Cogeneration system
was recognized to promote as the efficient electricity generation (Energy Policy and
Planning Office 2012).
In 2010, the recorded actual power demand (peak) of the country grew distinctly
more than the forecast and tended to increase continuously. In addition, the new
power plant construction of Independent Power Producers (IPP) as plan has been
postponed causing power system security to fall at risk influencing power reserve
margin (RM) into the level of smaller than the setting criteria or standards.
Accordingly, the MoEN set a framework for a short-term urgent relief (2012–2019)
by revising the power development plan (the PDP 2010) to be the one so called
PDP 2010 Revision 1 (Energy Policy and Planning Office 2012).
Due to an earthquake and tsunami occurred in the east coast of Japan in 2011, this
caused severe damages on nuclear reactors as well as radiation leak and contamination
on the Fukushima Daiichi Nuclear Power Plant. This disaster was highly recognized
by the public, affecting the trust in the Thailand’s nuclear power project development,
encouraging the MoEN to contemplate the postponement of scheduled commercial
operation date (SCOD) of the first unit on nuclear power project. As a result, the PDP
2010: Revision 2 was released to shift SCOD of the first unit on nuclear power project
forward by 3 years from 2020 to 2023 for the reasons of safety measures review,
legislation framework, regulatory framework and stakeholder involvement review as
well as additional supporting plans (Energy Policy and Planning Office 2012).
Overview of PDP 2010 Revision 3
The scope of the new government policies and the variation of current economic
situation induce changes and fluctuation in both power demand and supply.
148 Q. Chotichanathawewong

Therefore, to have clear vision on power supply acquiring, Thailand Power

Development Plan 2010–2030 (PDP 2010: Revision 3) is developed with crucial
issues as the following (Energy Policy and Planning Office 2012):
1. Forecasted power demand results approved by the Thailand Load Forecast
Subcommittee (TLFS) on 30 May 2012 are adopted within frameworks as the
following.
• Refer to the projected Thai Gross Domestic Products (GDP) and projected
Gross Regional Products (GRP) estimated by the Office of National
Economic and Social Development Board (NESDB), and issued on 29
November 2011, covering the economic acceleration policies and flooding
impacts at the end of 2011
• Refer to the approved 20-Year Energy Efficiency Development Plan 2011–
2030 (EE Plan 2011–2030) proposed by the MoEN
2. Alternative Energy Development is considered according to Alternative Energy
Development Plan: AEDP 2012–2021 to consume renewable energy and
alternative energy by 25 % instead of fossil fuels within the next decade.
3. Energy supply security including fuel diversification and suitable power reserve
margin level is taken into consideration.
The revised PDP or “Thailand Power Development Plan 2010–2030 (PDP
2010: Revision 3)” is suggested within the scope of the new government’s energy
policies frameworks as listed below (Energy Policy and Planning Office 2012).
1. The 20-Year Energy Efficiency Development Plan 2011–2030 (EE Plan 2011–
2030): this policy is targeting on 25 % reduction of energy intensity (ratio of
energy consumption to GDP) of the country within 20 years (2011–2030),
resulting in the decrease of country’s power demand projection on account of
energy saving programs and energy efficiency promotions.
2. The 10-Year Alternative Energy Development Plan 2012–2021 (AEDP 2012–
2021): this policy is targeting on increasing the share of renewable energy and
alternative energy uses by 25 % instead of fossil fuels within the next 10 years,
resulting in replacement of some planned conventional (fossil fuels as coal-fired
or gas-fired based) power plants by renewable power plants.
In addition, the government has set the new policies for economic stimulation,
causing trajectory changes in GDP growth rate projection during the year 2012–2020.
However, power demand forecast in terms of 2030 net peak demand is still stand at
about 52,256 Megawatt (MW) lower than that of the previous version of the forecast
around 3,494 MW (or 6.27 %) (Energy Policy and Planning Office 2012).
The total generating capacities during 2012–2030 can be summarized as the
following:
• Total capacity (as of December 2011) 32,395 MW
• Total added capacity during 2012–2030 55,130 MW
• Total retired capacity during 2012–2030 16,839 MW
6 On the Dynamics of Low Carbon Green Growth in Thailand 149

• Grand total capacity (at the end of 2030) 70,686 MW

PDP 2010 Rev 3 is projected to reduced CO2 emission in 2030 by 20 % in
comparison with the emission in 2012 from 0.478 to 0.385 kgCO2/kWh. In 2030, it
is projected that natural gas will account for 58 % of the total electricity generation,
following by renewable energy, imported coal, lignite and nuclear by 18, 12, 7 and
5 %, respectively (Energy Policy and Planning Office 2012).
The New Power Development Plan 2015
The New PDP 2015 is under the formulation process (Energy Policy and Planning
Office 2014a). There are 3 issues to consider which are:
1. New Electricity Load Forecast by considering mega project of the government,
government policy as well as result of the previous PDP
2. Drafting PDP 2015
(a) Fuel mix for electricity generation
(b) Environmental impact reduction
(c) Reserve margin of domestic electricity generation
(d) Zoning and distribution of electricity generation plant
3. Public participation

6.2.1.2 20-Year Energy Efficiency Development Plan (EEDP)

This 20-year Energy Efficiency Development Plan (EEDP) is formulated with an

aim to decrease energy intensity by 25 % in 2030, in comparison with that in 2010,
or equivalent to reduction of final energy consumption by 23 % in 2030, or about
38,200 thousand tons of crude oil equivalent (ktoe). The energy intensity will be
reduced from 15.6 ktoe/billion baht in 2010 to 11.7 ktoe/billion baht in 2030 as
shown in Fig. 6.10. The economic sectors with priority for implementing energy

Table 6.11 Target of 20-year energy efficiency development plan (EEDP) for each economic
sector
Economic sector Technical potential Target 2030
Electricity Heat Total Electricity Heat Total
(GWh) (ktoe) (ktoe) (GWh) (ktoe) (ktoe)
Industry 42,146 13,758 17,349 39,112 12,767 16,100
Transportation 22,528 22,528 16,800 16,800
Large commercial 27,416 405 2,741 23,007 340 2,300
building
Small com. 23,219 1,693 3,671 18,972 1,383 3,000
building and
residential
Total 104,182 38,548 47,426 81,116 31,288 38,200
Source Energy Policy and Planning Office (2011)
150 Q. Chotichanathawewong

Fig. 6.11 Target of 20-year energy efficiency development plan (EEDP). Source Energy Policy
and Planning Office (2011)

conservation measures are the transportation sector (16,800 ktoe in 2030) and the
industrial sector (16,100 ktoe in 2030) as shown in Table 6.11. Implementation in
pursuance of the EEDP will reduce energy expense up to 707 billion baht year−1,
and cumulative CO2 emission reductions at an average of 130 million tons annually
(Ministry of Energy (n.d.); Energy Policy and Planning Office 2011) (Fig. 6.11).
As shown in Fig. 6.12, both mandatory measures, via rules and regulations, and
supportive/promotional measures will be introduced. Major mandatory measures
include the enforcement of the Energy Conservation Promotion Act, B.E.
2535 (1992), as amended up to No. 2, B.E. 2550 (2007), the establishment of
Minimum Energy Performance Standards (MEPS) and energy efficiency labeling.
Emphasis will be placed on measures which will bring about market transformation
and energy consumers’ behavioral change, by enforcing energy efficiency labeling
for equipment/appliances, buildings and vehicles so as to provide options for
consumers. As for supportive and promotional measures, a major one will be the
Standard Offer Program (SOP), or funding for the amount of energy saving
achieved, which can be proven or assessed (Ministry of Energy n.d.; Energy Policy
and Planning Office 2011).
Large-scale energy businesses, e.g. those in the electricity, oil and natural gas
industry, will be required to implement energy conservation promotion measures to
encourage their customers to reduce energy use by a specified minimum standard
(Energy Efficiency Resource Standards: EERS), instead of allowing such measures
to be voluntarily undertaken as previously practiced. Assistance measures, both
financial and technical, will be provided for small operators, e.g. SMEs, particularly
the provision of funding via the Standard Offer Program (SOP) and technical
assistance via the Energy Efficiency Resource Standards (EERS). As the use of
motor vehicles is projected to continuously increase in the future, this EEDP
includes measures promoting the use of highly energy-efficient vehicles, e.g.
mandatory energy labeling, enforcement of MEPS and tax measures.
6 On the Dynamics of Low Carbon Green Growth in Thailand 151

Target: Reduce EI by 25% (38,200 ktoe) by 2030

(15.6 to 11.7) ktoe/million baht

Industry Transportation Large Commercial Small Commercial

(16,100 ktoe) (15,100 ktoe) Building Building & Residential
(3,600 ktoe) (3,400 ktoe)

1. Increase 1. Energy 1. Building Energy 1. Energy Labelling

Efficiency in Standard and Code 2. Energy Efficient
Production Labeling for 2. Energy Efficiency Home
Process Vehicle Building 3. Price and Tax
2. Specific Energy 2. Tax measures Development Measures
Consumption 3. Support Mass 3. Energy Label for
(SEC) Transport and Building
Efficient 4. Promote High EE
Logistic Equipment
5. Price and Tax
Measures

Integration
Mandatory Promote Support

1. Energy Conservation Act 1. Voluntary Agreement 1. Price and tax measure to

2. Energy Efficiency 2. Technology reduce GHG emission and
Resource Standard for Demonstration promote energy
large enterprise 3. Energy Expert conservation
4. GHG emission reduction 2. Financial incentive for
for economic and social energy conservation
activities 3. Develop capacity for
government agencies and
private sector

Fig. 6.12 Measures of 20-year energy efficiency development plan (EEDP). Source Department
of Alternative Energy Development and Efficiency (2014)

Responsibilities for energy conservation promotion will be distributed to all spheres

in society. The private sector will become an important partner and greater roles
will be entrusted to local administration organizations. In addition, government
agencies must set a good example of energy conservation practices (Ministry of
Energy n.d.; Energy Policy and Planning Office 2011).
New 20-Year Energy Efficiency Development Plan
The new 20-year Energy Efficiency Development Plan (EEDP) is developed with
an aim to reduce energy intensity by 30 % in 2036, compared with that in 2010, or
equivalent to the decrease of final energy consumption by 28 % in 2030, or around
57,400 thousand tons of crude oil equivalent (ktoe) as shown in Table 6.12. The
152 Q. Chotichanathawewong

Table 6.12 Comparison of target of previous and new 20-year energy efficiency development plan
Economic sector Target of 20-year EEDP Target of 20-year EEDP
(2011–2030) (2015–2036)
Industry 16,100 24,000
Transportation 16,800 10,700
Commercial building and 5,300 22,700
residential
Total 38,200 57,400
Source Pichalai (2014)

Reduce EI 30% from 2010

EI (2036)
220,000 10.9
Ktoe/Billion Bath
Final Energy Consumption (ktoe)

EI (2030)
202,000
200,000 11.7
Ktoe/Billion Bath
180,000
57,400
162,715
160,000
EI (2010) Reduce 30%
38,200 144,600
140,000 15.6
Ktoe/Billion Bath Reduce 25%
124,515
120,000

100,000

80,000 71,166

60,000
2010 2030 2036

Fig. 6.13 Target of new 20-year energy efficiency development plan. Source Pichalai (2014)

energy intensity will be reduce from 15.6 ktoe/billion baht in 2010 to 10.9
ktoe/billion baht in 2036 as shown in Fig. 6.13.
The economic sectors with priority for implementing energy conservation
measures are the transportation (22,700 ktoe in 2036) and industrial (24,000 ktoe in
2036) sector as shown in Table 6.12.
The target of EEDP (2015–2036) can be achieved through measures in general
(Pichalai 2014) which are:
1. The use of integrated measures such as mandatory, support and incentive.
2. The use of broad impact measures to trigger behavior change.
3. Public–private partnership in promoting and implementing energy conservation.
4. The use of energy expert and energy service company as key mechanisms.
5. The increase use, promotion and support of domestic energy efficient technol-
ogy and product.
6 On the Dynamics of Low Carbon Green Growth in Thailand 153

6. Increase energy efficiency standard to the international level.

7. Intensively promote the use of energy efficient standard to support energy
security in the ASEAN region.
These measures can be achieved through five strategies for all sectors (Pichalai
2014) which are:
1. The use of rules and regulations.
2. The promotion of the development of technology and innovation.
3. The promotion and support of energy conservation.
4. Capacity building and institutional development.
5. Awareness raising and behavior change.

Effectiveness of EEDP
From 2011 to 2013, as a result of various measures toward EEDP, the total energy
saving is 1,668 ktoe or equal to 41,711 million baht (Department of Alternative
Energy Development and Efficiency 2014). The results of these measures are as
follow.
• Energy efficiency project which covers 5,200 industries and 2800 buildings resulted
in the cumulative energy saving at 1,421 ktoe or equal to 35,525 million baht.
• Energy Efficiency Standard and Labeling project resulted in the cumulative
energy reduction at 119.80 ktoe or equal to 2,995 million baht.
• Investment promotion project through ESCO fund resulted in the cumulative
energy saving at 25.60 ktoe or equal to 640 million baht.
• The investment subsidy project resulted in the cumulative energy reduction at
26.90 ktoe or equal to 672.50 million baht.
• The building energy code project resulted in the cumulative energy saving at
5.90 ktoe or equal to 147.50 million baht.
• Energy conservation promotion project through ESCO mechanism resulted in
the cumulative energy reduction at 56.91 ktoe or equal to 1,422.75 million baht.
• The promotion of energy conservation project in SMEs resulted in the cumu-
lative energy saving at 12.33 ktoe or equal to 308.50 million baht.

6.2.1.3 Years Alternative Energy Development Plan (2012–2021)

(AEDP)

Thailand’s alternative energy is 11.76 % in 2014. However, the target of 10 Years

Alternative Energy Development Plan (2012–2021) is proposed at one-fourth of the
total in 2021. The target of electricity generation from alternative energy is
13,927 MW in 2021, at the present, the electricity generation from alternative
energy is about 4,500 MW as shown in Table 6.13.
154 Q. Chotichanathawewong

Table 6.13 Electricity target from alternative energy

Type of Solar Wind Water Biogas Energy Biomass Waste New Total
energy crop energy
Plan (MW) 3,000 1,800 324 600 3,000 4,800 400 3 13,927
Result (MW) 1,288 224 142 313 – 2,452 66 0.3 4,485.3
Source Department of Alternative Energy Development and Efficiency (n.d.)

Table 6.14 Heat energy target from alternative energy

Type of energy Solar Biogas Biomass Waste Total
Plan (ktoe) 100 1,000 8,500 200 9,800
Result (ktoe) 5 496 5,153 98 5,752
Source Department of Alternative Energy Development and Efficiency (n.d.)

Table 6.15 Biofuel target from alternative energy

Type of energy Ethanol Biodiesel BHD CBG Total
Plan (ML/Day) 9 7.2 3 1,200 ton/day 19.2
Result (ML/Day) 3 3 – – 6
Source Department of Alternative Energy Development and Efficiency (n.d.)

For heat energy, the target is 9,800 ktoe from alternative energy in 2021.
Currently, heat energy from alternative energy is about 5,700 ktoe as shown in
Table 6.14.
For biofuel, the target is 19.2 ML/Day from alternative energy in 2021. At the
present, biofuel from alternative energy is 6 ML/Day as shown in Table 6.15.
The AEDP will increase the percentage of using alternative energy to 25 % or
25,000 ktoe of the final energy consumption in 2021, resulting in the decrease of
emission about 76 MtCO2 by 2021 and CDM benefit is worth 23,000 Million Baht.
AEDP will replace the fossil fuel and oil import with alternative energy, strengthen
the security of energy and promote using energy for green community, encourage
the alternative energy technology production from domestic industry and support
the R&D alternative energy technology for international competition (Department
of Alternative Energy Development and Efficiency n.d.).
New 20 Years Alternative Energy Development Plan (2015–2036)
The new AEDP target is to have the percentage of alternative and renewable energy
at 25 % of the final energy consumption in 2036. The electricity generation from
alternative energy aims at 16,728 MW in 2036 as shown in Fig. 6.14. The target
percentage of alternative energy development and other energy sources in accor-
dance with PDP 2010 (rev3) and PDP 2015 is shown in Table 6.16.
The new AEDP is under development process by considering key issues as
follows.
6 On the Dynamics of Low Carbon Green Growth in Thailand 155

Fig. 6.14 Electricity generation target of the new AEDP. Source Energy Policy and Planning
Office (2014b)

Table 6.16 Percentage of alternative energy development and other energy sources
PDP 2015 PDP 2010
(rev 3)
Fuel type September 2014 2026 2036 2030
(percentage) (percentage) (percentage) (percentage)
Exported hydro 7 10–15 15–20 10
power
Clean coal (include 20 20–25 20–25 19
lignite)
Renewable energy 8 10–20 15–20 8
Natural gas 64 45–50 30–40 58
Nuclear – – 0–5 5
Diesel/fuel oil 1 – – –
Source Energy Policy and Planning Office (2014b)

1. Potential assessment of each region in the country.

2. Merit order by comparing cost of electricity generation.
3. Barrier and limitation such as grid capacity.
The initial target is to have electricity generation from alternative energy feeding
into grid at 20 % in 2036. This will result in the formulation of the AEDP for each
region. From the initial study, alternative energy which has high potential electricity
generation is shown in Table 6.17.
Feed-In Tariffs in Thailand
Without policy support, not all sources of renewable energy are commercially
competitive. Consequently, policy is the main driver in the deployment of renew-
able energy, and good policy design is necessary if the deployment of renewable
156 Q. Chotichanathawewong

Table 6.17 Driving factor and limitation of electricity generation potential from alternative
energy
Waste Biomass Solar Biogas from energy
crop
• National Council for Peace and • Main alternative • High interest by • Mix with animal
Order (NCPO) gives energy of the general public manure to generate
precedence to be a national country • High cost electricity at
policy • Low cost and • Limitation in terms of 3,000 MW
• Waste problems in many easy to manage stability and • Zoning policy to
provinces that need urgent • Snatching reliability separate energy crop
action problem • Promote solar roof and food crop area
• Legislation such as town resulting in high top in urban area • Proper FIT
planning and public–private cost • Development of
partnership • Biomass which financial mechanism
• The role of local administrative is difficult to such as leasing
organization collect has high program
• FIT should support project cost
development • Promote fast
growing crop
• Solve
transmission line
problem
Source Srichuay (2014)

energy is to be efficient, effective, and sustained. In 2006, a premium feed-in tariff

was initiated in Thailand known as the “adder.” Initially the adder was determined
by competitive bidding; this procedure preferred low-cost technologies using
agricultural and forestry wastes as fuels. In 2007, the regime was revised to
encourage more investors. The upper limit on very small producers was increased
to 10 MW, the scheme of adders was set more complex and differentiated according
to source, targets were made by source, and special incentives were introduced for
the three southern most provinces that were affecting by a local power shortage and
where investors perceived some political risk. In June 2010, as a result of the falling
cost of photovoltaic systems, the cabinet passed a resolution to stop accepting solar
installation applications and to massively reduce the adder for solar plants for those
projects that had not signed power purchase agreements. The resolution changed
the tariff from a premium tariff to a fixed feed-in tariff in which the payments to
generators are no longer affected by electricity prices (Lucas 2014).
Thailand has adjusted the feed in tariff rate to increase the competiveness of
renewable energy as shown in Tables 6.18, 6.19 and 6.20).
Industrial waste that is subsidized for FiT rate must not be industrial waste from
organic substances such as waste from manufacturing process which consists of
organic component and can be degradable by bio-degradable process.
Effectiveness of AEDP
Based on the current percentage of energy consumption from renewable energy, the
AEDP has proved to be a successful plan in promoting renewable energy and
alternative energy development. As of September 2014, energy consumption from
6 On the Dynamics of Low Carbon Green Growth in Thailand 157

Table 6.18 Feed in tariff rate of industrial waste (2015–2019)

Generating FiT (baht/unit) FiT premium (baht/unit)
capacity FiTf FiTv, FiTa Subsidy Industrial waste The project in three
(MW) 2017 period project (first 8 southern border provinceb
(year) Years) (lifetime)
(1) Power plant developed from industrial waste incinerator (existing before 4 February 2015) and
located in industrial parkc
All sizes of 2.39 2.69 5.08 20 0.70 0.50
VSPP
(2) New power plant located in industrial park or industrial park for industrial waste managementc
All sizes of 3.39 2.69 6.08 20 0.70 0.50
VSPP
(3) New Plasma technology power plant located in industrial park or industrial park for industrial
waste managementc
All sizes of 3.39 2.69 6.08 20 1.70 0.50
VSPP
a
FiTv will continuously increase according to core inflation
b
Projects in Yala, Pattani and Narathiwat Province and four districts of Songkhla province which are
Chana, Thepa, Sabayoi and Nathawee
c
Industrial waste power plant that is subsidized by the above FiT rate can use hazardous and
non-hazardous waste for power generation. The disposal of hazardous waste must be certified by
Ministry of Industry
Source Energy Policy and Planning Office (2015)

Table 6.19 Feed in tariff rate of solar power

Generating capacity (MWp) Previous adder and fit rate FiT rate in 2014
Adder/FiT rate Subsidy FiT rate Subsidy
(baht/unit) period (baht/unit) period
(year) (year)
Ground installation solar farm
 90 MWp Adder 8.0 10 5.66 25
decreased to 6.5
Roof installation (solar home)
 10 kWp FiT 6.96 25 6.85 25
Roof installation (business building/manufacturing)
>10–250 kWp FiT 6.55 25 6.40 25
>250–1,000 kWp FiT 6.16 25 6.01 25
Ground installation for government (Existing 25 5.66 25
agency and agricultural cooperative community solar
project)
–FiT 9.75 year
1–3
–FiT 6.50 year
3–10
–FiT 4.50 year
3–10
Source Energy Policy and Planning Office (2014a)
158 Q. Chotichanathawewong

Table 6.20 Feed in tariff rate of other renewable energy (except solar)—FiT rate for very small
power producer (VSPP)
Generating capacity FiT (baht/unit) Subsidy FiT premium (baht/unit)
(MW) FiTF FiTV,2017 FiTa period Biofuel Three southern border
(year) (first 8 provinceb (lifetime)
years)
(1) Waste (integrated waste management)
Capacity  1 MW 3.13 3.21 6.34 20 0.70 0.50
Capacity > 1–3 MW 2.61 3.21 5.82 20 0.70 0.50
Capacity > 3 MW 2.39 2.69 5.08 20 0.70 0.50
(2) Waste (landfill) 5.60 – 5.60 10 – 0.50
(3) Biomass
Capacity  1 MW 3.13 2.21 5.34 20 0.50 0.50
Capacity > 1–3 MW 2.61 2.21 4.82 20 0.40 0.50
Capacity > 3 MW 2.39 1.85 4.24 20 0.30 0.50
(4) Biogas 3.76 – 3.76 20 0.50 0.50
(wastewater/waste)
(5) Biogas (energy 2.79 2.55 5.34 20 0.50 0.50
crop)
(6) Hydro power
Capacity  200 kW 4.90 – 4.90 20 – 0.50
(7) Wind energy 6.06 – 6.06 20 – 0.50
a
FiT Feed in Tariff, b Thailand consists of 77 provinces. Three southern border province gets high rate
because situation of these province is not stable
Source Energy Policy and Planning Office (2014b)

renewable energy and alternative energy is at 11.76 % of total energy consumption

which comprises of electricity consumption at 4,485.3 MW, heat consumption at
5,752 ktoe and biofuel at 6 million l day−1. This resulted in lowering GHG
emissions, creating green job toward green economic growth and bettering energy
security through more energy mix.

6.2.2 Thailand’s Post 2020 Climate Actions Under Intended

Nationally Determined Contributions (INDCs)

Thailand has not officially submitted its INDC to the UNFCCC as it is under the
process of preparation by the Office of Natural Resources and Environmental Policy
and Planning (ONEP). INDC preparations in Thailand have been funded by
Germany, Australia, the GEF, and Thailand’s national budget, enabling stakeholder
consultations and a political process. However, Ministry of Natural Resources and
Environment, revealed that Thailand has already achieved a 12 % reduction in the
6 On the Dynamics of Low Carbon Green Growth in Thailand 159

greenhouse gases emission although it is not on the list of countries with urgent
reduction of GHG in energy and transportation sectors. He furthered that the
intention has prompted Thailand to adjust its Power Development Plan (PDP) and
power consumption in the industrial, agricultural and forestry sectors. Therefore,
the country plans to reduce GHG emission by at least 12–29 % by 2030 (National
News Bureau of Thailand 2015).
For the mitigation component, Thailand’s INDCs will be developed based on
NAMAs and will likely be on the basis of GHG reduction targets of the BAU. The GHG
countermeasures in Thailand’s INDCs will be obtained from the official national policies
and plans (e.g. Renewable Energy Plan, Energy Efficiency Development Plan,
Environmentally Sustainable Transport System, and others) (Somnam 2014). In terms of
Ministry of Industry aspect, Thailand’s INDCs development will be based on
Technology Needs Assessment (TNA), Technology Action Plan (TAP) and Climate
Public Expenditure and Institutional Review (CPEIR) (Sirinapaporn 2015).

6.3 Regional Cooperation Needs/Contribution

6.3.1 Need for and Contributions to Regional Cooperation

(Market and Non-market)

The energy demand drivers such as population and economic growth, and urban-
ization are having significant impact on ASEAN. ASEAN’s population is about 620
million and is growing at an average rate of 1.45 %. As the economies and pop-
ulation increase, energy demand will grow. According to the International Energy
Agency (IEA), from 2007 to 2030, primary energy demand in ASEAN is projected
to grow from 513 to 903 Mtoe, accounting for an average growth rate of 2.5 % per
annum. ASEAN governments have introduced a number of regional initiatives to
secure affordable, secure and environmentally sustainable energy sources. There is
a drive among ASEAN member countries to diversify their energy mix away from
fossil fuels and depending more on renewable energy (Sundram 2014).
ASEAN members should look at solving issues affecting cooperation in the
energy sector and find ways to resolve them. ASEAN members should accelerate
regional cooperation for pursuing low-carbon green growth which includes free
trade in low-carbon technology and services, pooling of regional public and private
financial resources, integration of carbon markets, strengthening regional innova-
tion systems and collective learning and capacity building. In addition, ASEAN
members should also stimulate the development of cleaner fuel sources and energy
trading. ASEAN members would have to drive for the removal of tariff and non-
tariff barriers and harmonization of standards and labeling to facilitate trade and
160 Q. Chotichanathawewong

investment in renewable energy as well as energy efficiency. Innovative develop-

ment in the energy sector will need to be encouraged whether through joint regional
cooperation and private funding in research and development.

6.3.1.1 Free Trade in Low-Carbon Technology and Services

Low carbon technology and services that are directly related to energy cooperation
in the framework of the ASEAN Free Trade Agreement, particularly energy
cooperation of the ASEAN Plus Three (ASEAN Plus Three: APT), which began in
September 2002. APT is a group of countries that consumed energy about 27 % of
the total energy consumed in the world (according to the information from BP
company in 2007). A form of energy that is mostly consumed in these countries is
oil which has limited reserve, only 2.5 % of the total world’s oil supply (Faculty of
Economics, Chulalongkorn University 2013). The energy ministers of the APT
countries have agreed on five main issues.
1. Creating network on emergency energy security
2. Oil stockpiling
3. Cooperative study on regional oil market in APT countries
4. Development of natural gas exploration system
5. Energy efficiency and renewable energy development
Current energy cooperation among countries in APT has progressed with an
emphasis on cooperation between the parties and to stabilize the price of energy in
the region. The APT Energy Security Communications System was set up in the
event of an emergency outage and the creation of a Working Group OSRM to assist
countries in the region with the corresponding provision of oil reservation by the
year 2020 to be able to borrow oil used each other. In the event of an emergency
shortage of oil, this must be based on the willingness of the lender. Incidentally,
among the ASEAN +3, Japan and Korea have a reserve of oil for almost 40 years
already. For the ASEAN countries which are Indonesia, the Philippines, Singapore,
Vietnam and Thailand, the oil deficit targets are obvious. While another group
including Brunei, Cambodia, Myanmar and Lao PDR cannot set a reserve target of
oil and may show their intention to set up specific target of oil reservation under the
rough timeframe (Faculty of Economics, Chulalongkorn University 2013).
In addition, APT countries have also supported the creation of a database of oil
(Joint Oil Data Initiative: JODI) and have signed an MOU to build a regional natural
gas pipeline in 2002 (although at present it is only a natural gas pipeline that connects
Malaysia, Singapore and Indonesia). There is also a regional cooperation on civilian
nuclear energy project and Clean Development Mechanism (CDM) (Faculty of
Economics, Chulalongkorn University 2013).
Overall, ASEAN has a problem with the high cost of energy and environmental
technology development. As a result, the amount of electric generation is still
limited and insufficient for export. Due to the electricity consumption in the region
6 On the Dynamics of Low Carbon Green Growth in Thailand 161

increased steadily, ASEAN should have a policy for regional technological research
and development in the region in a systematic way such as establishing a fund for
capacity building and advance technology transfer (Sugie 2014). For optimizing the
low carbon energy development, all sectors need to focus on environmental pro-
tection and manufacturing technologies such as clean coal technology, control
systems for nuclear power, the exchange and transfer of technologies that reduce
pollution (Low carbon technology) through mechanisms. These are the free trade
on environmental technologies, protecting intellectual property, the development to
provide access to the financial market of the country, effectively as well as the
development to increase absorptive capacity. In addition, to maximize the effec-
tiveness of technology transfer in the region, the national energy policy should be
harmonized and linked to other policy areas such as technology, trade and finance
and promoting free trade and accelerating investment in advance technology and
innovation and the development of international trade network in the region
(Koyama 2014).
Cooperative Enhancement
Further from the trade of goods and services, another key issue in the FTA is to
enhance cooperation among member countries (Cooperative Enhancement). The
developed countries or countries with a higher level of development will offer
assistance to developing countries or countries with a lower level of development.
For trading, the enhancement of cooperation did not look like the trade of goods
and services. There is no request and offer, but it could be that the providers do not
benefit directly and may occur without donor countries and recipient countries have
trade agreements with each other (Faculty of Economics, Chulalongkorn University
2013).
Generally, the framework of trade agreement has no clear description on the
cooperative enhancement. The enhancement of cooperation can be divided into
categories which are cooperation on small and medium-sized enterprises (SMEs),
investment promotion and facilitation, trade facilitation, transport and communi-
cations, good governance, government, information exchange and intellectual
protection rights. Specific cooperation in each sector includes environment, energy,
construction, agriculture, forestry and fisheries and cooperation on labor standards
and human resource development and capacity building (Faculty of Economics,
Chulalongkorn University 2013).
FTA Impact on CO2 Emission
In the case of ASEAN +3 as the base for FTAAP, the impacts on Thailand are as
follows (Faculty of Economics, Chulalongkorn University 2013).
• In the short term, this will lead to an increase in CO2 emissions at 0.6 %,
equivalent to 1.3 mtCO2.
• In the long term, this leads to an increase of 11.2 % in CO2 emissions, equiv-
alent to 24.3 mtCO2.
162 Q. Chotichanathawewong

• When considering only the impact of ASEAN +6 free trade and no FTAAP, it was
found that the free trade of ASEAN +3 will result in the increase in Thailand CO2
emissions by 0.6 % in the short term and by 9.4 % in the long run.
In the case of ASEAN +6 as the base for the liberalization FTAAP affect
Thailand as follows (Faculty of Economics, Chulalongkorn University 2013).
• In the short term, this leads to an increase in CO2 emissions at 0.7 %.
• In the long term, this leads lead to an increase in CO2 emissions at 11.4 %.
• When considering only the impact of ASEAN +6 free trade, it was found that
the free trade of ASEAN +6 will result in the increase in Thailand CO2 emis-
sions by 0.8 % in the short term and by 9.8 % in the long run.
In the case of the TPP as a base for free trade (in case of both Thailand join and
not join TPP), the result of FTAAP is as follows(Faculty of Economics,
Chulalongkorn University 2013).
In short term, Thailand CO2 emissions will increase by 0.6 % or 1.3 million
tonnes due to the expansion of household consumption (increase by 1.8 million
tonnes) while there will be a reduction in CO2 emission of manufacturing sector
(decrease by 5.3 million tonnes) caused by the significant shrinkage of air transport
and chemical, rubber and plastic product.
In the long term, FTAAP will result in the increase in CO2 emissions by 11.1 %
or 24 million tones. CO2 emissions on the rise (long term) by 92 % will occur in the
manufacturing sector, while 8 % will occur in the household sector. In manufac-
turing sector, the increase in CO2 emissions will come from electricity generation at
40 %, heavy industry at 23 % and transport (including water and air, etc.) at 17 %
and the remaining 20 % will come from other sectors (Fig. 6.15).

Fig. 6.15 Impact of FTAAP on CO2 emission. Source Faculty of Economics, Chulalongkorn
University (2013)
6 On the Dynamics of Low Carbon Green Growth in Thailand 163

FTA Impact on CO2 Emissions in the Services Sector

In short, free trade of the services sector at 20 % will increase CO2 emission by
0.04 %. This causes by the increase in CO2 emissions of household sector by 0.42
million tons due to the increase in household consumption. While there will be a
reduction in CO2 emission of manufacturing sector at 0.33 million tons as a result
of the reduction in CO2 emission of electricity sector by 0.96 million tons, the
increase in CO2 emission of other transports by 0.39 million tons and water
transport by 0.12 million tons (Faculty of Economics, Chulalongkorn University
2013).
In the long term, free trade of the services sector at 20 % will increase CO2
emission by 1.1 %. This causes by the increase in CO2 emissions of manufacturing
sector by 82 % and consumption by 18 %. The increase in CO2 emissions of the
manufacturing sector will mainly come from transport sector such as other trans-
ports, air transport, water transport as well as heavy industry sector and chemical,
rubber and plastic products. While there will be a reduction in CO2 emissions of
electricity sector due to the increased productivity from free trade resulting in the
less energy consumption for production (Faculty of Economics, Chulalongkorn
University 2013).
For Thailand, rather than the opening of free trade in the multilateral level under
the framework of World Trade Organization (WTO), Thailand conducted Free
Trade Agreement (FTA) in the regional level under ASEAN Free Trade Area
(AFTA) and in bilateral level with other countries which have 10 effectual free trade
agreements (Faculty of Economics, Chulalongkorn University 2013). Furthermore,
there are 1 reached agreement, 2 under negotiation and 4 in negotiation break as
shown in Table 6.21.
Key Barriers in Liberalizing Low Carbon Energy Trade and Services in AEC
The main barrier in liberalizing low carbon energy trade and services in AEC is the
lack of harmonization of standard and testing procedure of low carbon energy
product and technology as well as the lack of low carbon energy and technology
capacity in AEC countries. In addition, there is no clear framework and agreement
on low carbon energy trade and services liberalization. Low Carbon Energy Trade
and Services in AEC is only a cooperative enhancement which aims to enhance
cooperation among member countries. The developed countries or countries with a
higher level of development will offer assistance to developing countries or
countries with a lower level of development. For trading, the enhancement of
cooperation is not a trade negotiation of products and services. There is no request
and offer, but it could be that the providers do not benefit directly and may occur
without donor countries and recipient countries have trade agreements with each
other. Generally, the framework of trade agreement has no clear description on the
cooperative enhancement (Faculty of Economics, Chulalongkorn University 2013).
164 Q. Chotichanathawewong

Table 6.21 Status of Thailand free trade agreement

Effectual agreement Reached agreement Under negotiation Negotiation
break
• AFTA (1 Mar 93) • Thailand–Chile (concluded the • Thailand–India (the • Thailand–
• Thailand–India (1 negotiation in Aug 12 and is in rest product service USA
Sep 04 only Early ongoing internal process of the two and investment) • Thailand–
Harvest Product) countries for prepare for the • Thailand–Peru (the EFTA
• Thailand–Australia agreement) rest product service • ASEAN–
(1 Jan 05) and investment) European
• Thailand–New Union
Zealand (1 Jul 05) • BIMSTEC
• ASEAN–China (20
Jul 05)
• Thailand–Japan (1
Nov 07)
• ASEAN–Japan (1
Jun 09)
• ASEAN–Korea (1
Jan 10)
• ASEAN–India (1
Jan 10)
• ASEAN–New
Zealand and
Australia (12 Mar
10)
• Thailand–Peru (31
Dec 11 only Early
Harvest Product)
Source Faculty of Economics, Chulalongkorn University (2013)

6.3.1.2 Managing the Regional Financial Support

International low carbon financing opportunities are open for ASEAN and Thailand to
support these countries to reduce carbon emission. Especially for small and medium
enterprises (SMEs) which play a critical role in the growth and success of their
economies. Access to financial support for SMEs can sometimes be challenging and
often restricted. This is particularly relevant to SMEs attempting to access finance to
fund environmental improvements at an operational level such as reducing carbon
footprints or water consumption; implementing energy efficiency, environmental
management systems or cleaner production techniques; or developing waste man-
agement strategies (Rabhi 2015). International financial sources in this region are:
1. Under UNFCCC
• The Global Environmental Facility (GEF);
– Allocates about USD250 Million per year in grant for climate change
projects.
– For LDCs, financing is provided from: > Least Development Countries
Fund (LDCF) > Special Climate Change Fund (SCCF).
6 On the Dynamics of Low Carbon Green Growth in Thailand 165

• Clean Development Mechanism (CDM);

• Green Climate Fund.
2. Financing opportunities under other international organizations.
• World Bank
– Investment Framework for Clean Energy and Development (IFCED).
– Clean Energy Financing Vehicle (CEFV) to blend Public‐Private source
of financing.
– Clean Energy Support Fund (CESF) to provide subsidies in line with the
extent of carbon emission reductions.
3. Financing opportunities at regional level
• ADB: Energy Efficiency Improvement Program;
• Islamic Development Bank: Equity Financing;
• European Bank for Reconstruction and Development (EBRD): Sustainable
Energy Financing Facilities (SEEFs).
4. Financing Opportunities from Japan
4:1 Join Credit Mechanism (JCM) Scheme
4:2 JICA: Low-Carbon and Climate Resilient Development Cooperation

Enhance Thailand’s Energy Conservation (ENCON) Fund to the Regional

Thailand Energy Conservation (ENCON) Fund aims to foster the expansion of EE
and RE, R&D, human resources development, public education and campaigning
projects by mobilizing and leveraging additional investments in mitigation projects.
The Fund was sourced from a tax on all petroleum sold in the country and has been
disbursed through a number of different economic and financial mechanisms,
including grants, subsidies, tax incentives, a feed-in premium for renewable energy,
the Energy Efficiency Revolving Fund (EERF) and the ESCO Fund. There are three
major financial programs to encourage energy efficiency under the ENCON Fund,
namely the Energy Efficiency Revolving Fund, the ESCO Fund and tax incentives
(Jue et al. 2012; The Institute for Industrial Productivity n.d.). Through time,
ENCON Fund has proved to be a successful mechanism in promoting EE and RE in
Thailand in which the fund has potential to be replicated in other countries and
scaled up to ASEAN region. However, lessons learned have emerged which reflect
drawbacks and can help to improve the fund operation.
Thailand’s Energy Efficiency Revolving Fund and its Effectiveness
The Revolving Fund is a soft loan, offering capital investment which has a maxi-
mum interest rate of 4 % for a maximum loan period of 7 years. Commercial banks
have involved as the implementing partners of the Revolving Fund scheme which is
monitored by DEDE. The EERF was successful in stimulating local bank financing
166 Q. Chotichanathawewong

of projects in a previously avoided sector and familiarizing banks with EE/RE

technology financing. Consequently, the EERF was phased out since banks were
adequately familiar with EE/RE lending practices and could continue without gov-
ernment support. DEDE still provides technical support, particularly for projects with
new technologies in order to address the associated performance risks (Irawan et al.
2012; Jue et al. 2012). By the end of the EERF program, 13 public and local banks
participated in the program resulted in 294 projects. The total investment was THB
15,959.05 million. The total GHG emissions reductions and financial savings were
0.98 mtCO2eq and THB 5,394 million per year. The current ratio for financial con-
tribution for lending was 1:1 between DEDE and the banks. However, the private
sector finance ratio steadily increased over time (Irawan et al. 2012; Jue et al. 2012).
Thailand’s Energy Service Company (ESCO) Fund and its Effectiveness
The ESCO fund scheme has an initial budget of THB 500 million to target potential
investors for small projects in EE improvement and RE development, mostly to be
implemented by SMEs. The Energy Conservation Foundation of Thailand (ECFT)
and Energy for Environment Foundation (E for E) are the two fund managers.
The ESCO Fund offers six funding assistance instruments for project developers
(Jue et al. 2012; Irawan et al. 2012) which are:
1. Equity investment—Equity investments allow project developers to sell a specified
amount of a project to investors, in return for a stake in the project’s future profits.
2. Venture Capital (VC) for ESCOs—The ESCO VC is a mechanism for
co-investment in existing ESCOs to increase the registered capital of the
company for new investments.
3. Equipment Leasing—This mechanism allows the ESCO Fund manager to carry
out an equipment purchase agreement with an ESCO, and eliminates the need
for project developers to invest directly in new technology equipment upgrades.
4. Credit Guarantee Facility—The credit guarantee facility is modeled after
Thailand’s state-owned Small Business Credit Guarantee Corporation (SBCG)
which is supervised and run by the Ministry of Finance. The SBCG provides
partial credit guarantees to commercial banks for loans to small enterprises
eligible for debt financing.
5. Carbon Credit Facility—The ESCO Fund will support project owners in
developing CDM documents, Project Idea Note (PIN) and Project Design
Document (PDD), and help to bundle small projects so that buyers are willing to
purchase the carbon credits from the projects.
6. Technical Assistance—The ESCO fund will provide financial support for
technical assistance such as energy audit and feasibility study.
The ESCO Fund has proved to be a successful mechanism in promoting EE/RE
projects. It aimed to alleviate the credit and project risks. The benefit of this structure
has resulted in a lower required rate of return for financing. The ESCO Fund expe-
rienced a very low default rate since projects are held to extremely stringent eligibility
criteria and undergo a thorough approval process. The projects should be well
6 On the Dynamics of Low Carbon Green Growth in Thailand 167

structured, employ proven technology from top-tier vendors (regardless of price), have
strong operation and financial co-equity investors, a financially strong project host
with consistent operational record, and a clear exit strategy for the Fund managers (Jue
et al. 2012).
Lesson Learned on Thailand’s ENCON Fund and Chance to Implement
Regional ENCON Fund
The ENCON Fund has been crucial to Thailand’s AEDP and Energy Efficiency
Master Plan. Progressively, it can evolve and encourage larger growth in renewable
energy production, and will be instrumental to achieving the 25 % RE supply target
of AEDP. Nevertheless, limits on the financing terms remains a challenge for
scaling up large and capital-intensive RE projects. This can be overcome by
restructuring the ESCO Fund by extending lending period and expanding financing
caps. However, financial institutes remain reluctant to offer loan period more than
7–10 years, while in reality many RE projects have useful lives between one to
three decades (Jue et al. 2012). These challenges could also be addressed through
government intervention which are:
• Reduced time in the ESCO Fund government approval process to expedite the
lending process (typically a drawdown period of 45–60 days).
• Provide larger financial incentives for projects with higher capital costs and
longer project life spans.
• The creation of more incentives for technological innovation.
In the past decade, the availability of financing to EE/RE has improved signif-
icantly while the political signals warrant even more investment in these sectors,
and having an already experienced banking and public financing structure, the
government has enabled a structure for public private partnerships (Jue et al. 2012).
The ENCON fund has received much attention at the international level particularly
given its success in financing the promotion of EE and the increased RE share in the
total energy mix in Thailand. The Revolving Fund, for example, has been men-
tioned as one of the best financial instruments in Asia-Pacific related to EE and RE
(Irawan et al. 2012). In the future, projects could be financed using a combination of
domestic, public, multi-lateral, bilateral, regional and international financing to
execute larger scale projects, and to actualize the goals set forth in the
Thailand AEDP 10-year plan, other countries’ EE/RE plan and any regional plan on
EE and RE cooperation (Jue et al. 2012). Therefore, the ENCON Fund should be
replicated by other countries and scaled up to ASEAN region.

6.3.1.3 Integration of Voluntary Carbon Markets

Thailand’s 11th National Economic and Development Plan (2012–2016) foresees

the establishment of a carbon market. Various programs have been initiated and/or
are currently under development. Among those, the voluntary carbon market under
168 Q. Chotichanathawewong

Table 6.22 Structure of voluntary carbon market in Thailand

Voluntary emission Thailand voluntary Thailand voluntary
reduction projects emission reduction emission trading scheme
(VER) program (T-VER) (Thailand V-ETS)
Type Project-based Project-based Cap-and-trade
Eligibility Emission reduction Energy efficiency, etc. Industrial sector
projects,
pre-registered CDM
MRV International Domestic ISO
standards (VCS, GS, 14064-1/14064-3/14065
etc.)
Carbon VERs TVERs Allowances
credit
Registry Standard owners T-VER ETS
Buyers International buyers Government/CSR Entities/traders
companies/CSR
companies/brokers
Source Lohsomboon (2013), Thailand Greenhouse Gas Management Organization (2013)

implementation in Thailand covers Thailand Voluntary Emission Trading

Scheme (Thailand V-ETS) and Thailand Voluntary Emission Reduction Emission
Reduction Program (T-VER) (Haug 2014; Peters-Stanley 2012). Voluntary Carbon
Market (VCM) in Thailand aims to support voluntary GHGs reduction activities,
encourage private companies, who attempt to reduce their GHG emissions,
implement cost effective GHGs reduction activities and learn how to manage
domestic emission trading scheme/carbon offsetting program (Lohsomboon 2013;
Thailand Greenhouse Gas Management Organization 2013). Structure of VCM in
Thailand is summarized in Table 6.22.
Potential of VCM at the Regional level
In Thailand, carbon trading under the CDM does not increase because the market
price is not conducive while voluntary market is slowly increasing according to
private sector interest. There are some large private sectors used carbon credits to
enhance the corporate image, particularly the issue of energy conservation,
renewable energy generation and reforestation such as Ratchaburi Electricity
Generating Holding, PTT and Electricity Generating Authority of Thailand. There
is also an issue of carbon reduction for promoting the corporate and product image
through the product that has received carbon reduction label in order to demonstrate
that the product has reduced greenhouse gas emissions for both production process
and life cycle. The carbon credit practices and carbon reduction product led by high
profile companies in Thailand can be replicated by other large enterprise in other
countries and scaled up by multinational companies in ASEAN region.
6 On the Dynamics of Low Carbon Green Growth in Thailand 169

6.3.1.4 Coalition for Regional Innovation Systems

Thailand and ASEAN region should emphasize on enhancing potential of low

carbon emission and adaptation technology in four areas which are:
– Research and development (R&D)
– Manufacturing
– S&T commercialization (ASEAN focuses less on this area)
– Standardization and Certification in monitoring tools, laboratory and
technologies
Regional cooperation on low carbon emission and adaptation technology in
these four areas should base on context and production expertise of each country in
responding to regional and international market.
Prioritized Technologies for low carbon emission and adaptation
From the writer’s experiences and researches with Asian Development Bank and
National Science Technology and Innovation Policy, prioritized technologies in
Thailand and ASEAN are in Table 6.23.
A good example of Coalition for Regional Innovation Systems is the Smart
Community project led by Japan. Ministry of Economy, Trade and Industry of
Japan encourages Smart Community project or Demonstration City of New Energy
System Management by following the new strategy plan for New Growth Strategy
which intent to lead Japan to become the environmental technology and energy
leader. Japan helped partner countries such as Thailand, Myanmar (Dawei) and
Malaysia to establish the “Smart Community” for effective energy management in
while each activity depends on each countries potential and interest. For Thailand,
now there is the IE Smart Community which is an exchange center of advance
technology and automotive part manufacturing industry, production and develop-
ment of green industry and medical equipment. This aims to attract Japanese SMEs
which relate to Thailand policy that emphasizes advance technology and environ-
mental protection (Sugie 2014). In the long run, it will help increase productivity,
reduce cost and strengthen sustainable development in the region.

6.3.1.5 Partnership for Collective Learning and Capacity Building

The institutional capacity building and education should be focused and imple-
mented serious in ASEAN countries in order to disseminate practical knowledge
and experiences on the policy, implementation, methodologies, techniques and
approaches regarding low carbon energy system and technologies to all responsible
agencies in ASEAN countries. The institutional capacity building programme or
center would aim (United Nations Economic and Social Commission for Asia and
the Pacific 2010):
170 Q. Chotichanathawewong

Table 6.23 Prioritized technologies in Thailand and ASEAN

Energy
Energy supply • Smart Grid
• Industrial
–Energy Efficiency
–Waste to energy
–Innovative technologies
–Energy Transformation
–Smart Grid
Renewable energy technology • Waste to power (power generation)
• Biogas
• Second generation biofuels
• Cheap solar energy
Energy efficiency • Fuel Combustion in industry sector
improvement • Equipment (e.g. heating and cooling system)
• Management control system (e.g. VSU)
• Cogeneration
• Heat loss from electrical and control equipment
• Green manufacturing
• Electric and hybrid vehicles
• Cheap autonomous housing
• Ubiquitous information access
• Lighting system
• High energy efficient air conditioner
Transportation • Eco-car by local company
• Eco-bus
Energy related climate change • Carbon capture and storage (CCS)
technology
Adaptation technology
Agriculture • Equipment for weather forecast and measuring soil
condition etc.
• Management of plants that are suitable for each season
• Increase yield of food and energy crop such as palm oil,
sugar cane, rice and fruit
Water resource management –
Warning system • Rural wireless communications
• Communication system
• Risk measurement system
Source National Science Technology and Innovation Policy 2015

• To provide ASEAN governments, NGOs and non-profit organizations with a

clearer understanding of policy and activity on low carbon energy system and
regional cooperation;
• To learn, share and discuss best practices of successful energy policies and
action plans implemented by the ASEAN countries;
• To provide learning opportunities to enhance the ASEAN participants’ under-
standing of the evolution and implementation of low carbon energy system that
may find suitable application in the ASEAN member countries and;
6 On the Dynamics of Low Carbon Green Growth in Thailand 171

• To identify the needs and gap analysis for a regional cooperation towards low
carbon energy system and among ASEAN countries.
There are five target stakeholders that should be accompanied as follows.
• Governments—All levels of government should increase their abilities in dif-
ferent and suitable skill, it may include the ability to: (i) Develop and enforce
policy, legal and regulatory frameworks; (ii) Incorporate low carbon green
growth approaches into national policy, legislation and institutions;
(iii) Mobilize national and international resources and determine the most effi-
cient, equitable and effective allocation of those resources; and (iv) Transform
policy to implementation and monitor, evaluate and adjust work plan to achieve
the aims.
• SMEs—Small and medium-sized businesses should be increased their capacity
and helping to use new or existing knowledge to green their operations and take
advantage of the opportunities in the green economy. It should provide SMEs in
a database containing practical and current information that can then assist and
support SMEs in improving environmental performance to achieve green
technologies and accessing finance for projects and activities that are dedicated
to improve. SMEs should understand what types of financing solutions and
products exist and how to successfully apply for and secure such funds.
• NGOs/CSOs—NGOs and CSOs is a channel to build public understanding and
jointly monitor any development that took place creatively. They can help in
finding solutions for the utilization of energy and the reduction of greenhouse
gas emissions. NGOs and CSOs can provide information and prepare the public
to deal with disasters and emerging changes. This will strengthen the commu-
nity at the grassroots level to participate in GHG emission reduction and climate
change adaptation.
• Local Financial Institutions—Local financial institutions should be assisted in
both capacity and expertise building, in particular to facilitate more informed
decision-making in the financing and lending process. Financial institute should
have knowledge in evaluating low-carbon technology which is suitable for each
activity and emission type.
• Workforce—The workforce should have skills and capacity in green and
low-carbon economy. For shifting from fossil fuels to renewables, new jobs will
be created, some will be removed, others will be substituted and many will
simply be transformed and redefined as daily skill sets, work methods and
profiles are greened. One of the major constraints to greening the economy in
industrialized and developing countries is the lack of knowledge, skills and
expertise. It is essential to provide capacity building to the current workforce
that lacks the skills and knowledge required for green jobs and to prepare the
future worker to take on the jobs that will be in demand in a green economy,
which should include any level of worker (United Nations Economic and Social
Commission for Asia and the Pacific 2012).
172 Q. Chotichanathawewong

Education and Awareness Raising

Apart from capacity building, education and awareness raising can play a key role
in promoting ASEAN towards low-carbon green growth. Education for sustainable
development should be an emphasized. The issues of energy, environment,
ecosystem and the impact of its imbalance should be appropriately integrated into
school curriculum according to education level. In addtiton, there should be an
awareness raising activities for all sectors in order to understand the country’s
energy situation, effects of greenhouse gas emission and how to reduce GHG
emissions. Awareness raising will result in the reduction in energy consumption
through the use of energy efficient and environmentally friendly technology and
equipment, and changing behavior towards sustainable consumption and
production.

6.3.1.6 Other Regional Cooperation Opportunities

Energy Trading
Regional cooperation to strengthen national policies on energy security has three
major ways. The first is to share information and knowledge to foster policy
development. The second is by agreeing common policies using shared knowledge
and information. The third is by developing subregional markets in gas and elec-
tricity by genuine interconnection of national grids, and agreement on competitive
subregional markets (Lucas 2014).
A good example of sub regional cooperation for energy security is the estab-
lishment of the regional power coordination centre in the Greater Mekong
Subregion (GMS). It is important to the countries development to have the elec-
tricity trade in GMS such as the reduction in energy reserve investment for peak
demand, the reduction in administration cost, having reliable sources of power
which have low GHG emissions and low cost. This will contribute to competi-
tiveness, effectiveness and efficiency and sustainable economy of the GMS coun-
tries (Energy Policy and Planning Office n.d.).
Based on the GMS strategic framework (2012–2022), there was a progress in the
energy trading development. The private sector is accepted to have a significant role
for the support and development of energy investment and the intention to support
the RPCC framework to foster the economic viability of energy infrastructure
investment. Additionally, it is essential to provide capacity building in terms of
energy development and trading, administration, environmental concerns and sus-
tainable approaches for GMS countries. Consequently, regional power coordination
centre in the Greater Mekong Subregion should (1) facilitate and coordinate the
electricity system development cooperation to be unified, (2) clearly illustrate the
payback period and mutual benefits come from fair energy trading and (3) provide
energy services that have economic value and reliability to electricity consumers in
the member countries (Energy Policy and Planning Office n.d.).
6 On the Dynamics of Low Carbon Green Growth in Thailand 173

Role of Thailand in GMS Cooperation

Priority regional cooperation for both hardware and software improvements across
the energy sector have been identified as part of a GMS ‘Energy Road Map’.
Thailand as a member of GMS has many roles towards this roadmap include
(i) promoting sustainable regional power trade planning, coordination, and devel-
opment; (ii) improving energy efficiency through demand-side management and
energy conservation; and (iii) promoting the development of renewable energy and
policies toward renewable energy development and energy efficiency (Greater
Mekong Subregion—Environment Operations Center n.d.).
One of the good examples of GMS cooperation is the power trade development
to help each country meet their energy demands. For Thailand and Lao PDR, they
signed an energy trade agreement of 18,000 MW under which several regional
power trade investments (such as Nam Theun II Hydroelectric Project and Theun
Hinboun Hydropower Project) were successfully implemented. The benefits of such
collaboration are: (i) to replace Thailand’s coal-fired power plants with clean energy
electricity from Lao PDR; and (ii) to coordinate the different demand peak times of
bordering countries to meet each others’ energy needs without adding new gen-
eration capacity (Asian Development Bank Institute 2012).
Thailand Prospective/Experienced Position on Regional Energy Trade (bilat-
eral and multilateral)
Vast energy resources in Yunnan Province of the China and in the Lao PDR are
currently under development or have already been commissioned. Myanmar also
has vast potential for hydropower development, with many projects now at the
planning and construction stage. Most of this energy will likely be exported to
Thailand and Viet Nam (Greater Mekong Subregion—Environment Operations
Center n.d.). The status of Thailand Energy Trade in ASEAN between 2013 and
2019 is shown in Tables 6.24, 6.25, 6.26, 6.27 and 6.28.
From Thailand’s perspective and experience on regional energy trade, there are
some barriers to the realization of regional energy trade which is unequal readiness
of ASEAN countries such as existing infrastructures and different characteristics of
transmission systems and economic constrains (Sumranwanich 2014). Furthermore,
there are some lessons learned and recommendations as follows (Sumranwanich
2014).
• Development of transmission system interconnections between Thailand and
neighboring countries requires a Driver, such as Demand and Supply. Each
country has to develop power plants to supply enough power to its own demand.
When a country has higher economic growth, the demand will be higher than
supply; this will drive more transmission system interconnection among the
neighboring countries.
• Countries with high demand may compete in power purchase, such as Thailand,
China, Vietnam, Malaysia but though the transmission network of Thailand.
Thailand is located in the position to be a leader in the market.
174 Q. Chotichanathawewong

Table 6.24 Thailand—Lao PDR energy trade

List of projects Capacity SCOD
(MW)
1. Completed projects
1.1 Theun-Hinboun 220 Mar 1998 2,111 MW
1.2 Houay Ho 126 Sep 1999
1.3 Nam Theun 2 948 Apr 2010
1.4 Nam Ngum 2 597 Mar 2011
1.5 Theun-Hinboun— 220 Dec 2012
Expansion
2. PPA signed projects and under construction
2.1 Hong Sa 1,473 Jun, Nov 2015–Mar 3,316 MW
2016
2.2 Xe Pian Xe Namnoy 354 Feb 2019
2.3 Xayaburi 1,220 Oct 2019
2.4 Nam Ngiep 1 269 Jan 2019
Total 5,427
Note From 2020–2030: The maximum of power import from neighboring countries should not
exceed 15 % of Thailand’s total generating capacity
Source Sumranwanich (2014)

Table 6.25 Thailand—Myanmar energy trade

Power development potential projects Capacity (MW)
1. Potential projects
1.1 Hutgyi 1,190 11,559 MW
1.2 Dawei (import coal) Phase 1 1,800
1.3 Mai Khot (Lignite) 369
1.4 Mong Ton 7,000
1.5 Tanintayi 600
1.6 Yawathit 600
2. Projects on Salween River
2.1 Upper Salween River project 4,000 4,500 MW
2.2 Lower Salween River project 500
Total (1 + 2) 16,059
Remark Every projects are hydroelectric projects except Mai Khot and Dawei Projects
Source Sumranwanich (2014)

Table 6.26 Thailand—Cambodia energy trade

Power development potential projects Capacity (MW)
1. Stung Meteuk (Hydro) 94
Total 94
Source Sumranwanich (2014)
6 On the Dynamics of Low Carbon Green Growth in Thailand 175

Table 6.27 Thailand—China energy trade

Power development potential projects Capacity (MW)
1. System to system 3,000
Total 3,000
Source Sumranwanich (2014)

Table 6.28 Thailand—Malaysia energy trade

Existing power purchase project Capacity (MW)
1. Sadao–Chuping 85 1982
2. Khlong Ngae–Garun (HVDC) 300 2001
Total 385
Project under negotiation Capacity (MW)
1. Sungai Kolok–Rantau Panjang 100
Total 100
Source Sumranwanich (2014)

• Interconnection requires the system development in networking and sharing the

same standard; neighboring countries of Thailand needs more time and
investment. Thailand has the opportunity to invest in transmission system and
related electricity infrastructure.

Thailand Prospective/Experienced Position on the Proposed Lao PDR–

Thailand–Malaysia–Singapore Energy Connectivity
Lao PDR has proposed to the ASEAN ministerial meeting a pilot project to explore
the possibility of power interconnectivity from Lao PDR to Singapore. At the pre-
sent, Lao PDR exports power to Cambodia, Thailand and Vietnam, but also wants to
sell electricity to Singapore where the electricity price is higher. The scheme could
further enhance multi-lateral electricity connection beyond bordering countries to
support the realization of the ASEAN Power Grid (Vientiane Times 2014).
Singapore has agreed in principle to purchase 100 MW of power from Lao PDR
under the pilot project, while Thailand has agreed to allow Lao PDR to use its
power transmission lines in which Lao PDR would export electricity to Singapore
via the transmission networks of Thailand and Malaysian. The agreement was made
as the Lao-Thai Joint Commission convened their 19th meeting in Vientiane
(Vientiane Times 2014; Times Reporters 2015). The agreement, in which Thailand
permits Lao PDR to use its transmission lines, derived after senior energy officials
from the four countries met in Vientiane in January 2015 for their second working
group meeting towards the four countries’ power interconnection project (Vientiane
Times 2014; Times Reporters 2015).
The next steps are to conduct an economic study and related procedures, and
consider the relevant laws of the four countries (Vientiane Times 2014; Times
176 Q. Chotichanathawewong

Reporters 2015). The MOU on Lao-Thailand-Malaysia-Singapore Power

Interconnectivity Project is proposed to be signed in ASEAN Ministers of Energy
Meeting in October 2015 (Thai News Agency 2015).
Thailand Expectation from AEC and RCEP towards Green Growth
Transitioning to green growth is crucial for AEC and RCEP. Many tasks remain to
prove that investment in the environment creates long term added value for society
and promote economic prosperity. It is essential to understand the current needs—
and opportunities—and to focus efforts on assisting member countries working to
advance green growth in AEC and RCEP. Some key issues include:
• For AEC and RCEP, there should be cooperation in requesting for technology
and financial assistance from developed countries and international organiza-
tions, particularly creating green job and stimulating inclusive growth and
reducing GHG emissions in all sectors, including business, public and house-
hold sector. This is because climate change mitigation and adaptation and green
growth development in developing countries require “additional budget”, apart
from normal budget (Sutummakid n.d).
• To establish indicators to monitor progress in green growth implementation
(World Wide Fund for Nature 2014).
There are some interesting issues that should be seriously and continuously
emphasized which are the vision of politicians (both local politicians and national
politicians) and accurate knowledge and awareness of all sectors in the country (and
neighboring countries in ASEAN) in order to move forward into “Green Society”
and “Sustainability” in the future through understanding, fairness and at the same
time assisting low-income people (Sutummakid n.d).
Energy Efficiency Standard and Labelling
One tool at policymakers’ disposal which addresses the growth in electricity
demand is a program of Energy Efficiency Standards and Labeling for electrical
equipments (ES&L). The aim of such a program is to increase consumer demand
for high-efficiency electrical equipments, and to remove the most inefficient prod-
ucts from the market. Such programs have demonstrated themselves as highly cost
effective means of reducing energy demand, thus avoiding the large capital
investments associated with growing generation capacity. More specifically, over
the last 10 years, a large number of ASEAN countries have implemented successful
ES&L programs and continue to expand and improve them (Nexant SARI/Energy
2003).
Harmonization of Energy Efficiency Standard and Labeling
Within ASEAN, some ES&L programs are already implemented, others are cur-
rently being introduced, and still others are in the developing stage. The harmo-
nization of ES&L will reduce energy consumption in ASEAN countries. Regional
6 On the Dynamics of Low Carbon Green Growth in Thailand 177

ES&L Harmonization should aim at laying the groundwork for facilitating the
planned regional ES&L harmonization beginning with test procedures, and finally
energy standards & labels (United Nations Development Programme n.d.). The
possible tasks might include:
• Design/development of policies, implementing rules and regulations related to
the harmonization and mutual recognition of ES&L test protocols in ASEAN.
• Development of market monitoring program for a regional energy efficient
equipment and appliance, which will be implemented collectively by the
ASEAN countries
• Development of a promotion program for worldwide recognition of regionally
produced ES&L program-compliant equipment/appliances
• Methodology and tool development (universal impact calculator, impact
assessment methodology, data survey protocols, program evaluation protocol)
• Evaluation of the impacts (e.g., on national and regional trade, energy savings
from the implementation of ES&L programs at the national and regional levels)

Center for ES&L

The effective implementation of ES&L programme in ASEAN should be supported
by the establishment of regional cooperation center for ES&L. This will be an
ES&L information hub, training center and exchanging and sharing platform of
ASEAN countries and with other interested countries in the Asian Region.
Therefore, it concerns with interrelating the activities of ES&L agencies, practi-
tioners and information centers on a national or international scale. For the first
order of networking, it should also targets to identify, build upon and work actively
with the other networks in the ASEAN and Asian countries for ES&L-related
information exchange and share. There should be those targeted to establish a
system of information and technical assistance interchange on an international level
as the second order networks, and there should be those which involve systems for
linking the ES&L regional cooperation center with national and international
agencies, information centers and funding supports as the third order networks. The
concern with second and third order networks is recognized as the processors and
disseminators of information are faced with the difficulty of managing the infor-
mation transfer that results from the ES&L activities of the ASEAN countries on
their own and with their other development organizations and partners (United
Nations Development Programme n.d.).
The concept of international or national network systems reflects the intention to
make the outputs of the industrial community more readily available to a larger
number of potential users of ES&L-related information, and to conduct this more
efficiently by establishing methods which will reduce the effort duplication. As a
result, this is important because all of us are aware of the duplication that exists and
of the high price that is paid (United Nations Development Programme n.d.).
178 Q. Chotichanathawewong

Environmental Governance
The environmental governance in regional energy trade in ASEAN should be
addressed to ensure that there is no environmental and social costs of power import
projects. According to the study of Carl Middleton, he stated that Thailand’s
existing energy import from hydropower projects in Lao PDR and a gas project in
Myanmar have not exported environmental governance associated with energy
generation across borders, exploiting the comparatively weak rule of law, judicial
systems, and civil and political freedoms in ASEAN countries.
This lack of environmental governance has caused biodiversity loss and envi-
ronmental impacts significantly reduced fishery catches, loss of vegetable gardens,
fishing nets and other assets, riverbank erosion, and downstream flooding bringing
about loss of wet season rice crops. It is also a source of pollution resulting in health
impacts and community relocation (Middleton 2012).
Nevertheless, for such projects to be equitable and sustainable, it requires a
markedly deeper commitment on government sides and project developers to secure
and enforced environmental legislation, legally binding commitments to influenced
communities, and the capability for communities to access information, participa-
tion, and justice—including across borders. Benefit sharing to surrounding com-
munity, community involvement, project information disclosure, environmental
impact assessment (EIA) preparation, and compensation and relocation with
livelihood restoration for affected communities are the crucial elements of envi-
ronmental governance (Middleton 2012).

6.3.2 Institutional Measures Needed

In order to sustainably promote the low carbon energy system and regional coop-
eration, the establishment of responsible agency would be a key mechanism as well
as the provision of capacity building is needed. This agency should include the
institutional capacity building programme or center. The recommendations under
this issue are provided as the following (United Nations Economic and Social
Commission for Asia and the Pacific 2010).
• The independent agency that responds directly for leading the low carbon
energy system implementation should be established. This agency should have
operational flexibility, continuity, and independence from external effects. The
dedicated agency would bring about effective improvements in all processes.
Nevertheless, it should cooperate extensively with, and coordinate the work of
the relevant agencies in ASEAN countries. Low carbon energy system imple-
mented by independent agency might be more effective in terms of shorter
operational period of time, more flexible and transparency.
• The responsible agency should expand cooperation regarding low carbon energy
system by building institutions, strengthening private sector participation,
6 On the Dynamics of Low Carbon Green Growth in Thailand 179

enhancing awareness of the public and industry, and promoting markets for
energy efficient products.
• To ensure effective and efficient operation of, the new agency, there should be
an establishment of a dedicated funding mechanism that can effectively foster it.
Likewise, laws and regulations need to be launched to foster the authority and
implementation of this new independent institution.
The international organizations and network can help to achieved low carbon
energy system and regional cooperation as implementation of low carbon energy
system requires sustainable energy practices in different dimensions.

6.4 Recommendations

This chapter has explained the economic, energy and emission profile of Thailand
and provided the analysis on business as usual and low-carbon energy policy
scenarios up to 2030. Existing policies and policy effectiveness of low-carbon
interventions are reviewed and need for and contributions to regional cooperation
(market and non-market) and institutional measures needed to achieve low-carbon
energy system are recommended. The recommendations on Thailand low carbon
energy system and regional cooperation has already been discussed throughout the
chapter. Therefore, this chapter summarizes the key recommendations as follow.
Most Effective Policies in Thailand in Reducing Carbon Emissions
For the supply side, the most effective policy to reduce GHG emission is the
implementation of 10-years Alternative Energy Development Plan (AEDP) as the
percentage of power generation from renewable energy in Thailand has increased
from about 4–12 % over the past 10 years. For the demand side, the implemen-
tation of 20-years Energy Efficiency Development Plan (EEDP) is the most
effective policy for GHG emissions reduction as there are successful measures have
been and being practiced through the involvement of businesses and government
agencies in transportation, industrial, commercial building and residential sectors.
The successful measures are energy management in building and manufacturing,
energy efficiency standard and labeling for appliances, tax incentive, ENCON fund,
feed in tariff and awarding system.
Need for and Contributions to Regional Cooperation (Market and
Non-market)
Free Trade in Low-Carbon Technology and Services
• For optimizing the energy development, all sectors need to focus on environ-
mental protection and manufacturing technologies such as clean coal technol-
ogy, control systems for nuclear power, the exchange and transfer of
technologies that reduce pollution (Low carbon technology) through
180 Q. Chotichanathawewong

mechanisms. These are the free trade on environmental technologies, protecting

intellectual property, the development to provide access to the financial market
of the country, effectively as well as the development to increase absorptive
capacity.
• To maximize the effectiveness of technology transfer in the region, the national
energy policy should be harmonized and linked to other policy areas such as
technology, trade and finance and promoting free trade and accelerating
investment in advance technology and innovation and the development of
international trade network in the region.
Managing the Regional Financial Support
• Thailand’s ENCON Fund should be replicated in other countries and scaled up
to regional level.
• Thailand’s ENCON Fund should provide larger financial incentives for projects
with higher capital costs and longer project life spans.
• ESCO Fund should be restructured by extending lending period and expanding
financing caps and reducing time in the ESCO Fund government approval
process to expedite the lending process.
Integration of Voluntary Carbon Markets
• There are some large private sectors used carbon credits (energy conservation,
renewable energy generation and reforestation) and carbon reduction products to
enhance the corporate image. This practice led by high profile companies in
Thailand can be replicated by other large enterprise in other countries and scaled
up by multinational companies in ASEAN region.
Coalition for Regional Innovation Systems
• Thailand and ASEAN region should emphasize on enhancing potential of low
carbon emission and adaptation technology in Research and development
(R&D), Manufacturing, S&T commercialization (ASEAN focuses less on this
area) and Standardization and Certification in monitoring tools, laboratory and
technologies.
• Regional cooperation on low carbon emission and adaptation technology should
base on context and production expertise of each country in responding to
regional and international market.
Partnership for Collective Learning and Capacity Building
• The institutional capacity building and education should be focused and
implemented serious in ASEAN countries in order to disseminate practical
knowledge and experiences on the policy, implementation, methodologies,
techniques and approaches regarding low carbon energy system and technolo-
gies to all responsible agencies in ASEAN countries. Target stakeholders should
cover governments, SMEs, NGOs/CSOs, local financial Institutions and
workforce.
6 On the Dynamics of Low Carbon Green Growth in Thailand 181

Other Regional Cooperation Opportunities

• Energy Trading
• Development of transmission system interconnections between Thailand and
neighboring countries. Thailand is located in the position to be a leader in the
market.
• Interconnection requires the system development in networking and sharing
the same standard; neighboring countries of Thailand needs more time and
investment. Thailand has the opportunity to invest in transmission system
and related electricity infrastructure.
• Energy Efficiency Standard and Labeling
• Design/development of policies, implementing rules and regulations related
to the harmonization and mutual recognition of ES&L test protocols in
ASEAN.
• Development of market monitoring program for a regional energy efficient
equipment and appliance, which will be implemented collectively by the
ASEAN countries.
• Environmental Governance
• Governments and project developers should secure and enforce environ-
mental legislation, legally binding commitments to influenced communities,
and the capability for communities to access information, participation, and
justice—including across borders. Benefit sharing to surrounding commu-
nity, community involvement, project information disclosure, environmental
impact assessment (EIA) preparation, and compensation and relocation with
livelihood restoration for affected communities are the crucial elements of
environmental governance.

Institutional Measures Needed

The independent agency that responds directly for leading the low carbon energy
system implementation should be established. The responsible agency should
expand cooperation regarding low carbon energy system by building institutions,
strengthening private sector participation, enhancing awareness of the public and
industry, and promoting markets for energy efficient products. To ensure effective
and efficient operation, this agency should have operational flexibility, continuity,
and independence from external effects and have more authority with law
enforcement and a dedicated funding mechanism that can effectively foster it.
182 Q. Chotichanathawewong

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Chapter 7
Functional Characteristics of Low Carbon
Energy Systems and Need for Regional
Cooperation in Vietnam

Pham Khanh Toan, Nguyen Duc Cuong and Tran Thi Thu Huong

7.1 Preamble

This chapter presents an initial overview analysis and assessment of low carbon
technology development need in Vietnam energy in the period to 2030. In order to
meet carbon technology development demand in coming time, apart from identified
internal efforts,1 Vietnam needs expansion and enhancement of bilateral and mul-
tilateral cooperation at regional level to exchange, share information, experience,
successful lessons as well as technology transfer and from which step-by-step
establish and develop low carbon technology market based on background and
legality of existing policies on energy conservation and energy efficiency, devel-
opment of renewable energy and substitute energy and shifting from high carbon
fuels to low carbon fuels, etc. Analysis and assessment of low carbon development
has important focus on identification of existing activities and policy measures

This research was conducted as a part of the project of the Economic Research Institute for
ASEAN and East Asia (ERIA) “Low-carbon Energy Systems and Regional Cooperation”. The
authors would like to express appreciation to/for the Economic Research Institute for ASEAN
and East Asia and Dr. Venkatachalam Anbumozhi. The authors are deeply indebted to the
members of this project for their invaluable suggestions The views expressed in this chapter are
those of the authors and do not necessarily reflect the views of the institutions they belong and
ERIA.

1
Vietnam Green Growth Strategy, Decision of Prime Minister in 2012.

P.K. Toan (&)
N.D. Cuong

Institute of Energy and Environment of Vietnam, Hanoi, Vietnam
e-mail: [email protected]
T.T.T. Huong
Australian National University, Canberra, Australia

© Springer Science+Business Media Singapore 2016 185

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_7
186 P.K. Toan et al.

related to exploitation, conversion and use of energy in integrity with GHG

emission reduction.
This chapter starts with reviewing interactive relation between economic
development and energy demand as well as tendency of GHG emission. It shows
that Vietnam GHG emission increase in past 16 years (1994–2010) was 5.5 times.
Tendency of GHG emission increase in energy sector will be remained at high
growth rate for the coming period (GHG emission level in 2030 will be 5 times of
that in 2010) if there is no strong promotion of effective applying low carbon
technologies. This forecast increase of GHG emission is mainly due to use of coal
in electricity generation, with negligible share of renewable energies in energy
structure and high share of low efficient energy consumption and conversion
technologies. Share of electricity generated by coal will be increased three times,
from 18 % in 2010 to 52 % in 2030. Meanwhile share of hydro-electricity is
forecast reduced from 38 % in 2010 to 12 % in 2030. Increase of coal use for
electricity production with high fuel consumption rate of old technologies is
anticipated to make increase of GHG emissions, accounting for two thirds of total
GHG emissions of Vietnam during 2011–2030.
The next part of the chapter is analysis of scenarios of Vietnam energy policies,
including business as usual (BAU) scenarios and GHG emission reduction sce-
narios based on studies which have been performed in the past. This analysis
indicates that there are some initial basic conditions necessary for policy makers,
decision makers to be aware of viability of activities, measures for carbon emission
reduction through GHG marginal abatement cost curve (MACC) which has been
developed for Vietnam.
Based on results of studies, there is recommendation that Vietnam can shift to
path of low carbon development in line with emission reduction targets set out in
Green Growth Strategy with four main areas (WB 2014): (i) Improvement of
energy conservation and energy efficiency in industry and residential sectors;
(ii) Use of clean coal; (iii) Promotion of renewable energy use; and
(iv) Development of sustainable transportation. This study also indicates that low
carbon scenario will help Vietnam reduce annual GHG emission of about 7 % in
2020, and 10 % in 2021. Most initial emission reductions can be achieved by
improvement of energy efficiency and energy conservation in industry and resi-
dential sectors. Efforts on shifting from use of coal into use of cleaner fuels in
electricity generation will help achieve high rate of CO2 emission reduction in
Vietnam after 2020. Target of annual GHG emission reduction was projected at
20 % in 2026, and 27 % in 2030 in comparison with BAU scenario.
An assessment of regional cooperation (market and non-market) for the past,
present and anticipated for future is also presented in this report. The main contents
of assessment include: ASEAN Action Plan of Energy Cooperation 2010–2015;
Australian assistance to Mekong delta projects; and Needs for regional cooperation
(capacity building and awareness raising, trade, and finance). This assessment
indicates that Vietnam needs regional and international cooperation in order to learn
experience, sharing information with other countries on successful lessons, the best
technology practices and step by step to build capacity toward low carbon economy
7 Functional Characteristics of Low Carbon Energy Systems … 187

development. Now, requirement of cooperation becomes more and more urgent

because Vietnam is promoting deep and wide integration in participating in free trade
agreements. Some agreements which have been signed and some are in negotiation
include: (i) Signed: ASEAN-AEC; ASEAN—India; ASEAN—Australia/New
Zealand; ASEAN—Korea; ASEAN—Japan; ASEAN—China; Vietnam—Japan;
Vietnam—Chile; Vietnam—Lao PDR; Vietnam—Korea; Vietnam—Eurasian
Economic Union; and (ii) Under negotiation: RCEP (ASEAN+6); ASEAN—Hong
Kong; TPP; Vietnam—EU; Vietnam—EFTA. These agreements are good base for
low carbon economic development in coming period.
However, there are big challenges on path of low carbon development in
Vietnam and more efforts are needed, including activities of the Government at
macro-level and enterprises and people at micro-level. The last part of this chapter,
presenting proposals for the next actions.

7.2 Introduction

7.2.1 Economic Profile

Vietnam has transformed through its ‘Doimoi’ (reform) and joining the ASEAN in
1995 from one of the poorest countries in the world, with per capita income of USD
86 in 1986, to a lower middle income country, with per capita income of USD
2,028 in 2014. Its average annual gross domestic product (GDP) growth rate from
1986 to 2014 was 6.8 %, stood out as one of countries with the highest GDP
average growth in the world. Both exports and imports grew by around 20 % per
annum on average in the last two decades (OECD 2013). Foreign direct investment
grew from USD 322 million in 1986 to 21.92 billion in 2014. Its poverty rate fell
dramatically from 58.1 % in 1993 to around 8.2 % in 2014.2
The economy structure has changed significantly during the renovation process.
In 1986, agriculture, forestry and fishery’s share of GDP accounted for 60 % while
industry’s share was 40 %, but in 2014, share in GDP of agriculture, forestry, and
fishery was 18.12 %, of industry was 38.50 %, and of service was 43.38 %.3
Nevertheless, the country is facing with a number of challenges such as energy
security, cyber security, water source security, climate change and environmental
degradation which has the potential to limit its future growth.
Vietnam has recognized the need to sustain its economic growth and committed
for a low-carbon development. The country has developed and implemented the
national sustainable development strategy from 2004 and a number of strategies,
policies related to low-carbon green growth.

2
Poverty rate is based on poverty line of General Statistics Office (GSO) and the World Bank with
monthly average expenditure per capita changing over years.
3
The information on GDP, GDP per capita, FDI, economy structure and poverty rate is from the
GSO of Vietnam.
188 P.K. Toan et al.

7.2.2 Energy Profile

7.2.2.1 Energy

In two recent decades, Vietnam was an important country exporting coal, oil and
gas in Southeast Asia. Proven potential of fossil fuels and renewable energy
resources allowed Vietnam to self-satisfy its energy needs (until 20184).
Proven reserve of oil and gas of Vietnam was about 7.3–8 billion oil barrels of
which 600 billion m3 of gas. In 2012, production of crude oil was 15.5 million
barrels. In 2012, gas production was about 9.2 billion m3, of which about 90 % of
gas was used for electricity generation. The exploitation activities are continuing
and those figures may be changed in future.
So far (as of 2015), in general, Vietnam is still net energy exporting country.
Energy export has been being continuously increased for 25 years, from 180 Ktoe
in 1990 to 19.99 Mtoe in 2012, which reached peak in 2006 (21.81 Mtoe).
However, from 2007 up to now, energy export amount was gradually decreased due
to increasing domestic demand. In 2012, total exported coal was 8.52 Mtoe. Coal
export amount accounted for about 36 % of the country’s coal production. Coal
supply to power sector accounted for about 25.7 %. In that period, Vietnam
imported 10.73 Mtoe of petroleum products and 230 Ktoe of electricity.
The oil demand highly increased due to industrialization promotion, resulting in
reduction of crude oil export and increase of petroleum product import in the past
decade. In 2009, when Dung Quat refinery plant was put into operation, Vietnam
reduced about 30 % crude oil export and also reduced about 30 % of import of
petroleum products.
In 2012, total primary energy supply was 58.02 Mtoe, increased 3.2 times in
comparison to that of 1990 (17.87 Mtoe)
Annual average growth rate of final energy consumption was 5.7 %, increased
from 16.1 Mtoe in 1990 to 49.03 Mtoe in 2012, in which, consumption share was
39.7 % by industry, 32 % by residential sector, 22.6 % by transport sector and
followed by commerce and agriculture sectors.
In the past, even though issue of balancing between energy import and export of
Vietnam has been raised but there was not any effective measure successfully
implemented as expected because Vietnam lacked of one energy master plan.
So far, Vietnam energy plans have been prepared for each energy type such as
coal, gas & oil. Therefore, it lead to lack of sector integration, low effectiveness of
energy demand—supply balance, including efficient use of available indigenous
energy resources and imported energy. If this issue is not solved soon, in future,
Vietnam will face energy security problem, especially security of coal supply and
coal import.

4
Institute of Energy (IoE), Vietnam, 2014—Power Development Plans VII (PDP VII) revised.
7 Functional Characteristics of Low Carbon Energy Systems … 189

7.2.2.2 Electric Power

Capacity: From 2006 to 2011, through Vietnam Electricity (EVN), the Government
of Vietnam have made investment of USD 10 billion, equivalent to 6.7 % of total
national investment. In 2000, total installed capacity was only 6,345 MW, but by
2014, total installed capacity has increased 5.4 times and reached 33,650 MW,
including hydropower, gas turbines, oil & coal fired power, and small amount of
renewable energy power (Fig. 7.1).
Electricity: Electricity production in 1990 was only 8.68 billion kWh, but by
2014 it was 145.5 billion kWh, with electricity demand growth rate of 12.5 %/year.
In 2006, share of thermal power generation in total electricity generation was
66.1 %, hydropower 33.9 %. In 2014, hydropower generation was 59.8 billion
kWh (accounting for 41 %) meanwhile coal fired power plants generated 37.6
billion kWh (accounting for 25.88 %) (Fig. 7.2).

6.04% 1.81%

39.28%
21.77%

Lager Hydro
Power
Coal Power
2.67% Oil Power
CC Gas Turbibe
RE
28.43% Import

Fig. 7.1 Structure of power resources (as of 2014). Source EVN (2015)

0.32% 1.60%

41.14%
30.89%
Hydro Power
Coal Power
Oil Power
CC Gas Turbibe
(Wind&biomass)
0.17%
Import

25.88%

Fig. 7.2 Structure of electricity generation (as of 2014). Source EVN (2015)
190 P.K. Toan et al.

7.2.3 Emission Profile

Total greenhouse gases (GHG) emission (CO2eq)) of Vietnam in base year (2010) in
energy sector (including emissions from: (i) electricity production; (ii) energy use in
transport sector; and (iii) energy use in economic sectors) was 141 million tons.5
Emission increase level in energy sector for the period of 16 years (from the first
GHG inventory in 1994 to the last GHG inventory in 2010) was 5.5 times.
Tendency of increase of GHG emission in this sector was forecast maintaining at
high level in the coming period. According to the Business as Usual Scenario
(BAU),6 GHG emission of Vietnam is anticipated significantly increased in period
up to 2030 with focus mainly in energy sector, accounting for about 80 % to over
90 % (depending on various forecasts). Total GHG emission in energy sector of
Vietnam will be increased 5 times in comparison to 2010 level. This increase was
forecast based on increase of coal use for electricity generation.
Share of coal fired power was anticipated to be increased 3 times from 18 % in
2010 to 52 % in 2030. In contrary, share of hydropower was forecast to be
decreased from 38 % in 2010 to 12 % in 2030. Increase of coal use for electricity
production will make two thirds of increase of total GHG emissions of Vietnam in
period 2011–2030.
In addition to increase of coal use for electricity production including import
coal (accounting for 77 %) and domestic coal supply (accounting for only 23 %),
inefficient coal use (specific coal consumption—kg coal/kWh—for electricity
generation is high) is also considered as one of reasons to increase GHG emissions
in 2030 (Fig. 7.3).

800 760.52
Total national GHG emission
700 648.45
GHG emission in energy activities
600
Million ton

465.92
500
381.12
400

300
225.66
200 150.89 141.17
103.84
100 52.77
25.63
0
1994 2000 2010 2020 2030

Fig. 7.3 GHG emissions from energy activities in period 1994–2010 and estimation for period up
to 2030. Source MoNRE (2014)Note Data of 1994, 2000, 2010 is inventory data; and data of 2020
and 2030 is the projected data

5
Data quoted in the BUR 1 (Vietnam national GHG inventory in 2010).
6
BAU Scenario in this study was developed in line with development plans of other sectors and
economic development plans approved by the Government. BAU Scenario of power sector is in
consistency with Power Development Plan VII.
7 Functional Characteristics of Low Carbon Energy Systems … 191

7.3 Business as Usual and Low-Carbon Energy Policy

Scenarios up to 2030

7.3.1 Overview of BAU Scenario

According to the regulation,7 every five years, the Government of Vietnam will
issue a Decision for approving “National Power Development Plan” for period of
next 10 years and orientations for the following decade. This is the highest legal
document in control and implementation of investment and development activities
in energy sector in general and power sector in particular.
In the national power development plan, the following programs are established
for: exploitation of primary energy resources,8 final energy use structure, power
generation mix, aiming to supply sufficient electricity, energy for the whole
economy in each year and each period.
At present, Vietnam is implementing “National power development plan (PDP
VII) for period 2011–2020, with vision to 2030”. This plan was prepared by
consulting agency9 of Ministry of Industry and Trade (MoIT) in 2010, submitted to
and reviewed by the State Committee, then approved by the Prime Minister in 2011
(at Prime Minister’s Decision No. 1208/QD-TTg dated 21/07/2011). This can be
considered as Business as Usual Scenario (BAU) along with some policies, mea-
sures of energy efficiency and energy conservation, promoting use of renewable
energies, especially renewable energy power systems connected to the national
power grid.
Apart from BAU scenario with official “legislation” as mentioned above, in three
recent years (2012–2014), with assistance of international organizations such as
United Nations Development Progamme (UNDP based in Vietnam), World Bank
(WB), Asian Development Bank (ADB), Japan International Cooperation Agency
(JICA), some studies have been carried out for evaluating GHG emission reduction
potential in energy sector for period up to 2030. However, in individual reports of
these studies, the results of BAU scenario are not alike. Differences in terms of
demand of energy/electricity, energy use structure in forecast years (2020 and 2030)
lead to not similar GHG emissions in corresponding years. This unlikeness may be
due to different approaches for different purposes, methodologies and database used
are unlike, for example, (i) GDP projections; (ii) Model choice and use; and
(iii) Related assumptions (e.g. energy price, selected existing policies, etc.). Tables

7
Electricity law (2004, with amendments of some articles in 2012), Article 8 of this Law states on
National power development plan as follows: National power development plan must be prepared,
approved as foundation for activities of power investment, development and adjusted in confor-
mity with socio-economic development conditions in each period. National power development
plan is prepared based on Vietnam socio-economic development strategy and is prepared for each
10-year period with orientations for the next 10 years.
8
Including coal, oil and gas and renewable energies.
9
Institute of Energy is the consultative institution under MoIT.
192 P.K. Toan et al.

summarize key assumptions and results related to energy demand, electricity

demand as well as estimation of GHG emission in 2030 from the above mentioned
studies (Tables 7.1 and 7.2).

7.3.2 Business as Usual Scenario up to 2030 for Energy

Sector

Though there are differences, results from all BAU scenarios in the above men-
tioned studies forecast that GHG emissions in energy sector of Vietnam will
increase significantly in 2030 compared to the base year (2010). Level of Vietnam’s
GHG emission is anticipated to increase 4.3–5 folds. Average GHG emission per
capita in this sector is also increased five folds and carbon intensity per GDP in
period from 2011 to 2030 is increased about 25 % (Fig. 7.4).
The above increase is mainly attributable to coal use in electricity production.
Share of electricity generated from coal fired power plants will increase three folds,
from 18 % in 2010 to 52 % in 2030. Meanwhile, share of large hydropower plants
(>30 MW) in contrary was forecast reduced from 38 % in 2010 to 12 % in 2030.
Increasing use of coal in electricity generation will create two thirds of GHG
emission of Vietnam in period 2011–2030.
In BAU scenario, share of import coal in total coal demand for electricity
production was anticipated to increase from 12 % in 2019 to 78 % in 2030. The
price of import coal may be highly increased and cost of import coal will be at least
two times higher than domestic coal for electricity generation. This will negatively
affect energy security of Vietnam, therefore, it makes high electricity production
cost.

7.3.3 Low-Carbon Energy Policy Scenarios up to 2030

Based on indicators in economic development forecast (such as GDP), population

and urbanization level in coming period, it is estimated that energy demand of
Vietnam will increase 4 folds in next 20 years (energy demand in 2030 in com-
parison with 2010). Similarly, electricity demand also will increase 6 folds. In order
to meet energy and electricity demand as high as mentioned above, the power
generation development plan with installed capacity increased 4 folds,10 even 5
folds11 in comparison with capacity at present, for two coming decades, mainly
based on fossil fuels (such as coal, including domestic coal and import coal,
accounting for dominant share up to 52–55 % of total installed capacity). High

10
PDP VII. 2014. Revised.
11
PDP VII. 2011 (Decision No. 1208).
7 Functional Characteristics of Low Carbon Energy Systems … 193

Table 7.1 Main assumptions for BAU up to 2030 from various studies
Study Date Title Coverage Assumptions
issued
MoIT/IoE 2011 PDP VII All energy • GDP projection: 2011–2015 (7.5 %);
activities & flow 2016–2020 (8 %); 2021–2030 (7.8 %)
and power mixed • Population: 2020 (94.2 mill.); 2030
(100.7 mill.)
• Policies on promoting low carbon
development
✓ Penetration of energy efficient
technologies: reduced 3–5 % of electricity
consumption (via reduction of electricity
elasticity)
✓ Penetration of renewable
electricity: 2020 (4.5 %); 2030 (6 %)
MoIT/IoE 2014 PDP VII All energy • GDP projection: 2011–2015 (5.78 %);
activities & flow 2016–2020 (7.0 %); 2021–2030 (7.0 %)
and power mixed Population: as of PDP VII
• Policies on promoting low carbon
development
✓ Penetration of energy efficient
technologies: reduced 5–8 % of electricity
consumption (via reduction of electricity
elasticity). Penetration of renewable
electricity: 2020 (4.5 %); 2030 (6 %)
UNDP 2012 GGS All energy • GDP projection: 2011–2015 (7.5 %);
activities and 2016–2020 (8 %); 2021–2030 (7.8 %)
power mixed • Population: as of PDP VII
• Policies on promoting low carbon
development
✓ Penetration of energy efficient
technologies: consider with existing
policies but less effort
✓ Penetration of renewable
electricity: consider with existing policies
but less effort
WB 2014 Charting a low All energy • GDP projection: 2011–2015 (6.99 %);
carbon activities and 2016–2020 (7.05 %); 2021–2030
power mixed (7.18 %)
• Population: as of PDP VII
• Policies on promoting low carbon
development
✓ Penetration of energy efficient
technologies: Based on base case scenario
of PDP VII document
✓ Penetration of renewable
electricity: Based on base case scenario of
PDP VII document
(continued)
194 P.K. Toan et al.

Table 7.1 (continued)

Study Date Title Coverage Assumptions
issued
ADB 2014a, TA-7779 VIE Energy and • GDP projection: 2010–2030 (7.2 %)
b transport • Population: 2020 (96.1 mill.); 2030
(103.1 mill.)
• Policies on promoting low carbon
development
✓ Penetration of energy efficient
technologies: consider with existing
policies but less effort
✓ Penetration of renewable
electricity: consider with existing policies
but less effort
MoNRE 2014 BUR 1 All energy • GDP projection: 2016–2020 (7 %);
activities 2021–2030 (7.22 %)
• Population: as of PDP VII
MoNRE 2010 Second All energy • GDP projection: 2011–2020 (7.2 %);
communication activities 2021–2030 (7.0 %)
of VN to • Population: as of PDP VII
UNFCCC

energy demand together with big plan of coal use are very big opportunity for GHG
emission reduction based on low carbon technology, including measures for both
demand and supply sides.
There are many challenges such as: (i) Lack of domestic energy resources;
(ii) More and more dependent on imported fossil fuels, this may lead to loss of
energy security because of dependency on high amount of import coal; and
(iii) Inefficient use of energy (reflected in too high elasticity between energy,
electricity to GDP). Therefore, it needs to review BAU scenario because it may
cause unsustainable development of the country.
Low carbon green growth as sustainable development way, with economy and
environment as the core, will be the new economic development paradigm for
Vietnam, which was raised in discussions on policies of the country in recent years.
Vietnam’s national green growth strategy states that green growth is necessary for
long term sustainable development of the country and considers green growth as
one mean to achieve low carbon economy.12
The targets of Vietnam’s green growth strategy include: (i) Reduction of 10 % to
20 % of GHG emission from energy activities in comparison with BAU scenario in
period 2011–2020, and (ii) Reduction of 20–30 % GHG emission in comparison
with BAU scenario by 2030. The lower targets were calculated based on the vol-
untary reduction of GHG emission of Vietnam, meanwhile the higher targets
require higher efforts and need international assistance.

12
Vietnam national green growth strategy (Prime Minister’s Decision No. 1393/QD-TTg, dated 25
September 2012).
Table 7.2 Summary of BAU-2030 from various studies
Study Date Title Coverage Model Methodology Base year (2010) BAU (2030)
issued and approach Final Power Emission Final Power Emission
energy generation in energy energy generation in energy
demand (TWh) activities demand (TWh) sector
(KTOE) (Mill. (KTOE) (Mill.
CO2) CO2)
MoIT/IoE 2011 PDP VII All energy Simple-E and Top down 45,789 100.07 129 164,877 694 NA
activities & STRATEGIST and bottom -
flow and power and PDPAT II up
mixed
MoIT/IoE 2014 PDP VII revised All energy Simple-E and Top down 45,789 100.07 129 139,628 560 NA
(draft) activities & STRATEGIST and bottom -
flow and power and PDPAT II up
mixed
UNDP 2012 GGS All energy MACC Expert -base As PDP As PDP 129 164,877 694 615
activities and VII VII
power mixed
WB 2014 Charting a low All energy EFECT Bottom -up As PDP As PDP 108 NA 539 495
carbon activities and VII VII
power mixed
7 Functional Characteristics of Low Carbon Energy Systems …

ADB 2014a, TA-7779 VIE Energy and LEAP Bottom -up As PDP As PDP 158 160,026 545 656
b transport VII VII
MoNRE 2014 BUR All energy LEAP Bottom -up As PDP As PDP 141 113,859 NA 648
activities VII VII
MoNRE 2010 Second All energy LEAP Bottom -up As PDP As PDP 113 122.350 NA 470
communication activities VI VI
of Vietnam to
UNFCCC
Note NA Non Available
195
196 P.K. Toan et al.

Fig. 7.4 Vietnam’s CO2 emissions from energy activities. Note BAU = Business as Usual; BUR
1 = First Biennial Update Report’ VNSC = National Second Communication of Vietnam to
UNFCCC; MoNRE = Ministry of Natural Resource and Environment’s study and report;
ADB = Asian Development Bank

Vietnam may shift to low carbon development way in conformity with GHG
emission targets set out in green growth strategy for 4 key areas (WB 2014),
including: (i) Improvement of energy efficiency and energy conservation in industry
and residential sectors; (ii) Clean coal use; (iii) Promotion of renewable energy use;
and (iv) Sustainable development of transport sector. These are also recommen-
dations of the most studies on GHG emission reduction carried out recently (ADB
2014a, b and UNDP, MPI 2012). Results of these studies indicate that low carbon
development scenario (LCD) will help Vietnam to reduce annual GHG emission of
about 7.3 % by 2020, and 10.3 % by 2021 (one year later than target for 2020 in the
Green Growth Strategy13). Most initial GHG emission reductions come from
improvement of energy efficiency and energy conservation measures applied in
industry and residential sectors. Efforts in shifting from use of coal into cleaner
fuels will help significant reduction of CO2 emission in Vietnam after 2020. Target
of annual GHG emission reduction is 20 % in 2026, and 26.9 % in 2030 compared
with BAU scenario.
According to the report of ‘Charting a Low Carbon Development Path for
Vietnam’ (WB and ESMAP, DFID 2014) in low carbon development
(LCD) scenario, GHG emission reduction was estimated of 823 million tons CO2
from 2011 to 2030, of which reduction of 62 million tons CO2 in period 2011–2020

Available from report: World Bank, and ESPAP, DFID. 2014. ‘Charting a Low Carbon
13

Development Path for Vietnam’—World Bank Group.

7 Functional Characteristics of Low Carbon Energy Systems … 197

Table 7.3 Summary of BAU vs LCD in 2030 from various studies

Study Coverage CO2 CO2 CO2 emission Number of
emission in emission in reduction in 2030 low-carbon
2030 under 2030 under under BAU versus options
BAU LCD LCD
(MtCO2) (MtCO2) (%)
MoNRE. All energy 648 237 37 6
BUR 1 activities
(2014)
ADB (2014a, All energy 656 177 27 35
b) and
transport
activities
WB (2014) All energy 495 111 19.4 60+
activities
and power
mixed
UNDP&MPI All energy 615 227 37 35
(2012) activities
and power
mixed
MoNRE. All energy 470 192 41 15
VNSC (2010) and
transport
activities
Note BUR 1 First Biennial Update Report’, VNSC National Second Communication of Vietnam
to UNFCCC; MoNRE Ministry of Natural Resource and Environment’s study and report;
ADB Asian Development Bank’s study and report “‘Support for the National Target Program on
Climate Change with focus on Energy and Transport-TA-7779’; WB World Bank’s study and
report ‘Charting a Low Carbon Development Path for Vietnam’; UNDP & MPI United Nations
Development Programme & Ministry of Planning and Investment’s study and report “Capacity
Strengthen in integration with Sustainable Development and Climate Change In Planning
Formulating Activities in Vietnam”

(equal to 3.2 % total GHG emission in BAU scenario) and reduction of 761 million
tons CO2 in period 2021–2030 (equal to 19.4 % total GHG emission in BAU
scenario). In fact, these results were based on design of LCD scenario and imple-
mentation plan of GHG abatement alternatives and needing update/review when
efforts on implementation of national green growth strategy have progressed. In
summary, this study indicates that targets (related to GHG emission reduction from
energy activities) as set out in the Green Growth Strategy can be achieved.
A summary of low carbon scenarios derived from various studies in the process of
formulation of national green growth strategy (UNDP and Ministry of Planning &
Investment (MPI) and technical assistance projects of WB, ADB, and JICA) and
what post 2020 climate mitigate actions take under new international agreement-
Intended Nationally Determined Contributions (INDC) is presented in Table 7.3
and Box 7.1.
198 P.K. Toan et al.

Box 7.1: Climate change mitigate actions take under INDC

Vietnam Government (2015) submitted the Intended Nationally Determined
Contribution (INDC) to UNFCCC dated 30 September 2015. Following is
summary of some main indicators and measurements:
Unconditional contribution:
With domestic resources, by 2030 Viet Nam will reduce GHG emissions
by 8 % compared to BAU, in which:
– Emission intensity per unit of GDP will be reduced by 20 % compared to
the 2010 levels;
– Forest cover will increase to the level of 45 %.
Conditional contribution:
The above-mentioned 8 % contribution could be increased to 25 % if
international support is received through bilateral and multilateral coopera-
tion, as well as through the implementation of new mechanisms under the
Global Climate Agreement, in which emission intensity per unit of GDP will
be reduced by 30 % compared to 2010 levels.
Main nine measures which have been proposed to achieve the above
targets are: (i) Increase the role of Government in CC response; (ii) Improving
effectiveness and efficiency of energy use; reducing energy consumption;
(iii) Changing the fuel structure in industry and transportation; (iv) Promote
effective exploitation and increase the proportion of new and renewable
energy sources in the nation’s energy production and consumption;
(v) Reduce greenhouse gas emissions through the development of sustainable
agriculture, improve competitiveness of agricultural production;
(vi) Management and sustainable development of forest, increasing carbon
removals and biodiversity conservation; (vii) Waste management; (viii)
Communication and awareness raising; and (ix) Enhanching international
cooperation.

7.4 Policies and Policy Effectiveness of Low-Carbon

Interventions

Energy efficiency and energy conservation: In contrast to renewable, energy

efficiency and conservation has received considerably greater attention from policy
makers. Energy Efficiency and Conservation (EE&C) technologies were introduced
in Viet Nam since the 1990s as a part of technical and financial assistance programs
conducted by international organizations, focusing on technology transfer and pilot
projects as well as the formulation of basis for governmental policies to promote
energy conservation programs. This introduction was followed by the
7 Functional Characteristics of Low Carbon Energy Systems … 199

implementation of projects addressing the rational use of energy in the cement and
ceramics industry sectors and coal fired thermal power plants, together with demand
side management (DSM) programs.
Starting in 2003, right after the ratification of the Kyoto Protocol, the efficiency
improvement and rational use of energy have been addressed as a key item in the
energy development policy, initially with the issuance of the Governmental Decree
on Energy Conservation and Energy Efficiency in September 2003. The Decree set
forth the roles and responsibilities for all actors in government and society with
respect to energy efficiency, and called for suppliers of energy-consuming equip-
ment and facilities to declare the energy consumption of the equipment in the user
instructions and on the labels of such equipment and facilities. This decree also
placed a major responsibility with large energy users in all sectors. However, the
decree does not delineate concrete measures or identify specific resources for
meeting energy efficiency goals.
In 2006, the Prime Minister approved over the Vietnam National Energy
Efficiency Program (VNEEP) for the period 2005–2015, a comprehensive plan to
institute measures for improving EE&C in all sectors of the economy of Vietnam.
The overall aim of the program is to secure savings of 3–5 % during the period
2006–2010 (Phase One) and savings of 5–8 % during the period 2011–2015 (Phase
Two) of the total energy consumption compared with the base case of the 2006
forecast on energy development. The VNEEP specifies 6 components and totally 11
projects to achieve these savings. Starting from 2007, the Energy Efficiency and
Conservation Office (EECO) (under the Ministry of Industry and Trade—MoIT)
has been taking a leading and strategic role in the implementation of the VNEEP, in
collaboration with a number of specialized institutions. In particular, the program
proposed solutions including models of energy consumption management in des-
ignated (energy intensive) enterprises, construction code for energy use in buildings
and suitable energy pricing policy.
It should be noted that under Decision 1427/2012/QD-TTg October 2, 2012, the
status of VEEP has been lifted to that of a National Target Program, covering
energy saving and efficiency in the period of 2012–2015.
Despite the ambition of this program, it has met with substantial challenges
during its implementation. These include:
• Insufficient budget allocation—the project budget allocation was VND 1000
billion for 2012–2015, but it will only receive less than half of these funds;
• Inadequate M&E systems—at the moment M&E systems are not adequate to
track project activities and targets. M&E systems designed by international
consultants have proven unsuited to Vietnamese conditions (e.g. high demand
growth);
• Technical standards and regulations not implemented yet– while many technical
standards and regulations are in place there is limited capacity to ensure their
adoption at the local level. A roadmap for the enforcement off legislation is
being developed but this remains some way off;
200 P.K. Toan et al.

• Technical standards not completed yet—benchmarking in some sectors is

complete but there still many gaps;
• Restrictions on use of state budget to support energy efficiency activities at
private companies—the state budget can only be used to support enterprises
which have a minimum state ownership of 10 %, restricting support that the EE
project is able to give to private companies, new regulations are being developed
to address this and enable assistance of 100 % privately owned companies;
• Limited financial incentives for investment in energy efficiency and need to
develop dedicated funds for large energy users—subsidized energy prices mean
that energy efficiency investments are often unattractive to investors.
Renewable energy (RE): The National Energy Development Strategy for period
up to 2020, vision to 2050 states that the State will prioritize the development of
new energy, renewable energy, bio-energy and nuclear power. Specific targets are
set out that percentage of the source of new and renewable energy will increase by
about 3 % of total commercial primary energy by 2010 and 5 % in 2020, about
11 % in 2050. This viewpoint continues to be expressed more specifically in
National Power Development Plan for period 2011–2020 with consideration for
period up to 2030 (PDP VII). In particular, share of renewable energy for electricity
generation is increased from 3.5 % in 2010 to 4.5 % in 2020 and 6 % in 2030.
At present, all renewable energy projects are eligible for special investment
incentives, plus many other support incentives. Special mechanism of investment
incentives, basically, including reduction of the corporate income tax, land rent
exemption. Some of these projects are entitled to higher incentives including price
subsidy for products, priority in purchasing products, financing, preferential loans,
import tax exemption for imported equipment, and accelerated depreciation. In
addition, renewable energy projects are CDM projects; they will have opportunity
of selling CERs according to Decision on Support to CDM projects.14
A full summary of legislation to support renewable power technologies (wind,
solar PV, biomass, waste to energy, biogas, etc.) is included in at the end of this
book (Appendix 2). Reviewing this legislation it becomes clear that in order to
promote sufficient renewable development and meet planning targets there are
number of significant policy gaps:
• Financial support to renewables is insufficient to incentivize investment—
Feed-in-tariffs are generally regarded as too low to provide potential investors
with adequate prospective returns to their investment. Although the authors of
this report understand that FiTs are under-going revision they will need to be
considerably increased to encourage increased renewable investment;

14
Decision No. 130/2007/QD-TTg dated 02/08/2007 by Prime Minister on some financing poli-
cies, mechanism for CDM investment projects.
7 Functional Characteristics of Low Carbon Energy Systems … 201

• Transparent predictable support—support mechanisms for renewable projects

are not consistent or predictable. For example, despite regulations grid access
has to be negotiated on an ad hoc basis;
• Technology transfer and R&D policy—there seems to be no special incentive
linked to the production renewable technologies. In general, renewable energy
deployment is not linked to industrial policy;
• No solar PV NAMA (Nationally Appropriate Mitigation Action)—despite the
scalable potential for Solar PV particularly in the south of the country and
particularly given its potential for addressing peak loads there remains no
proposed dedicated NAMA for solar PV technologies (whereas waste to energy
and wind NAMAs are being developed).
For the development of bio-fuels: in 2007 the government promulgated
Decision No. 177/2007/QD-TTg on the “Scheme on Development of Biofuels up to
2015 with the Vision to 2025”. This chapter proposed orientation of developing
biofuels for replacing a portion of fossil fuels and so meet energy security and
environmental protection objectives. Biofuels cover liquid fuels including ethanol,
methanol and biodiesel. The specific objectives are as follows: by 2010, E5
gasoline will meet 0.4 % of whole country gasoline demand. This figure will reach
1 % in 2015 and 5 % in 2025.

7.5 Need for and Contributions to Regional Cooperation

Vietnam needs regional cooperation in order to learn experience, share information

with other countries on successful stories, the best practicable technologies, etc. and
step by step create capacity toward low carbon economy as targets set out in the
national green growth strategy which was approved by the Prime Minister in
September 2012. At present, need of cooperation become more urgent in context of
Vietnam promoting wide and deep international integration and entering into
bilateral and multilateral free trade agreements. Some agreements which have been
signed and being under negotiation include: (i). Signed: ASEAN-AEC; ASEAN—
India; ASEAN—Australia/New Zealand; ASEAN—Korea; ASEAN—Japan;
ASEAN—China; Viet Nam—Japan; Viet Nam—Chile; Viet Nam—Lao PDR; and
(ii) Being under negotiation: RCEP (ASEAN+6); ASEAN—Hong Kong; Viet
Nam—EU; Viet Nam—EFTA.
Box 7.2 as below shares main information updated on negotiating for
Environmental goods and services under Regional Comprehensive Economic
Partnership (RCEP) agreements and problem for South East Asian countries in
ASEAN Economic Community (AEC) while liberalizing the trade and services.
202 P.K. Toan et al.

Box 7.2: An update on RCEP and AEC agreement

In the context that economies in the region and the world are more and more
integrated and closely dependent on each other, ASEAN is actively pro-
moting, playing central role through expediting negotiation on Regional
Comprehensive Economic Partnership with six partner countries namely
India, Korea, Japan, New Zealand, Australia and China. Negotiation on
RCEP achieved significant progress, especially at the latest ministers meeting.
Ministers of RCEP participating countries agreed on modality of initial
import duties, facilitating negotiations from now up to the end of 2015. One
of main barriers to RCEP negotiations is lack of free trade agreements
between trade partners of ASEAN. For example, there is no free trade
agreement between China and Japan, between China and India. In the ninth
round negotiation in Myanmar in 2015, 16 countries in the Asia—Pacific
region agreed on modality in services and investment but stuck on modality
in goods.
47th ASEAN Economic Ministers Meeting (AEM-47) and related meet-
ings were held on 22–25 August 2015 in Malaysia. At this meeting, Ministers
confirmed establishment of the ASEAN Economic Community (AEC) at the
end of 2015, even though ASEAN is facing regional economic and global
economic fluctuations. As of the end of July 2015, ASEAN implemented
91.5 % of priority measures in trade and investment which have been set out
in the AEC Blueprint. For sectors such as service, transport, infrastructure,
trade facilitation, ASEAN agreed on efforts for completion in 2016. Vietnam
is one of leading countries in terms of implementation rate (94.5 %). At this
meeting, Ministers approved principles of AEC development roadmap for
period from 2016 to 2025 in order to make ASEAN an integrated high
coherent economy, ensuring dynamic—creative and comprehensive devel-
opment. ASEAN will continue review for elimination of remained barriers to
free flows of goods, services, etc. in the region, enhancing and facilitating
flows of capital and investments. Narrowing development gaps and each
other assistance between ASEAN countries in development of supply chains
and competition capacity building is also one of important contents in this
roadmap.

International cooperation needs faster promotion because Vietnam is at the

threshold of participating in TPP agreements.
Because starting point is as a developing country with low average income (near
poverty line) in comparison with the world, therefore, pressure on GDP growth of
Vietnam is very high, accompanying high energy demand. At present, most energy
technologies used in Vietnam’s industrial facilities are old and backward. Many
industrial subsectors such as cement, steel, pulp & paper, chemistry have energy
consumption (MJ/product) much higher than average level of the world. Apart from
that, system of information upgrading and statistics as well as R&D capacity in
7 Functional Characteristics of Low Carbon Energy Systems … 203

clean energy field in general and renewable energy in particular is weak and
shorted. These are main issues which can be considered as Vietnam’s need of
regional cooperation on low carbon technology and GHG emission reduction.

7.5.1 Participations and Contributions to Regional

Cooperation

Energy is determined as an important field in cooperation of ASEAN. ASEAN

Vision 2020 called for “Integrated Energy”, that means establishment of integration
in the fields of energy, electricity, natural fuels between ASEAN through “ASEAN
Power Grid”, “Trans ASEAN Gas Pipeline”, promoting cooperation on energy
conservation and energy efficiency, clean coal technology, civil nuclear energy and
renewable energy development.
The project “ASEAN Power Grid” (APG) started from 1997 with objective
ensuring energy security for the region and efficient use of available power
resources in the region. The project was anticipated to be developed in stages.
Starting from bilateral cooperation then gradually expanded to sub-region and
finally whole Southeast region.
The differences in terms of technical standards, electricity prices will be dis-
cussed as background for common agreement.
The results of ASEAN power grid connection will be continued on the bilateral
cooperation basic. Country, such as Lao PDR, with surplus electricity from
abundant hydropower will export large amount of electricity to ASEAN power grid,
firstly supplying electricity to neighboring countries such as Thailand and Vietnam.
Vietnam has actively participated in regional conferences, networks and orga-
nizations related to low-carbon development such as Nuclear Energy Cooperation
Sub-Sector Network (NEC-SSN), ASEAN Energy Regulation Network (AERN),
and ASEAN Forum on Coal, etc. The country has also developed bilateral coop-
eration in energy sector with other ASEAN member countries.

7.5.1.1 Initiatives in Accordance with the ASEAN Plan of Action

of Energy Cooperation (APAEC) 2010–2015

A number of policies and action plans for energy sector has been undertaken in
Vietnam in order to implement the ASEAN Plan of Action of Energy Cooperation
(APAEC) 2010–2015.
Clean coal technology: The Government of Vietnam is keen to apply clean coal
technology (CCT) and is considering for introduction of Ultra-Supercritical Coal in
the not-too-distant future (ACE and JCOAL 2014). However, there are still sub-
stantial difficulties in infrastructure, technology and management skills which lead
to limited outcomes in CCT application. Vietnam has cooperated with some
204 P.K. Toan et al.

countries such as Japan and Australia and other global companies to import clean
coal technology for coal plants and electricity enterprises. Staffs in coal and elec-
tricity industries are trained about CCT since 1998. In 2007, Vietnam began to use
gravity concentration and clean device, however, only limited in three coal power
plants: Hon Gai (2.0 mn.t/year); Cua Ong (10.0 mn.t/year) and Vang Danh (3.0 mn.
t/year). The country also uses fluidized bed combustion (FBC)/circulating fluidized
bed combustion (CFBC) technology (in Cam Pha plant from 2009), and low-grade
coal for the purpose of reducing SO2, NO2. Electrostatic precipitator (ESP) has
been set up at some plants such as Na Duong, Cao Ngan, and Cam Pha (Le 2011).
Energy Efficiency and Conservation (EEC): EEC receives high commitment
from national to local governments in Vietnam. The cooperation on EEC has
significantly developed with a numerous countries and donors, which focuses on
capacity building and technology transfer. ASEAN Energy Management
Scheme (AEMAS) National Council, which aims to reduce energy consumption
from the manufacturing industry and to cut GHG emissions, has been established in
Vietnam.
Renewable energy (RE): Vietnam has participated in various activities of
ASEAN Center for Energy (ACE) on RE and annual ASEAN Energy Awards for
RE projects. The country has worked with different countries and international
organizations to develop wind power, solar power, biogas, biomass, bio-fuel, and
small hydro power.
In addition, the Government is building capacity and legal framework for carbon
credit market and preparing for the participation in the global market. Pilot NAMA
Projects to create carbon credits will be implemented in the field of grid—connected
wind power, steel production and management of solid waste.
Civilian Nuclear Energy (NE): The Government of Vietnam shows a high
interest in NE with the goal that NE will become one of the main energy supply
sources of the country by 2030.15 Since 2000, Viet Nam has joined in the
energy-related regional projects (RAS/0/033, RAS/0/038, RAS/0/041, RAS/0/045)
and signed 5 inter-government agreements on cooperation in the peaceful uses of
atomic energy with China, Argentina, Russia, France, and Japan (Le 2012).
Vietnam and Korea are discussing about the cooperation in building a nuclear
power plant in Vietnam and localizing equipments used in the plant.
Furthermore, having a program of nuclear power development for coming
decades, together with ASEAN countries, Vietnam will continue develop human
resource training as well as issues related to legal corridor for nuclear power
development in order to gain support from strong nuclear power countries in the
region and in the world.
Nuclear power development program of Vietnam which is relatively large (more
than 10 units in period 2030–2035) will face many challenges because science and
technology capacity of Vietnam does not sufficiently meet requirements of high

“Oriented Planning on Nuclear Power Development in Vietnam up to 2030” issued by the Prime
15

Minister on 17 July 2010.

7 Functional Characteristics of Low Carbon Energy Systems … 205

skilled manpower and high nuclear power technologies. Nuclear power projects of
Ninh Thuan 1 (2  1,000 MW) and Ninh Thuan 2 (2  1,000 MW) are in the
stage of completion of feasibility study and approval of plants’ sites.
Implementation plan of these two projects was delayed in comparison with the
original schedule (2014–2020) because prepared plan was not practical due to lack
of experience and lack of man power resources. The foreign consultants for
preparation of F/S reports of NPPs of Ninh Thuan 1 and Ninh Thuan 2 are from
Russia and Japan. Foreign consultants completed F/S reports and dossier of doc-
uments for site approval in 2014. At present, these documents are in the process of
reviewing by competent organizations of Vietnam. Technical designs of first
nuclear power plant is anticipated to be prepared in 2017 right after FS report has
been accepted.

7.5.1.2 Initiatives with Australian Assistance to Mekong Delta Projects

The cooperation on low-carbon development in Mekong delta projects between

Vietnam and Australia has been significantly increased in recent years, with a focus
on the application of clean technologies and low carbon measures in the energy
sector.
Vietnam has carried out Distribution Efficiency Project to build the capacity of
Vietnam’s power corporations and regulatory authority with the support of
Department of Foreign Affairs and Trade (DFAT), Australia and the World Bank.
Moreover, the project of developing and promoting energy efficiency standards and
labeling has been successfully completed. As the result, less than a year after they
became mandatory in July 2013, 50 % of compact fluorescent lamps and 68 % of
air-conditioners and washing machines were correctly labeled (DFAT 2014).

7.5.2 Needs for Regional Cooperation

Vietnam has participated in most regional cooperation related to energy and

low-carbon development. Its active participation helps the country to catch up with
potential opportunities of capacity building, technology transfer, and finance for
low-carbon development. However, the country is facing a number of challenges on
transformation process to low-carbon development which requires further regional
cooperation in both market-based and non-market approaches.

7.5.2.1 Capacity Building and Awareness Raising

Capacity building and awareness raising for citizens and private sector:
Vietnam significantly benefits from regional cooperation in capacity building and
experience sharing for developing, implementing, and monitoring low-carbon
206 P.K. Toan et al.

institution and policy, especially with respect to small and medium enterprises
(SMEs) as they are still poor and inefficient in Vietnam. This limitation is the main
reason for slow transformation to green consumption that creates demand for
low-carbon goods (LCG). It also leads to low capacity of enterprises in catching up
with the opportunity for LCG which could increase significantly with regional trade
cooperation under either grand or partial coalition scenario (Kalirajan and
Anbumozhi 2014), and to significant threat of facing with high border tax of
countries who undertake low-carbon policies and want to prevent this carbon
leakage. Moreover, regional cooperation could create more attention and motivation
for capacity building and awareness increasing for citizens and private sector,
which is likely not sufficient in Vietnam.
Data base on low-carbon technologies and policies: Lack of information is a
common and challenging problem for Vietnam in most issues, including
low-carbon development. A data base on low-carbon technologies and policies
which all stakeholders can access, especially households and SMEs will be dra-
matically beneficiary for Vietnam in better problem identification, prioritization,
and resource deployment (Lian and Robinson 2002). This data base would be
primordial for any renewable energy application in the country, and would be
needed for any investment (Kumar 2011).
Regional clean and renewable energy research institutions: Vietnam needs to
participate in the regional joint researches on low-carbon technologies to enhancing
the capacity, sharing costs and reducing finance for buying low-carbon technolo-
gies. Therefore, there is a need for regional clean and renewable energy research
institutions with objective of developing and facilitating technology transfer and
advisory services, focused on SMEs (ADB and ADBI 2013).
The access to low-carbon technologies for SMEs is essential for Vietnam to
achieve emission reduction target as SMEs, while account for 97.6 % in 2011
(GSO 2012), remain weak in terms of internal and external networking, competi-
tiveness, innovativeness, human resource, and readiness to globalization (Tran et al.
2008). Technology and skills development for SMEs are more important than
technology innovation as current environment of SMEs in Vietnam has not been yet
supportive for innovation.

7.5.2.2 Trade

Liberalization of trade and reduced tariff rates for low-carbon goods: For
Vietnam, the principal need is low-carbon technologies import, especially
low-carbon small-scale technologies and supercritical coal combustion technology.
Vietnam has the capacity to manufacture micro-hydro and wind towers, which,
however, tend to be of poor quality and produced on a small scale (Baumüller
2010). Therefore, as Kalirajan and Anbumozhi (2014) have argued, free trade on
LCG could provide Vietnam with easier access to low-carbon technologies.
However, Vietnam should thoroughly consider the effect of free trade and
reduced tariff rates on competitiveness of domestic production. When the taxes for
7 Functional Characteristics of Low Carbon Energy Systems … 207

low-carbon technologies and final products are cut down, it creates more challenges
for domestic enterprises as Vietnam has relatively poor capacity in low-carbon
technologies and production. Therefore the Government of Vietnam should con-
sider detailed time-frame for cutting down tax for LCG in order to minimize the
adverse impact on domestic production.
Regional power trade from hydro sources could provide an avenue for ASEAN
to increase access to electricity while mitigating GHG emissions. Integrated energy
grids among member countries could also help improve efficiencies and reduce
investment needs (Baumüller 2010). This cooperation would help Vietnam increase
investment in hydropower developments in other countries, such as Lao PDR and
Cambodia.
Regional green labeling program: Regional green labeling program will play a
vital role in promoting production and consumption of LCG. Vietnam has issued
green label criteria for 14 groups of products and five products have been certified
Vietnam Green Label in 2011 (MoNRE 2011).
Regional market for carbon credits from CDM, NAMA and REED pro-
jects: Regional market for carbon credits produced by CDM, NAMA and REED
projects would be crucial for Vietnam as the country has the potentials in imple-
menting them, however, fluctuation in demand and price for carbon credits may
discourage investment of private sector. The regional market for carbon credits
could reduce demand and price uncertainty, create more favourable market access,
and also more confidence for investors in low-carbon sectors.
The regional “cap and trade” seems not necessary for Vietnam in short-run.
Carbon tax may be currently the best choice as its relatively less complicated
administration system and low transaction costs are more suitable in the context of
the country’s poor capacity in low-carbon development.

7.5.2.3 Finance

In general, financing is one major obstacle for the implementation of low-carbon

green growth policies (ADB and ADBI 2013). Vietnam, with the need of about $30
billion to implement Green Growth Strategy by 2020, of which 70 % would come
from non-public sources (Hoang 2014), and with weak experience and capacity in
mobilizing finance for low-carbon development, is in an urgent need for regional
funds to mobilize finance from international funds and from private sector.
Access for private sector, especially SMEs, to Low-Carbon Funds could help
them overcome the barrier for small-scale projects caused by high fixed transaction
costs of low-carbon project cycle. The Funds should innovate financial packages
(loans, equity investment, loan guarantee and project bond insurance) to encourage
more private sector investment and public-private partnership (PPP) in clean energy
sectors. In addition, regional Low-Carbon Funds could build credit lines for pro-
moting energy-efficient investment in SMEs.
208 P.K. Toan et al.

7.6 Institutional Measures

7.6.1 Main Challenges on the Way of Low Carbon

Development in Vietnam

Some challenges identified are:

• Prices of fossil fuels (coal) and electricity prices do not reflect market prices.
This problem hinders replacement and renovation of energy production tech-
nologies and energy consuming equipments.
• Mechanisms and policies to support, promote renewable energy technologies
(both producing and consuming energy) are insufficient, not comprehensive and
not strong enough. Especially their enforcement in life (some policies, targets
already promulgated but not yet implemented and difficult applicable in
practice).
• Financial barriers and difficulties (access to financial sources and loan interest
rates).
• Institutional and administrative capabilities are insufficient and weak.
• Coordination between management and operation organizations in low carbon
development activities is not synchronous.
• Awareness of low carbon development needs enhancing at all levels (decision,
policy makers and implementers).

7.6.2 Necessary Institutional Measures Proposed

Renewable energy will play more and more important role in meeting electricity
demand of Vietnam in coming decades. In order to do this, Vietnam shall have to
actively pursue policies for promoting investment. Such policies include:
(i) Assessment and mapping of each type of renewable power source (biomass
power, small hydropower, wind power, solar power, and geothermal power);
(ii) Design of flexible policy frames for promoting energy efficiency, renewable
electricity tariffs (feed-in-tariff) to encourage private investments in development of
clean energy technologies.
From now to 2030, electricity demand of Vietnam will be highly increasing and
have to import large amount of coal. This requires appropriate technologies in order
to ensure requirements of low carbon development.
Regarding clean coal technology, because indigenous coal resources of Vietnam
are mainly anthracite with low volatile content difficult to use in supercritical power
plants. Therefore, cooperation in R&D on mixing domestic coal and imported coal
is an urgent need. Besides, cooperation on high technology transfer and experience
exchange on optimal operation of supercritical and ultra-critical power plants is also
a desire of Vietnam power sector in process of international integration.
7 Functional Characteristics of Low Carbon Energy Systems … 209

Vietnam can improve institutional environment through specific steps of inte-

gration of considerations of low carbon development and green growth into plan-
ning process by using multi-target analysis approach in planning and making
decision on budgets. Multi-target analysis framework has been used in many
countries with ranking investment priorities based on diversified set of important
criteria in economy, society and environment and identifying outputs through
process of making decision with involvement of stakeholders in planning, devel-
opment of policies, assessment and verification in implementation process.
This approach for planning and making investment decision will be supple-
mented with capacity enhancement for important organizations and effective
supervision system. This is also one of regional cooperation needs, on which
Vietnam wishes to learn and exchange experience. Box 7.3 below is summary of
main indicators use for measuring the Sustainable Development Goals
(SDGs) under climate change and clean energy.

Box 7.3: Main indicators used for measuring the sustainable develop-
ment goals
Decision No. 2157/QD-TTg, dated 11 Nov 2013 by the Primer Minister
promulgating a set of indicators for monitoring and evaluation of sustainable
development for period 2013–2020 as follows: Pursuant to this Decision,
there are 28 general indicators, including comprehensive indicators; indica-
tors for economic sectors; social sectors; natural resources and environment
areas, and 15 specific indicators (reflecting typical features of various eco-
logical and climate areas). Among 43 indicators, those listed below are used
for reflecting or assessment of climate change and clean energy:
(i) Energy consumption reduction per one unit of GDP in each area—
economic sectors.
(ii) Percentage of urban, economic areas, industrial areas, industrial areas
for treatment of solid wastes, effluent wastes, meeting environmental
standards—environment area.
(iii) Forest coverage rate—environment area.
(iv) Percentage of collected and treated solid wastes - environment area.
(v) Number of CDM projects—encouraging indicator.

It needs to formulate, develop coal consumption norms (kg coal/kWh) and

develop roadmap for compulsory application: This is considered as one of the
most necessary requirements and measures because in future (up to 2030) Vietnam
has plan of new construction of about 50,000 MW (Revised PDP VII 2014), cor-
responding to about 50 power plants—assumed that each power plant has average
capacity of 1,000 MW. At present, technologies and equipments of coal fired power
plants have sub-critical or critical steam parameters, leading to energy intensity
much higher than average level of the world. If present technologies are still in use
210 P.K. Toan et al.

(average efficiency of power plant is about 30–35 %) it is not efficient, leading to

high coal consumption demand and high GHG emission intensity. The
super-critical and ultra-critical technologies, though not yet applied in Vietnam, will
help to increase power plant efficiency up to 45 % and higher, reduction of coal
consumption and reduction of GHG emission in future. LCD scenario which was
developed in study of WB shows that about 6,000 MW of sub-critical technologies
can be replaced with super-critical technologies in the period 2021–2025 and it can
reduce accumulative CO2 emission of about 58 million tons in 2030 (WB 2014).
In order to create favorable policy environment for management and finance in
application of low carbon technologies in electricity production using coal, espe-
cially import coal, right from now, it needs to develop necessary policy frames
necessary to ensure that any coal fired power plant in future shall be equipped with
the most efficient and clean technologies.
Requirements to promote exploitation and use of available renewable
energy resources of Vietnam: In the context of facing big challenges in energy
supply and demand balance (from energy exporting country, Vietnam becomes
energy importing country in 2018 (Revised PDP VII 2014), and more severe
impacts of energy activities on environment, development of available renewable
energy resources will bring in clear and large benefits for Vietnam through:
(i) Reducing dependency on import fuels in terms of cost and security benefits;
(ii) Supplying low cost fuels for electricity production; and (iii) Significant reducing
environmental and health costs if compared to electricity production using fossil
fuels. Even with such clear benefits, there are challenges needed to be overcome
and measures needed to be performed immediately as follows:
(i) Soon and comprehensive assessment of technical and economic potentials of
renewable energy projects, as good base for setting targets and efficient
investment (including on-grid and off-grid projects).
(ii) Soon formulation and establishment of clear, transparent legal environment
including management, financing, infrastructure (connection to the national
power grid, technical—economic indicators, etc.) and electricity tariffs (such
as Feet-In-Tariffs (FITs) for solar power, wind power, biomass power and
other renewable energy types).
In order to perform the above activities, Vietnam must actively pursue policies
for promoting investment. They may include: (a) Planning sites for renewable
energy projects; (b) Setting clear targets on installation of each technology type;
(c) Learning experience and successful stories of other countries for application in
context of Vietnam; (d) Promoting and encouraging private participation in
investment—development of renewable energy technologies.
(iii) The next very important requirement is to continue implementation of energy
efficiency and energy conservation objectives in the whole economy,
including power generation, transmission and distribution. Apart from
selecting clean technologies and energy efficiency measures, economic
incentives and environment policy instruments have significant potential to
7 Functional Characteristics of Low Carbon Energy Systems … 211

bring in climate benefits, and they can be used as additional policy lever for
Vietnam in rapid shifting into low carbon development trajectory. In the
energy demand side, even though there was progress recently, energy
intensity of Vietnam still stands on the highest position in some big
economies in East-Asia. The energy intensity per GDP of Vietnam increased
39 % in period 2000–2010. In particular, energy consumption in industries
has been increased 4 folds since 1998. Availability of relatively cheap energy
sources and energy price subsidy policy for industries, including most state
owned enterprises, continues to hinder investment in new and energy effi-
cient equipments. It results in that Vietnam’s industrial facilities use energy
in inefficient way. For example, energy consumption in cement sector and
steel sector of Vietnam is much higher than international standards.16
Continuing inefficient use of energy in industries will effect on production
competitiveness capability of Vietnam in many areas.
Barriers to application of energy efficiency measures in Vietnam include lack of
information, tariff problem, insufficient understanding of costs in some areas, cost
saving is set in priority lower than that of investment expansion cost, transaction
cost, awareness of high investment risks and market failure in some areas.
(iv) Further institutional reforms needed: Institutional environment for low carbon
development in Vietnam is characterized by: (i) Lack of coordination between
ministries, authority levels; (ii) Weak supervision and implementation of
environmental standards, especially at local levels; and (iii) Weak institutional
and administrative capabilities. These features limit efficiency of governmental
policies and regulations on low carbon development. Therefore, it needs to be
enhanced as soon as possible. The main measures may include: (i) Design,
formulation and promulgation of regulations, standards; (ii) Human resource
and resources in implementation, supervision and verification; and
(iii) Transparent, concrete and detailed regulations on MRV.

7.7 Conclusions

The main challenge for Vietnam is how to harmonize environmental targets inte-
grated in sustainable development and maintaining economic development targets
with high GDP growth rate, at level of 6–7 %/year. Vietnam economic restructure
towards greener, less carbon and real sustainable is not easy task in the present
context and in coming years.

16
Average energy consumption by cement sector in Vietnam is 3.98 GJ/ ton (or about 950 kcal/Kg
Clinker) in production of clinker. This figure is higher than international standard of 650 kcal/Kg
clinker. Similarly, in Vietnam, big steel plants consume about 29.2 GJ/ton of raw steel, much
higher than that in the best international practices.
212 P.K. Toan et al.

The policies such as incentive prices for renewable energy are stipulated in
Electricity Law; however, in order to concretize these policies, it needs to consider
price support (for cost of renewable energy higher than that of fossil fuels).
Even if benefits of renewable energies, low carbon development can be indicated
such as avoided costs of environmental impacts in comparison with using fossil
fuels, the evaluation of increased costs, and transferring them to electricity users,
must be carefully studied in order to make transparent exogenous costs from dif-
ferent energy sources.
If energy price subsidy is not fully removed, electricity prices are not equal to
market prices, then achievement of targets and implementation of tasks specified in
Law on energy efficiency and energy conservation will be difficult in pathways to
the low carbon economy.
The above mentioned issues together with results of development of GHG
marginal abatement cost curve (MACC) in energy sector indicate that it needs to
establish main criteria for designing one feasible policy framework for development
of low carbon technologies. Priorities shall be given to the following:
Role of the Government: Development of clean and low carbon energy needs
support from the Government. In case of on-grid renewable power, background for
its development is removing distortions in existing electricity market.
Avoided cost tariffs for electricity from on-grid renewable power plants are
calculated based on financial costs of purchasers but not economic costs and
avoided social costs not included, that means price in competitive electricity market
does not reflect costs of environment damages caused by fossil fuels. Therefore,
support mechanisms are needed so that on-grid renewable power plants can be
developed and can participate in electricity market.
Energy price reform is necessary to provide basic market conditions for green
growth in Vietnam: Reform of pricing mechanism for fossil fuels, especially coal
and electricity, can help starting changes in traditional areas, reducing externalities,
and integration of sustainable development targets. In order to ensure that prices
reflect scarce of goods on the market, direct and indirect subsidies for energy
products and traditional sources must be removed, and state owned enterprises must
fully pay for inputs. Vietnam starts implementing commitments on market prices,
however, these activities need to be enhanced and accelerated.
Application of clean coal technologies has many benefits in reduction of GHG
emission: Shifting prices towards market prices will create strong drive for low
carbon development, but it needs good management in order to avoid negative
socio-economic and political impacts. In order to enhance capability in changing to
market price, Vietnam can base on the best international practices such as devel-
opment of one comprehensive reform plan; development of strong information
propaganda strategy; reasonable phasing price increase stages; increasing efficiency
of state owned enterprises; promoting users’ energy savings.
Some other measures which are presented below need studied soon and are
promulgated in order to harmonize implementations of GHG emission reduction
targets as set out in the National Green Growth Strategy:
7 Functional Characteristics of Low Carbon Energy Systems … 213

(i) Taxation measures

• Carbon tax
• Resource tax
• Corporation income tax
(ii) Other supports
• Localization
• Cooperation and transfer
• Development of renewable energy database
• Research on environmental damage costs in use of fossil fuels for elec-
tricity generation

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Chapter 8
Low Carbon Energy Systems
and Indicator Framework for Cambodia,
Lao PDR and Myanmar

Sivanappan Kumar

8.1 Introduction

8.1.1 Background

There is a need to expand low-carbon energy systems in the market place, partic-
ularly in the wake of climate change, and many economies have started a shift
towards low-carbon paradigm that brings competiveness to its industries and serves
growing green technology markets. The Association of South East Asian (ASEAN)
countries have also began negotiating Regional Comprehensive Economic
Partnership with Japan, Korea, China, India, Australia and New Zealand since
2012. Experiences from other regional economic integration initiatives, notably
within the European Union, WTO, and NAFTA shows how free trade promotion
can often proceed in parallel with higher levels of low-carbon energy systems,
namely promotion of renewable energy and energy efficiency. At the same time,
technology development, financing and private capital mobilization has to be
considered with what is happening in the international scenario. Managing the
transition towards a low carbon energy system is truly a global public good which
needs the strengthening of global governance system to design, monitor and finance
the regional actions. However, current global governance structure is dominated by
Europe, Japan and USA and before reaching a global agreement to transfer tech-
nology and financial resources it is important for other countries, notably the
emerging economies to initiate and work towards parallel efforts to establish
regional cooperative efforts.
The global economic growth is principally from the developing economies, and
the prime drivers for the growth include sectors like energy, technology, capacity,

Sivanappan Kumar (&)

Asian Institute of Technology, Pathumthani, Thailand
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 215

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_8
216 Sivanappan Kumar

infrastructure, etc. The energy sector growth depends on resources, which are fossil
fuel and/or non-fossil fuel (renewables) based. Under the current global scenario of
climate change, promotion of low carbon development is seen as an imperative
option. Low carbon energy systems have distinct advantages for countries: Energy
security to the countries, use of locally available resources, and contribution to
GHG mitigation. Future carbon reductions will be governed by energy policies and
renewable energy/energy efficiency measures, energy prices, and regional cooper-
ation efforts, free trade agreements, etc. There is need to consider market and
non-market push and pull approaches in promoting low carbon growth.
Despite the differences in governance structure and inequalities across countries
in terms of GDP, physical and human infrastructure, the emerging Asian economies
also show similarities in terms of emissions growth, developmental challenges and
lifestyle choices. Regional cooperation can be a ‘win-win’ situation for the coun-
tries in distributing their pooled resources fruitfully towards regional development
without hurting national development, particularly in the low income ASEAN
countries. To assess the growth, identify parameters contributing to low carbon
energy systems, impact of measures, etc., the use of qualitative and quantitative
indicators are important. With the recently submitted Intended Nationally
Determined Contributions (INDCs) by the countries party to the UNFCCC, a road
map on the targets and activities are now in place.
With this background, this chapter was therefore aimed in this context to review
current energy policies and energy efficiency measures with implications for carbon
emission reductions, and to use modeling tools to ascertain the measures and its
impacts in the short, medium and long term perspective. At the same time, it was
also considered important to understand the implications of regional cooperation in
promoting and implementing low carbon energy systems. Thus, the overall
objective of this study is to identify and elaborate on individual energy and resource
use policy actions based on scenario analysis that is necessary to create low-carbon
economy; to review regional economic integration activities in the region and
beyond, that facilitate such actions with suggestions for any improvements, and
how regional cooperation can enhance growth in Cambodia, Lao PDR and
Myanmar (CLM) by low carbon energy systems. How the regional cooperation
would assist in promoting low carbon energy systems compared to individual
country activity could be assessed using the framework of indicators. The focus of
the study would be the Greater Mekong Sub region countries of Cambodia,
Lao PDR and Myanmar, with their interaction with the neighboring countries of
Thailand and Vietnam, as well as the other ASEAN countries.
Thus, it is expected that the study could shed light on the complementarities of
regional efforts to mitigate emissions on the parts of emerging economies of Asia
coupled with technology and financial transfers from developed economies of the
region. This study is structured as follows: First, we present the energy—envi-
ronment status of the study countries including the low carbon energy systems, and
its applicability to SE Asia, with special focus on the CLM countries. The report
then presents the role of indicators, drawing from the OECD’s System of Integrated
Environmental and Economic Accounting (SEEA) framework. Based on the above,
8 Low Carbon Energy Systems and Indicator Framework … 217

the analysis is on the scenarios and its impacts, what the INDCs of the three
countries envisage, and how the indicators could be used in conjunction with the
regional cooperation mechanism to promote low carbon energy systems that will
benefit the region as a whole. The conclusion summarises the findings, and presents
the strategies and actions to way forward to promote the use of indicators in the
assessment and application of low carbon energy systems through a regional
cooperation framework.

8.1.2 Energy—Economic Profile of CLM Countries

Cambodia, Lao PDR and Myanmar, together known as CLM countries, are located
in Southeast Asia. They are also part of the regional network of Association of
Southeast Asian Nations (ASEAN). Table 8.1 provides selected socio-economic
information of these countries.
Energy resources vary widely across these individual countries. Hydro power
potential in Cambodia and Lao PDR is large but under exploited. Cambodia mostly
relies on oil, while hydropower is the major source of electricity generation in
Lao PDR. Myanmar is well endowed with energy resources such as hydropower
and natural gas. However, most of these resources have not yet been exploited to
their full potential. Table 8.2 presents the energy resources potential in the CLM
countries.

Table 8.1 Key socio-economic parameters for ASEAN-CLM (as of 2014)

Categories Units Cambodia Lao PDR Myanmar
Population Million 15.3 6.9 51.4
GDP per capita USD 1,106 1,492 1,212
GDP Billion USD 16.9 10.3 62.3
Economic growth (% variation) 7.1 7.4 7.9
Exports Billion USD 9.1 2.7 12.5
Imports Billion USD 11.2 3.8 22.4
Primary energy consumption Trillion Btu 102 97 281
Electricity generation Billion kWh 1.4 12.1 10.5
Electricity consumption Billion kWh 3 2.9 7.8
Source Focus Economics (2015)

Table 8.2 Energy resources potential in CLM countries

Resources Cambodia Lao PDR Myanmar
9
Oil (10 bbls) n/a n/a 3.1
Gas (TCF) 9.9 3.6 12.1
Coal and lignite (106 tons) n/a 600 n/a
Hydropower (GW) 10 26 108
Source Mayurachat and Shrestha (2009)
218 Sivanappan Kumar

Total Final Energy Consumption (PJ)

GHG emissions from power sector

900 1,200
800 CO2 -e TFC
1,000

(thousands CO2-e)
700
600 800
500
600
400
300 400
200
200
100
0 0
2010 2015 2020 2025 2030 2035

Fig. 8.1 Projected growth of total final energy consumption and GHG emissions in Cambodia.
Source Mayurachat and Shrestha (2009)

8.1.2.1 Cambodia

Energy demand in Cambodia is projected to grow significantly by 2035. Some

estimates indicate that the country would need to increase its power generation
capacity by 24 times in 2035 to cater the sharp rise in energy demand (Mayurachat
and Shrestha 2009). Most of these power generation (about 35 %) will be
coal-fired, followed by hydro (29 %) and oil (23 %). Out of total final energy
consumption of 766 PJ in 2035, major demand will come from industry sector (556
PJ), followed by residential sector (157 PJ). Figure 8.1 shows the projected growth
in total final energy consumption in Cambodia and corresponding GHG emissions
from energy generation systems.
This increased energy demand and the country’s reliance on coal-fired power plant
will result in increased GHG emissions. Mayurachat and Shrestha (2009) estimate
that GHG emissions in power generation sector alone will increase from 0.23 MtCO2-
e in 2010 to 6.0 MtCO2-e in 2035, doubling the emissions every year between now
and 2035. In terms of individual gases, the total NOx is estimated to grow at an annual
average rate of 6 % during this period, while both SO2 and CH4 emissions would
grow at an annual average of 8 %. The increase in CH4 emission is mainly due to an
increased use of biomass for charcoal production and power generation.

8.1.2.2 Lao PDR

With abundant hydro resources, the current energy generation in Lao PDR is
dominated by hydropower. While Lao PDR earns a significant revenue from
exporting power to both Thailand and Vietnam, the total primary energy supply in
the country is very low, which was 101.4 PJ in 2010. This is likely to increase in
future and would reach to 264.5 PJ in 2035 (Mayurachat and Shrestha 2009).
Figure 8.2 presents projection of total final energy consumption and corresponding
GHG emissions in Lao PDR.
8 Low Carbon Energy Systems and Indicator Framework … 219

Total Final Energy Consumption (PJ)

GHG emissions from power sector

300 25
GHG TFC
250
20

(million tCO2-e)
200
15
150
10
100

5
50

0 0
2010 2015 2020 2025 2030 2035

Fig. 8.2 Projected growth of total final energy consumption and GHG emissions in Lao PDR.
Source Mayurachat and Shrestha (2009)

8.1.2.3 Myanmar

Myanmar is a large country located in the Mekong with an area of 676,577 square
kilometers (km2). Its population is approximately 60 million with more than 70 %
living in rural areas. Myanmar has one of the lowest per capita GDP (USD 715) in
Southeast Asia. Its Human Development Index (HDI) is also near the bottom of the
list (149 out of 187 countries). However, since the late 1980s, Myanmar’s economy
has maintained relatively steady growth—by an estimated 5.5 % in 2011 and by an
average of 4.9 % over the previous 3 years (ADB 2012).
The International Energy Agency (IEA) suggests that Myanmar’s total primary
energy supply in 2009 was 15.1 MTOE of which about 70 % was from biomass,
18.2 % was supplied by natural gas and the remaining 1.3 MTOE was supplied by
oil. Myanmar has a very low electrification rate (26 %)—rural areas have even
much lower rates. Myanmar is an extreme example of “energy poverty”, as
households mostly rely on burning firewood and animal dung—leading to acute
respiratory diseases and high mortality/morbidity rates (ADB 2012).
However, Myanmar has abundant energy resources. The hydropower potential
of the country’s rivers is estimated to be more than 100 GW. Country’ proven gas
reserves total 11.8 trillion cubic feet with huge potential for new discoveries.
Offshore gas has great potential for the country, and currently Myanmar is sup-
plying to Thailand and a new pipeline is planned to China. About one-third of the
country’s Foreign Direct Investment (FDI), which totals to USD 13.6 billion, is in
the oil and gas sector (ADB 2012). Myanmar also has abundant renewable energy
resources including hydro, biomass, wind and solar. While hydro is being devel-
oped and utilized on a commercial scale, the other renewable energy resource
applications are few. Figure 8.3 presents forecasts of total final energy consumption
and corresponding GHG emissions in Myanmar.
220 Sivanappan Kumar

Total Final Energy Consumption (PJ)

GHG emissions from power sector

1,800 4
1,600 GHG TFC
3.5
1,400

(million tCO2-e)
3
1,200
2.5
1,000
2
800
1.5
600
400 1
200 0.5
0 0
2010 2015 2020 2025 2030 2035

Fig. 8.3 Projected growth of total final energy consumption and GHG emissions in Myanmar.
Source Mayurachat and Shrestha (2009)

As seen in Fig. 8.3, the country’s emission would decrease from 3.6 MtCO2-e to
1.3 MtCO2-e in 2035. This is due to the fact that the country will make use of
abundant hydro potential in future power generation. The share of hydro in
Myanmar’s power generation mix will increase from 51 % in 2010 to 87 % in
2035.
Myanmar’s energy policy framework aims for maintaining energy indepen-
dence, promoting the wider use of new and renewable sources of energy, promoting
energy efficiency and conservation, and promoting household use of alternative
fuels. Myanmar has been leveraging regional cooperation to improve and further
strengthen its energy sector. In 2000, it formed the National Committee for the
ASEAN Forum on Coal (AFOC). The committee, since then, strongly facilitating
cooperation with the ASEAN in the areas of technology transfer for clean tech-
nology for power generation (ADB 2012).

8.1.3 Low-Carbon Energy Systems

While the economies in Southeast Asia is experiencing a tremendous growth, it is

also facing economic, social and environmental challenges; particularly due to
substantial exploitation of natural resources and the region’s vulnerability to climate
change (OECD 2014). Low carbon development is thus seen to be the most
plausible pathway for the region to foster current trend of economic growth
alongside preserving the natural resources. The leaders of the region understand the
challenges and therefore, efforts are underway to improve environmental perfor-
mance, while maintaining stimulating strong economic growth rates and lifting
millions out of poverty. There is a large evidence base that suggests that envi-
ronmental degradation is already undermining human well-being and economic
growth. For example, in 2000, outdoor air pollution resulted in nearly 200,000
deaths in the region costing over USD 280 billion. Shrimp firming in Thailand has
8 Low Carbon Energy Systems and Indicator Framework … 221

Fig. 8.4 Comparison of loss in GDP of different regions by 2060. Source Dellink et al. (2014)

contributed to the destruction of 50–60 % of the mangroves that were providing

coastal protection. Southeast Asian cities often experience coastal flooding, which
cost an estimated USD 300 million losses annually (in 2005), this can rise to USD 6
billion per year by 2050. Deforestation and the destruction of topsoil are believed to
be key reasons for catastrophic flooding, such as Thai flood in 2011 (OECD 2014).
The region is highly vulnerable to the impacts of climate change. The OECD
estimates that climate change could have a large impact on GDP in Southeast Asia
in 2060. Figure 8.4 compares the loss in GDP of Southeast Asia with other regions
in the world.
Low-carbon-energy-systems (LCES) comprise energy technologies that either
reduce carbon emissions or have lower carbon emissions compared to the con-
ventional energy technologies. Low-carbon development is not just about climate
change mitigation. It also makes tremendous sense to sustainable development
planning, as it steers nations away from dependence on the highly volatile fossil
fuel market, while green infrastructure development opens vast new business
opportunities (ADBI 2012).
Co-generation or combined heat and power (CHP) technology simultaneously
generates both electricity and heat form the same fuel, for useful purposes.
Co-generation or CHP technology can include different fuels including coal, bio-
mass, natural gas, nuclear material, solar energy, wind or geothermal energy.
The benefits of co-generation include increase in energy efficiency by supplying
useful heat alongside useful electricity, reduction in CO2 emissions and other
pollutants, increased energy security through reduced dependence on imported fuel,
cost savings for the energy consumer, reduced need for transmission and distri-
bution networks, and beneficial use of local energy resources to provide a transition
to a low carbon future.
222 Sivanappan Kumar

Renewable energy technologies use renewable energy that is derived directly or

indirectly from natural process related to sunlight, heat stored in the earth or
gravitational forces and that is constantly, naturally replenished. There are various
sources of energy that are recognized as renewable energy sources, such as solar
energy through both photovoltaic (PV) for electricity generation and thermal for
heat generation, hydro energy, wind energy, ocean energy, and geothermal.
However, as long as the rate of extraction of energy does not exceed the natural rate
of replenishment, then the resource is considered to be sustainable and renewable.
The benefits of renewable energy include free source of fuel that helps to sub-
stantially lower the operating cost, emission free, no dependence on conventional
fuel means that there is no import expenditure. This would result in significant cost
saving for the government.

8.2 Low Carbon Energy System Indicators

Indictors are a set of parameters that help to measure or provide information of a

process or an event. ADBI (2012) defines an indicator as “a parameter, or a value
derived from parameters, which points to information about the state of a
phenomenon/environment/area with a significance extending beyond that directly
associated with a parameter value”.
In order for the indicators to provide an effective measure of the progress in
development of low-carbon energy system, it is essential that the indicators have the
following key qualities:
• Sound analysis: It refers to the level to which the indicators are analytically
sound and can be applicable for the modeling and forecasting of economic and
environmental parameters.
• Measurable: This designates the basis of data validity on which indicators are
formulated and its easy availability (at low cost), frequency of updating and
accessibility.
• Policy relevance: It refers to whether the indicators are interpretable by the
decision makers for analysis of the problems at different levels and adaptable for
policy making and formulation.
The OECD, based on the System of Integrated Environmental and Economic
Accounting (SEEA), developed a conceptual framework (Fig. 8.5) for the mea-
surement of indicators to organize thinking about indictors and to identify relevant,
succinct and measurable statistics. The framework illustrates the interaction
between the category groups and the flow of inputs and output between different
groups. These interactions provide an understanding of the linkages that could be
formed between various indicators developed. For example, under the group of
natural asset base, the services provided by the natural resources and the sink
8 Low Carbon Energy Systems and Indicator Framework … 223

Fig. 8.5 Framework for low carbon development. Source OECD (2011)

functions are dumped into the natural resources indicating usage flows that give the
direction of flows towards or from other groups.
The OECD suggested a set of green growth indicators for Southeast Asia that
aims to support countries by providing concrete recommendations and measure-
ment tools to achieve economic growth and development while ensuring that nat-
ural assets continue to provide the resources and environmental services on which
well-being relies. These indicators have been derived from existing OECD data-
bases, the Food and Agriculture Organization (FAO), the World Bank’s World
Development Indicators and other sources; and have been selected following five
guiding principles (OECD 2011, 2014):
• Provide balanced coverage of the two dimensions of green growth;
• Reflect key issues of common relevance to green growth in Southeast Asian
countries;
• Are easy to communicate;
• Are measurable and comparable across countries; and
• Align with the OECD measurement framework for green growth.
There are about 40 indicators clustered into five key categories. These include
(a) socio-economic context and characteristics of growth; (b) environmental and
resource productivity; (c) natural asset base; (d) environmental dimension of quality
of life; and (e) economic opportunities and policy response. These indicators
encompass a variety of areas that are necessary to measure the progress and per-
formances in shifting to a green growth and low carbon economy. They also help to
evaluate policies, track progress and raise the profile of green growth among the
public and policy makers.
A recent study (ADBI 2012) developed a set of indicators for the development of
Low Carbon Green Growth in Asia-Pacific using the concept and method that was
224 Sivanappan Kumar

Class (Sub- branch)

Category (Branch)

Sub class (Twig)

Indicators Family (Stem)

Fig. 8.6 Indicators hierarchy definition methodology. Source ADBI (2012)

designed by the OCED (2011). The study developed a framework for the defining
the “characteristics” to be evaluated and assessed. The framework suggests that
entire indicator family can be divided into three levels—class, sub-class and cate-
gories, which is compared with a tree with branches and sub-branches, this is
depicted in Fig. 8.6. The categories identified in the framework are based on OECD
key indicator principles (OECD 2011), which are:
• Economic and social factors: This group comprises economic growth, pro-
ductivity and trade, labor market dynamics and socio demographic patterns
which directly or indirectly contribute to green growth measures.
• Environmental and resource productivity: These indicate the volume of
output per unit of services from natural resources indicating efficiency for use of
green inputs.
• Carbon sink asset base: Economy draws inputs from the environment (re-
source functions) and also uses the same environment for material disposition
(sink function).
• Environmental quality of life: Environmental factors which are the key
determinants, defining health and well-being of the people.
• Economic Opportunities and Policy Response group indicators: These are
key drivers of long term economic growth and reactions towards environmental
challenges.
• Capacity Building and Skills Development group indicators: These are
measures that maximize the use of resources and increase competencies in a
structured way.
While these indicators are important for measuring the green growth perfor-
mance, some are applicable to the development of low-carbon energy systems
(LCES). Table 8.3 gives a summary of these category of indicators, their sub
categories, suggested indicators and how (where) to obtain data to explicit the
indicators. These could be further expanded based on national conditions, avail-
ability of data, etc. on an annual or some specific time frequency that would help in
8 Low Carbon Energy Systems and Indicator Framework … 225

Table 8.3 Low carbon energy system indictors

Category Sub-category Proposed indicator Potential data source
Economic and Access to energy Access to electricity Energy outlook,
social factors national energy plan
Economic Labour and multi factor National accounts,
productivity and trade productivity economic survey
Environmental CO2 productivity Demand based, APERC output input
and resource production based tables, environmental
productivity productivity indicators’
Renewable energy Sector share of decoupling indicators
productivity renewable energy
Waste generation Waste generation
productivity intensities and recovery
ratio
Carbon sink Forest and biomass Forest coverage area, Environmental
asset base resources biodiversity, reserves reviews,
of minerals environmental
outlook journals
Environmental Environmentally Exposure of population HDI progress reports,
quality of life induced health to the CO2 emissions, energy reviews,
problems and related quality of freshwater, energy outlook
costs waste generation and
disposal techniques.
Population near fossil
fuel power plants
Capacity Regulations and Laws and mandatory National
development management requirements, development plan,
approaches voluntary guidelines environmental
Institutions Number of experts on surveys, and
environmental science, employment outlook
finance and technology
Economic R&D expenditure, Technology Science technology
opportunity patents on low carbon development and and strategy reports,
and policy technologies, innovation, production patents and R&D
response co-benefit related of environmental database
innovation goods and services
Tariff structure for Tariff rate on green Industrial research
low carbon goods and products and services scoreboard
service sector
Important green International financial Database on
economy financial flows on green international
flows, carbon market products and services financial flows and
financing, FDI capital account
reports of the country
Revenue from green Prices and financial Database on
taxes transfer economic policy
instruments
Source ADBI (2013)
226 Sivanappan Kumar

assessing the movement or the direction of the indicators. This would indicate the
influence of policies, capacities to change, financial reasons, institutional frame-
works, etc.
To further add to the specificity of these indicators, a brief description of indi-
cators that have relevance to LCES is given below.

8.2.1 Energy Security

Increasing energy security and the need for development of low-carbon energy
systems have direct and strong linkage. Various studies (Staley et al. 2009; Jiang
et al. 2010) have identified that it is imperative that low-carbon energy development
path is followed to enhance and sustain a long-term energy security. This is
because, development of low-carbon energy technologies can lead to diversification
of energy supplies, reduce dependence on imported fuels, create local employment
and increase national productivity. A study conducted by the World Resources
Institute notes that it would be a costly exercise to meet GHG mitigation goal
without increasing the penetration of more advanced low-carbon energy tech-
nologies, and recommends that policymakers in the US should provide the sus-
tained financial and institutional support necessary to advance all available
low-carbon technologies, which can reduce costs and increase energy security over
longer term (Staley et al. 2009). Another study undertaken to assess the GHG
mitigation possibilities of China while increasing its energy security recommends
that low-carbon economy should be adopted to cope with the climate change and to
promote China’s economic growth and the energy security (Jiang et al. 2010).
These broad observations are true for the countries in the Mekong region as well.

8.2.2 Fossil-fuel Support

Many countries, particularly in the developing world, provide sizable support to the
production or use of fossil fuels. This includes direct and indirect supports e.g.
government policies that provide direct budgetary subsidies, intervention in markets
that affect costs of prices, assumption of a part of companies’ financial risks, tax
reductions or exemptions, and under-charging of the use of government-supplied
goods, services or assets (OECD 2012). In the global perspective, the estimated
value of fossil fuel subsidy was about USD 500 billion in 2010 of which over USD
400 billion was in emerging and developing economies. Subsidies on fossil fuel
leads to unsustainable use of energy resources and increase in GHG emissions. The
International Energy Agency (IEA) estimates that the withdrawal of these subsidies
from emerging and developing economies could reduce energy demand by 4–5 %
by 2035 (IEA 2011).
8 Low Carbon Energy Systems and Indicator Framework … 227

Fig. 8.7 Overview of fossil-fuel subsidy in electricity generation. Source Adopted from Bridle
and Kitson (2014)

Supports on fossil fuel is one of the major hurdles that hinder the competi-
tiveness of low-carbon and alternative energy technologies with those based on
conventional and fossil fuel technologies. Because different kinds of subsidy can
affect the investment decisions in different ways in specific energy sectors. In 2013,
the IEA estimated that consumer subsidies for fossil fuel amounted to USD 548
billion, while subsidies for renewable energy amounted to USD 121 billion.
A study jointly undertaken by the International Institute of Sustainable
Development (IISD) and Global Subsidy Initiative (GSI) in 2014 revels how fossil
fuel subsidies can affect the deployment of renewable energy from an economic and
political perspective (Bridle and Kitson 2014). The study clearly demonstrates that
fossil-fuel subsidy has the following detrimental impacts on the development of
renewable electricity generation:
• Impairing the cost competitiveness of renewable energy: Fossil-fuel subsidy
reduces the cost of fossil-fuel based generations and thus impairs the relative
cost competitiveness of renewable energy technologies. Figure 8.7 demonstrates
how subsidies advantage different stages of fossil-fuel based electricity
generation.
• Subsidizing fossil-fuel inputs to the electricity sector: By providing subsidies,
the government reduces the wholesale price that the generator needs to achieve
to break even, with the effect of reducing the wholesale price in the wider
market. This downward pressure will be more marked where the government
provides subsidies to the inputs of a significant proportion of total generation.
• Funding the losses of electricity companies: In a price-regulated electricity
markets where the companies are not able to fully pass on their increased costs
to consumers, it is a common practice that the governments provide direct funds
228 Sivanappan Kumar

to bridge the gap between costs and revenues of electricity companies to avoid
the risk of power outages or financial collapse of the sector. This in turn puts the
renewable electricity generation in a non-competitive edge.
• Tax breaks to electricity sector companies: Tax breaks to electricity generation
and supply companies can have the effect of reducing the price of fossil-fuel
generation relative to renewable energy, and thus impede the entry of renewable
power sources over the longer term.
• Subsidies to fossil fuel producers: Direct subsidies to upstream activities of
fossil-fuel production, such as exploration, development and production of
fossil-fuels also influence the development of renewable energy. However, this
influence may not be as tangible as that related to subsidies offered directly to
the electricity sector.
Therefore, fossil-fuel subsidy has a direct impact on the development of
low-carbon energy systems, and thus can be considered to be one measuring tool or
an indicator of country’s progress towards low-carbon energy development.

8.2.3 Emission Intensity of Energy Supply

Emission intensity (also known as carbon intensity) of an economy is the measure

of amount of emissions per unit of GDP. This includes both energy and non-energy
related emissions. On the other hand, emission intensity of energy supply is defined
as amount of emissions per unit of energy supply and is often measured by gCO2-
e/kWh. The higher the share of low-carbon technologies in a country’s energy
generation mix, the lower the emission intensity of its energy sector. Therefore,
emission intensity of energy supply would be a logical selection of as an indicator
for low-carbon energy system.

8.2.4 Share of Renewable Energy Supply as a Percentage

of TPES

Renewable energy technologies offer a low-carbon energy generation alternative to

conventional fossil-fuel based energy generation. These technologies including
solar, wind, geothermal and biomass use natural and renewable energy sources and
thus are carbon neutral. Therefore, the higher the share of renewable energy in a
country’s total final energy supply, the lower the GHG emission from its energy
sector. Therefore, share of RE in TPES is a logical selection of low-carbon energy
indicator.
8 Low Carbon Energy Systems and Indicator Framework … 229

8.2.5 Energy Intensity

Achieving low carbon development in practice requires decoupling economic

growth from carbon emissions, so that at some point in time the emission growth
rate is lower than the Gross Domestic Product (GDP) growth rate. However, in the
past, economic growth has always given rise to the emissions (Urban and
Nordensvärd 2013). Reduction of energy intensity of an economy can lead to such
decoupling of emissions from economic growth. Energy intensity of an economy is
a measure of amount of energy used per unit of GDP. This is a direct measure of
how efficiently energy is used in the country for its productivity. Urban and
Nordensvärd (2013) suggest that decoupling of emissions from economic growth
can be achieved by reducing its emission or energy intensity that is when low
carbon and energy-efficient technology is used. Therefore, energy or emission
intensity is a logical choice of an indicator for low-carbon energy system.

8.2.6 Air Quality

Level of fossil-fuel based power generation has a strong positive link with the
amount of air pollutant in the atmosphere. This is because a number of hazardous
gases are released from fossil-fuel based power plants. For example, several air
pollutants are released from coal power plants. These include Sulfur Dioxide (SO2),
Nitrogen Oxide (NOx), Particulate Matter and Mercury. In addition, lead, carbon
monoxide and arsenic are also released from coal based power plants (UCSUSA
2010). Most of these pollutants are health hazard and excess exposure to some of
these pollutants can cause serious health problem. This indicates that air quality
significantly drops with the increased power generation from fossil-fuel based
power plants. On the other hand, in regime of a low-carbon energy technology,
such as renewable energy technology, there will be negligible or no release of air
pollutants. Therefore, air quality is an indicator of low-carbon energy system.
These specific parameters relevant to low carbon energy systems could be added
to the indicators list noted in Table 8.3.

8.3 Energy—Emission Scenarios for the CLM Countries

This section discusses the emission scenarios in CLM countries from the modeling
studies conducted and from the country’s perspectives based on their submission as
Intended Nationally Determined Contributions (INDCs). First, it presents the cur-
rent energy situation and corresponding emissions in the context of future
socio-economic growth in these countries. Then, it presents how the base case
emission scenario is likely to change with the introduction of energy trade and
230 Sivanappan Kumar

investment in the region. Mayurachat and Shrestha (2009) discuss four scenarios in
relation to energy security and development in CLM countries. They used
MARKAL model to demonstrate the impact of different energy trade and invest-
ment pathways on emissions and energy development in greater Mekong region
(GMS). In this study, however, two of these scenarios are presented—base case
scenario and unrestricted energy trade scenario—which are relevant to the current
study context.

8.3.1 Scenario Descriptions and Analysis

8.3.1.1 Base Case Scenario

This scenario considers that power purchase among the CLM countries will be
restricted to the current status, which are as follows:
• Power purchase agreement between Lao PDR and Thailand is 5 GW;
• Power import available to Thailand from two countries are 3 GW from China
and 1.5 GW from Myanmar; and
• Lao PDR’s commitment to sell 2 GW power to Vietnam.
Under the base case, the economy of five of the CLM countries is projected to
grow moderately, and there will be market-oriented development between 2000 and
2035. The urbanization rate of CLM countries, as per their national development
plan, are projected to rise gradually and the electrification rates in the rural areas are
assumed to reach 95 % by 2035. The model considered possible inclusion of all
renewable and low carbon power generation technologies including nuclear.
Table 8.4 presents the base case total primary energy supply in Cambodia during
2000–2035.
The energy system of Cambodia would rely on fossil fuels. Total primary energy
supply of Cambodia is expected to double during 2000–2035. The share of
renewables in the TPES will drop from 93 % in 2000 to 60 % in 2035. Coal based
power generation will start in 2035. To meet this increasing energy demand,
Cambodia’s power generation capacity will be about 24 times in 2035 compared to

Table 8.4 TPES in Cambodia under base case, PJ

2000 2010 2015 2020 2025 2030 2035
Biomass 439 484 509 534 561 589 618
Hydro 0 21 27 27 31 66 68
Oil 28 52 71 96 136 195 290
Coal 0 0 0 0 0 0 45
Net power import 2 −5 −6 −4 −3 −1 7
Total 469 552 601 653 725 849 1,028
Source Mayurachat and Shrestha (2009)
8 Low Carbon Energy Systems and Indicator Framework … 231

Table 8.5 TPES in Lao PDR during 2000–2035, PJ

2000 2010 2015 2020 2025 2030 2035
Biomass 90 97 102 107 113 120 127
Hydro 29 105 278 278 286 295 295
Oil 12 19 32 41 67 103 157
Coal 1 70 227 243 248 249 225
Power export 8 −51 166 165 167 167 158
Total 140 240 805 834 881 934 962
Source Mayurachat and Shrestha (2009)

Table 8.6 Base case emission from power generation (MtCO2-e) in CLM countries 2000–2035
2000 2010 2015 2020 2025 2030 2035
Cambodia 0.14 0.23 0.32 0.34 0.54 0.87 1.1
Lao PDR 4.0 5.4 20.3 20.92 21.5 22.1 20.8
Myanmar 3.3 3.5 3.6 3.1 2.5 2.2 1.3
Source Mayurachat and Shrestha (2009)

that was in 2000—from 0.2 GW in 2000 to 4.8 GW in 2035. GHG emission (CO2-
e) in Cambodia under the base case would grow at an average annual growth rate of
about 8 % with major contribution coming from the industrial sector (53 %) fol-
lowed by power generation (23 %).
The TPES of Lao PDR would increase by about four times between 2000 and
2035. From 2015, there will be an increase in power export to Thailand. This will
result in drop of share of biomass in total TPES from 73 % in 2000 to 20 % in
2035. Table 8.5 shows TPES in Lao PDR during 2000–2035. Power export for
Lao PDR would rise at annual average growth rate of 9 % during 2000–2035 and
would increase the share in the TPES from 6 % in 2000 to 25 % in 2035.
The increase in power demand would result in a 14-fold increase in power
generation capacity during the planning horizon where hydro will have the highest
share of 72 % by 2035 followed by coal (20 %) and biomass-fired power plant
(8 %). Total emissions in the country is estimated to experience an annual average
growth rate of 11 % (Table 8.6).
The TPES in Myanmar will triple during 2000–2035. Renewable energy would
continue to have the largest share in the TPES but its share would fall from 70 % in
2000 to 57 % in 2035. However, hydropower would increase to 26 % by 2035 with
the export of electricity beginning from 2015. Power generation capacity in
Myanmar would increase by about six times by 2035 compared to that in 2000.
Table 8.7 presents total primary energy supply in Myanmar during 2000–2035.
232 Sivanappan Kumar

Table 8.7 TPES in Myanmar during 2000–2035, PJ

2000 2010 2015 2020 2025 2030 2035
Hydro 28 119 257 382 508 595 626
Renewable 517 1,069 1,124 1,181 1,242 1,305 1,372
Oil 129 84 86 120 191 265 381
Gas 62 204 102 89 63 60 72
Power export 0 0 50 50 50 50 43
Coal 1 2 2 3 4 4 5
Total 737 1,478 1,621 1,825 2,058 2,279 2,499
Source Mayurachat and Shrestha (2009)

8.3.1.2 Unrestricted Energy Trade Scenario

This scenario assumes that the CLM countries would expand energy trade beyond
the level stipulated in the base case, which will mean that the energy resource
integration in the region is fully employed. Hydropower development in each
country would be gradually increase to their 80 % of full potentials. The maximum
domestic power generation of each country will be first made available for internal
consumption, and any surplus will be available for export. It also assumes that there
will be no restriction on trading energy commodities, such as natural gas, coal,
petroleum products, within the region and with the rest of the world. There will be
no restriction on investment in the new energy infrastructure from 2010. All other
things will be the same as in the base case. The analysis under this scenario is
discussed in Sect. 8.3.2.

8.3.2 Scenario Implications (Effects of Unrestricted Energy

Trade)

This section compares the results of the base case with that of the unrestricted
energy trade scenario to explain the impact of joint energy resource development
and trade in CLM countries on the power trade, energy security and CO2 emissions.

8.3.2.1 Effect of Discounted Energy Cost

With the allowance of unrestricted trade and investment in energy infrastructure and
commodity within GMS countries, the total cost of integrated energy system
including the establishment of international energy linkages under the base case
scenario is estimated to be 18 % higher than that of the unrestricted scenario. This
suggests that regional cooperation in the development of energy integration is
highly beneficial. Under the unrestricted scenario, the energy system cost for
8 Low Carbon Energy Systems and Indicator Framework … 233

Cambodia would be reduced by about 38 %, followed by 13 % in Lao PDR.

However, the energy system cost in Myanmar would increase by about 4 %. This is
mainly due to the additional investment cost of building certain energy infras-
tructure, such as hydro and wind, to enable power export.

8.3.2.2 Effects on Power Generation Capacity and Power Trade

Under the unrestricted scenario, the energy resource development and trade would
decrease the need for power generation capacities of Cambodia. On the other hand,
about 6.8 GW of hydro would need to be added in the generation system of Lao
PDR; and 1.5 GW of hydropower and 6.6 GW of wind power would need to be
added in Myanmar. These additional capacities would generate excess power to
export to Thailand, Vietnam and Cambodia. Under this scenario, Myanmar would
become the largest power export country in the region by 2035 by increasing its
volume of electricity export by five times compared with the base case scenario.

8.3.2.3 Effects on CO2 and Other Pollutants Emissions

Total CO2 emissions under the unrestricted case for the region would be 5 % less
than that of base case. Emissions in Lao PDR is estimated to be less than 46 %
compared with the base case, whereas total emissions in Myanmar would increase
by 14 % due to the increase in LPG use in cooking and kerosene consumption in
lighting. Cambodia is likely to have very minor CO2 emissions from this regional
energy integration.
Regional energy development and integration will also lead to a number of
co-benefits. For example, emissions of local pollutants in the region, under the
unrestricted scenario, would drop by about 3 % compared to base case scenario.
This is due to the reduction in coal and lignite based power generation in Thailand
and Lao PDR.

8.3.2.4 Effects on Energy Security

Mayurachat and Shrestha (2009), in their study, also presented the impact of
regional energy integration, and trade and investment, included the effects on
energy security. This has been done with the help of four indicators—these are
diversification of primary energy demand, Shannon-Weiner index, net energy
import ratio and fossil fuels dependency ratio. Under the unrestricted scenario, there
would be more diversification of energy resources in the region. On individual
country basis, Cambodia will enjoy a better energy security due more diversifica-
tion of energy resources resulting from increased use of natural gas for power
generation. On the other hand, for Lao PDR and Myanmar, there will be com-
paratively less resource diversification, as they continue to develop their hydro
234 Sivanappan Kumar

power to take advantage of increased energy export. The expansion of regional

energy resource development and trade would stimulate power development in
Lao PDR and Myanmar and increase electricity export to the neighboring countries,
which would increase energy trade balance in the region. In summary, energy
resource integration in the region, compared to non-cooperation scenario, would
reduce the total discounted energy system cost by 19 %, reduce the total energy
import by 3 % and the reduce GHG emissions by 2 %.

8.3.3 The Intended Nationally Determined Contributions

(INDCs) of CLM Countries

The three countries have submitted their Intended Nationally Determined

Contributions (INDC) to the UNFCCC, which outlines their vision and actions in
addressing climate change mitigation and adaption efforts in these countries. This
will have a direct impact on the future low carbon energy system development in
these countries, and so it is important to highlight and take note of.

8.3.3.1 Cambodia

Cambodia’s INDC has its priority actions in the following areas for mitigation:
Energy industries, manufacturing industries, transport, and other sectors (this is
expected to help a maximum reduction of 3,100 Gg CO2eq compared to baseline
emissions of 11,600 Gg CO2eq by 2030), and land use land use change and
forestry (LULUCF) (wherein, it is aimed to achieve the target of increasing forest
cover to 60 % of national land area by 2030).
The implementation of these plans would be guided by the National Strategic
Development Plan (2014–2018). The Climate Change Strategic Plan (2014–2023)
contains indicators to track implementation of climate change actions. The moni-
toring, reporting and verification (MRV) system will build on the greenhouse gas
inventory, and it is expected that a national monitoring and evaluation framework
will be developed.
Cambodia would require support in the form of financing, capacity building, and
technology transfer to implement the actions set out in their INDC, and this is
expected to be of the order of 1.27 billion US$ to support the implementation of
priority activities included in the sectoral climate change action plans, by 2018. The
Climate Change Financing Framework estimated that in 2012, expenditure on
climate related policies and actions represented 6.5 % of public expenditure, or
1.31 % of national GDP. In the National Strategic Development Plan there is a plan
to increase the ratio of climate expenditure on GDP from an estimated 1.39 % in
2015 to 1.5 % in 2018. It is estimated that dedicated climate change funding from
8 Low Carbon Energy Systems and Indicator Framework … 235

international sources, either from bilateral/multilateral donors or through global

climate funds, is about 40 % of total climate related investment.
Therefore, international/regional cooperation that can help in promoting tech-
nology transfer, capacity building, monitoring and evaluation, and reporting and
verification would be needed.

8.3.3.2 Lao PDR

The 8th Five Year National Socio-economic Plan (2016–2020), with a Vision to
2030, is for Lao PDR to make the transition from a Least Developed Country
(LDC) to a middle income country by 2030 supported by inclusive, stable and
sustainable economic growth whilst alleviating poverty. The National Strategy on
Climate Change (NSCC) of Lao PDR was approved in early 2010 defines climate
change action plans for the period 2013–2020 for mitigation and adaptation actions
in the sectors of agriculture, forestry, land use change, water resources, energy,
transportation, industry and public health. The energy related mitigation related
actions envisage include:
(a) Utilising unexploited hydropower resources to export clean electricity to its
neighbors (Cambodia, Viet Nam, Thailand and Singapore) to develop and
industrialize in a sustainable manner. This means that total installed capacity
of the hydropower plants will be approximately 5,500 MW by 2020, and
20,000 MW of additional hydroelectric capacity is planned for construction
after 2020.
(b) Implementation of a renewable energy strategy to increase the share of small
scale renewable energy to 30 % of total energy consumption by 2030.
(c) To make electricity available to 90 % of households in rural area by the year
2020.
(d) To build capacity to monitor and evaluate policy implementation success, with
a view to produce new policy, guidance and data.
Lao PDR has apportioned USD 12.5 million for climate change which represents
approximately 0.14 % of GDP in 2012 from its domestic resources for climate
action related activities. However, to implement the mitigation actions, international
support in the form of financial, technology transfer and capacity building is nee-
ded. An initial estimate of the financial needs for implementing identified mitigation
policies and actions is about US$ 1.4 billion.
Therefore, the country would need support from international/regional that can
help technology transfer, capacity building, monitoring and evaluation, and
reporting and verification, since their exploitation of renewable energy resources
would be mainly for export to neighbouring countries.
236 Sivanappan Kumar

8.3.3.3 Myanmar

Myanmar’s INDC notes that to successfully implement the activities, “…Myanmar

requires further capacity-building along with access to technological and financial
support from the international community to implement the INDC. In order to
realize the intended mitigation contribution set out above and meet the nation’s
needs with respect to adaptation, Myanmar requires a significant amount of inter-
national support…”.
The Government of Myanmar’s Electrification Master Plan forecasts, 38 % of
the primary electricity generation capacity will be through hydropower resource in
2030. Furthermore, to increase access to clean sources of electricity amongst
communities and households currently without access to an electric power grid
system, the Comprehensive Village Development Plan is expected to provide
electricity access to 6 million people in rural areas using a variety of sources, of
which at least 30 % of which will be sourced from renewables such as of
mini-hydro, biomass, solar, wind and solar mini-grid technologies. Under the
National Forestry Master Plan and National Energy Policy, about 286,000
cook-stoves were distributed during 2001–15, and there are plans to distribute an
additional 260,000 cook-stoves between 2016 and 2031.
Lack of technological, financial and capacity in the country necessitates that
Myanmar would need support for regular monitoring and evaluation of plans and
targets given in the INDC, through the use of indicators, and promote greater
regional cooperation and support for capacity building, technology development
and transfer and financial resources.

8.3.4 Regional Energy Cooperation and Low Carbon

Energy Development in the ASEAN

ASEAN has been increasingly positioning itself as a unique model of regional

cooperation. The ASEAN Plan of Activities for Energy Cooperation (APAEC)
serves as a blueprint for ASEAN regional cooperation in the field of energy.
APAEC aims to bringing policies to action by building a cleaner, more efficient and
sustainable ASEAN Energy Community. The key objectives of APAEC include
strengthening regional cooperation on RE development, promoting the develop-
ment of centers of research and RE development, and promoting open trade
facilitation and cooperation in RE sector. The APAEC 2010–2015 planned to
achieve a collective target of 15 % for regional RE installed capacity by 2015
(Kasih 2015). The plan also targets for energy intensity reduction by 20 % in 2020
and 40 % in 2035, compared to 2005 level. APAEC specifies energy cooperation in
seven areas presented below (ACE 2010; UNESCAP 2014).
8 Low Carbon Energy Systems and Indicator Framework … 237

8.3.4.1 ASEAN Power Grid

The vision of ASEAN Power Grid (APG) program is to ensure regional energy
security while promoting efficiency utilization and sharing of resources by 2020.
It’s objective is to facilitate and expedite the implementation of the 15 ASEAN
interconnection programs with a total investment of USD 5.69 billion, and to
further harmonize technical standards and operating procedures as well as regula-
tory and policy frameworks among the ASEAN member states (ACE 2010).
ASEAN is also supporting construction of large-scale transmission lines between
Cambodia and its neighbors Thailand and Vietnam under the ASEAN Power Grid
project with partial support from the ADB (UNESCAP 2014).

8.3.4.2 Trans-ASEAN Gas Pipeline

The Trans-ASEAN Gas Pipeline (TAGP) program aims to achieve a long-term

security, availability and reliability of energy supply, particularly in oil and gas; and
to harmonize gas tariff and taxation principles across the region. The activities of
this program include interconnecting the gas pipeline of ASEAN member states to
enable gas to be transported across the borders of the member states. It also aims to
develop a regional gas grid by 2020, which will be done through linking the
existing and planned pipeline networks of the ASEAN member states. Currently,
approximately 2,300 km of gas pipeline is operating, and the program aims to
develop a total of 4,500 km gas pipeline (ACE 2010).

8.3.4.3 Coal and Clean Coal Technology

Use of coal for power generation and industrial purposes is expected to rise with an
annual growth of 6.9 % by 2030. Due to the largely abundant coal resources in the
region, which is mostly untapped, the future power generation is likely to lead to
more coal based power plants. In this regard, the ASEAN is facilitating the
development and encouraging the member states to use clean coal technology to
increase the energy security in the region as well as reduce the adverse environ-
mental impact arising from increased coal use. The energy action plan also focuses
on the regional cooperation on technology transfer and create enabling environment
for regional coal supply and trade. These regional activities include development of
ASEAN Coal Price Index; setting up coal laboratory and standards; promote
intra-ASEAN coal trade; enhance regional security on coal supply; and develop-
ment of strategies towards harmonization of local practices to encourage coal
trading.
238 Sivanappan Kumar

8.3.4.4 Energy Efficiency and Conservation

To balance between the increased energy consumption in the region and the need to
reduce the use of resources for energy generation, ASEAN has formulated Energy
Efficiency and Conservation (EE&C) program. It aims to strengthen the cooperation
in energy efficiency and conservation through institutional capacity building and
increasing private sector involvement in lifting energy efficiency in both power
generation, and industrial and domestic use of energy. The region aims to reduce its
energy intensity by at least 8 % by 2015 compared to 2005 level. The key strategies
to achieve this goal include development of regulatory and market approaches;
development of human and institutional capacities; and encouraging private sector
participation, particularly the financial institutions (ACE 2010).

8.3.4.5 Renewable Energy

To complement the fossil fuel based power generation in increasing energy security
and to reduce the global environmental concern, ASEAN aims to increase share of
renewable energy (RE) in its energy generation mix. Figure 8.8 shows installed
capacity of RE and compares that with non-renewable energy systems. RE installed
capacity in the region has increased from 24.42 GW in 2006 to about 39 MW in
2011 (Kasih 2015). The share of renewable energy in the total energy generation
mix ranged from 16 to 18 % during 2006–11. As of 2011, bulk (79.18 %) of RE
supply is from hydro followed by biomass (12.41 %) and geothermal (7.7 %). In
the short term plan, it aims to increase the share of RE in the total power installed
capacity by 15 % by 2015. This target was based on the previous target of
increasing RE by 10 % during 2004–2009, which was successfully achieved. The
key strategies to achieve this target include strengthening regional cooperation on
the development of RE and alternative energy including hydro and bio-fuel (for
transportation); improving research and development of RE technology and
resource assessment; promote open trade, facilitation and cooperation in RE sector;
and facilitate new investments in RE infrastructure. It plans to develop ASEAN as a
installed capacity (GW)

100 RE non-RE

80

60

40

20

0
2006 2007 2008 2009 2010 2011

Fig. 8.8 Share of renewable and non-renewable energy generation installed capacity in ASEAN.
Source Kasih (2015)
8 Low Carbon Energy Systems and Indicator Framework … 239

hub for RE by establishing a working Task Force to stockpile the development of

RE and prepare RE Roadmap.

8.3.4.6 Regional Energy Policy and Planning

ASEAN recognizes that increased energy security is the key driver to achieve its
aspirational economic growth. This would essentially require a sound energy policy
and planning. ASEAN therefore, encourages its Member States to move beyond
individual energy policies and planning to an inter-dependent, inter-country and
outward looking policies to harness greater economic integration and narrowing the
development gap across the Member States. The key strategies to facilitate regional
energy policies and planning include development of ASEAN Fuel Policy and
Energy Outlook; improving energy access through improving rural electrification;
strengthening collaboration and dialogues with ASEAN partners and with national,
regional and global institutions; and providing directions and guidance on APAEC
programs including cross-sectoral issues.

8.3.4.7 Civilian Nuclear Energy

In the context of increasing future energy demand and need for sustainable
low-carbon development, the region views that implementation of nuclear energy
for power generation would be sensible. ASEAN is currently facilitating dialogues
with its Member States and building institutional capacity to support the future
development of nuclear power. The key activities on nuclear power generation
development include Awareness building including increasing community under-
standing about nuclear power; and the development of standards and safety
guidelines, and to conduct capacity building among ASEAN Member States.

8.3.5 Discussion

An analysis based on the unrestricted trade scenario projections and the INDC
submissions by the CLM countries indicates the following:
(a) Cambodia’s priority actions would be in the energy industries, manufacturing
industries, transport, and other sectors, and this is expected to help a maximum
reduction of 3,100 Gg CO2eq compared to baseline emissions of
11,600 Gg CO2eq by 2030. The scenario study also indicated that the major
emission contribution would be in the manufacturing sector.
(b) The INDC of Lao PDR notes that the total installed capacity of the hydro-
power plants in Lao PDR will be 5,500 MW by 2020, 20,000 MW of addi-
tional hydroelectric capacity is planned for construction after 2020, to increase
240 Sivanappan Kumar

the share of small scale renewable energy to 30 % of total energy consumption

by 2030, and to make electricity available to 90 % of households in rural area
by the year 2020. The scenario study also projects about 6.8 GW of hydro
would need to be added in the generation system of Lao PDR, mainly for
export to the neighboring countries.
(c) The Electrification Master Plan forecasts of Myanmar indicates that 38 % of
the primary electricity generation capacity will be hydropower in 2030, while
electricity access to 6 million people in rural areas would be through a variety
of sources, of which at least 30 % of which will be sourced from renewables
such as of mini-hydro, biomass, solar, wind and solar mini-grid technologies.
There are plans to distribute about 260,000 cook-stoves between 2016 and
2031 under the National Forestry Master Plan and National Energy Policy.
The scenario analyses indicates that 1.5 GW of hydropower and 6.6 GW of
wind power would need to be added in Myanmar for export to Thailand,
Vietnam and Cambodia.
Though the INDCs of the countries are developed independently, regional
cooperation on energy development and trade clearly indicates that for the CLM
(and ASEAN), the results would be beneficial in terms of reduced costs, increased
energy security, and reduced greenhouse gas emissions. The ASEAN-CLM
countries are facing a varieties of challenges in meeting their energy demands
mainly due to lack of appropriate infrastructure and resources. For example, this
stunts the growth of Cambodia’s agriculture industry, as many of the rural com-
munities without power in the Mekong region are vital to rice cultivation. While
energy policies do include low carbon energy development, in reality, the countries
are trying to bridge the energy gap by any means (Pryce 2015). Rate of electrifi-
cation in all three countries have been significantly low. For example, in Cambodia
only 26 % of households have access to electricity. This forces large power con-
sumers, such rice millers, to import electricity from Vietnam and Thailand at sig-
nificantly marked-up rates.
Regional cooperation from ASEAN can play a significant role in improving the
power crisis for Cambodia, and CLM as a whole. ASEAN is supporting con-
struction of large-scale transmission lines between Cambodia and its neighbors,
Thailand and Vietnam under the ASEAN Power Grid project with partial support
from the ADB. This will improve access to electricity in rural communities, which
is the most promising initiative to date in addressing rural power shortages in
Cambodia.
The countries should also be looking at cheaper alternatives and generating
power independently by utilizing renewable energy sources. This would help them
moving towards low carbon economy while improving energy access. Japan is
funding a project in Phnom Penh designed to promote the use of biofuels in
Cambodia, derived from Jatropha seeds. Research conducted in Cambodia by
Japan’s New Energy and Industrial Technology Development Organization
(NEDO) indicated significant potential to harness rice husk, acacia, cassava and
coconut for biomass-fueled power (Pryce 2015).
8 Low Carbon Energy Systems and Indicator Framework … 241

From the recently submitted INDCs of the three countries, it is clear that they
need support from the region/internationally to move forward in addressing tech-
nology transfer, finance, monitoring evaluation reporting and verification.
Additionally, with the noted INDC targets, the application of indicators listed in
Sect. 8.3.3 would be useful in monitoring the progress of actions effectively, and to
take adequate and timely measures appropriately. The implications of the projec-
tions of different scenarios through indicators can be an important and effective tool
to show the impacts for low carbon energy development. Furthermore, the indi-
cators could be used to potentially rank the rate and pace of movement towards low
carbon energy systems.

8.4 Application of Indicators Framework for CLM

To find the implications of the overall energy resource development and trade for
the GMS region due to regional cooperation, in this study, the analysis was
restricted to the promotion of LCES in the time frame 2000–2035, using the long
term least cost energy system model. Country wise independent energy system and
an integrated regional energy system, and two scenarios—base case and unre-
stricted energy trade were considered. The indicators used include the power
generation capacity, Net energy import ratio (NIER) and Fossil fuel dependency
(FFDR). NIER close to 1 indicates the dependence on imports, while FFDR close to
1 indicates the country’s heavy dependence on fossil fuels. The summary obser-
vations and results for the major energy—environment indicators for 2035 for the
three countries is presented in Table 8.8.
In the electricity sector, it is observed that this is almost the same in base case
and other scenario for 2035 (for GMS). However, it will decrease for Cambodia,

Table 8.8 Energy—environment indicators for CLM countries (2035)

Selected energy—environment indicator Units Cambodia Lao PDR Myanmar
Power generation capacity—base GW 4.8 9.4 12.9
Power generation capacity—unrestricted GW 4 16.2 21
NIER—base 0.33 0 0.02
NIER—unrestricted 0.33 −0.13 −0.14
FFDR—base 0.33 0.59 0.2
FFDR—unrestricted 0.33 0.27 0.07
Total CO2—base Million 356 761 688
tons
Total CO2—unrestricted Million 358 412 787
tons
Ratio of power import/export—unrestricted 0.02 −2 −7
and base case
Source Mayurachat and Shrestha (2009)
242 Sivanappan Kumar

and increase for Lao PDR and Myanmar (mainly for export) and these would be
mainly renewables. In terms of emissions, the total emissions in GMS would be
5 % less than the base case in 2035. The only increase will be in Myanmar (mainly
due to LPG use for households); the change will not be significant in Cambodia,
and there would be significant decrease in Lao PDR.
The indicators listed in Table 8.8 for the individual countries could be expanded
the broad group of indicators discussed in Sect. 8.3.3 using the following
categories:
(a) The Socio Economic context and characteristics of growth with 12 indicators
(b) Environmental and resource productivity with 4 indicators
(c) Carbon sink asset base with 6 indicators
(d) Environmental quality of life with 6 indicators
(e) Economic opportunities and policy responses with 5 indicators, and
(f) Capacity development with 5 indicators
Table 8.9 lists the suggested indicators, their relevance, analytical soundness and
measurability are the key components. The relevance (R) and analytical soundness
are given in terms of 1, 2, 3 (1 being the most relevant), while measurability is
given in terms of short (S), medium (M) or long (L) term. The reasons for these
indicators, and their relevance has been elaborated somewhere (ADBI, 2013).
The indicators list in the Table 8.9 could be found from the various government
reports based on their policies and actions on a specific time scale (yearly, or
bi-yearly or once in 5 years) to monitor the track record of the actual performance.
Besides, projections could be made based on the policy directions to understand and
analyse whether the growth path will be as planned or otherwise. For example,
some more specific energy environment indicators have been identified and listed in
Table 8.8 that could also be integrated in the list provided in Table 8.9.
Though development and listing indicators are important, a more intuitive
indication on the state of low carbon energy system could also be provided by the
use of a single composite measure. For example, GDP per capita gives an idea of
the state of an economy than a table of the output of different industries and sectors.
If such an index is regularly evaluated and updated, it can facilitate communication
with ordinary citizens, including stakeholders. A range of statistical methods, such
as principle cluster analysis, regression analysis, matching percentile method,
expert analysis, etc. are available for the development of composite index. These
vary based on the phenomenon to be represented, variables used for the same,
parameter selection process and weights used for the parameters. As noted in the
case of individual indicators for the countries, a composite index can also show the
impact of regional cooperation on the low carbon energy system development vis-à-
vis individual country based activity. Such an exercise developed for CLM coun-
tries, which need cooperation amongst themselves and with the region and inter-
nationally, would be beneficial to financial institutions and others keen to provide
the necessary financial support that is needed in this region.
8 Low Carbon Energy Systems and Indicator Framework … 243

Table 8.9 Suggested indicators

Group/Theme Proposed indicators R S M
The socio economic context and characteristics of growth
Economic growth, productivity (1) GDP growth and structure 1 1 S
and competitiveness (2) Gross national income
(3) Gross national savings
(4) Multifactor productivity 1 1 M
(5) Labor productivity
(6) Inflation and commodity prices 1 1 M
(7) Unemployment rates 1 1 M
Socio economics, education and (8) Population density 1 2 M
income inequality (9) Life expectancy
(10) Population pressures
(11) Income inequality 2 2 M
(12) Life expectancy 2 2 M
Environmental and resource productivity
Carbon and energy productivity (1) Demand based 1 1 S
(2) Production based
(3) Renewable energy productivity 2 2 S
(4) Share of renewable energy with total
energy usage
(5) Demand based material productivity 1 2 S
(energy and non-energy)
(6) Waste generation intensities and 1 2 M
recovery ratios
Carbon sink asset base
Renewable stocks (1) Area and volume of forests 1 2 M
(2) Threatened species
(3) Renewable water resources and
withdrawals
(4) Land conversions and cover changes 2 2 M
Non renewable stocks (5) Available stocks (mineral resources) 1 2 M
(6) Extraction rates (mineral resources)
Environmental quality of life
Environmental health and risk (1) Air pollution levels 1 1 S
(2) Deaths attributable to air pollution
(3) UV radiation attributable deaths
Energy and environmental (4) Water and drinking sanitation 1 2 M
services and amenities facilities
(5) Social security health expenditure
(6) Improved access to sanitation
Economic opportunities and policy responses
Technology and innovation (1) R&D expenditure on important low 1 1 S
carbon technologies
(2) Patents on low carbon technologies 1 1 M
(continued)
244 Sivanappan Kumar

Table 8.9 (continued)

Group/Theme Proposed indicators R S M
International financial flows (3) Carbon markets-CDM 1 1 M
(4) Official development assistance
(5) Foreign direct investments
Capacity development
Capacity building, training and (1) Regulations and management 1 1 S
skill development approaches
(2) Laws and mandatory requirements
(3) Institutions 1 1 M
(4) Number of experts and researchers
(5) Type of specialized educational
organizations

8.5 Conclusions and the Way Forward

Regional cooperation can greatly help promote low carbon systems in CLM and
bring additional benefits to the CLM countries. Qualitative and quantitative indi-
cators can be used to demonstrate the trend and the benefit of regional cooperation.
Though a number of initiatives and measures are already in place, measures that
need to be undertaken in order to move forward to enhance regional cooperation,
and as well as furthering greater cohesion in moving towards low carbon energy
systems in the CLM countries are presented below.

8.5.1 Free Trade in Low-Carbon Technology and Services

Technology transfer to CLM are important tools to promote low carbon energy
system development. Coupled to this is the higher tariffs on environmental tech-
nologies that are major barriers to the promotion of the wider use of low carbon
technologies. This can be addressed by enhancing and spearheading the liberal-
ization of trade and reduced tariff rates for low-carbon green products and services
that would lead to an acceleration in technology transfer. For example, production
and export of solar and wind technology, trade in ethanol fuel and technology and
flexfuel vehicles technology, and new high-tech energy industries and the green
services are some of the options that could be pursued. Most technologies are
currently imported, and so technology sharing could be supported by international
aid agencies. Furthermore, in the power generation sector, it is observed that this is
almost the same in base case and other scenario for 2035 (for GMS). However, it
will decrease for Cambodia, and increase for Lao PDR and Myanmar (mainly for
export) and these would be mainly renewables. Therefore, introduction of initiatives
to promote renewable energy technologies uptake in the power sector is an
important option.
8 Low Carbon Energy Systems and Indicator Framework … 245

Such actions also have important repercussions in terms of energy security, as

there would be greater diversification of energy resources within the GMS, and
dependence of imports from rest of the world will be less.
Another measure could be mandatory emissions targets that could create
incentives for relatively ‘dirty’ industries to move to countries that do not have
emissions caps. Thus, coordination of national policies may reduce the prospect of
intra-regional carbon leakage.

8.5.2 Integration of Carbon Markets

These emerging economies do not have the public resources to fund a compre-
hensive approach to low-carbon green growth, and so private sector participation is
critical. However, many low-carbon projects have a long payback time.
Governments can play a catalytic role by setting up low-carbon funds and changing
tax policies and subsidies to cushion private investment risks.
Expansion of energy cooperation will be beneficial with reduced energy system
cost to Lao PDR (13 %) and Cambodia (38 %), with a slight increase for Myanmar
(4 %) (due to hydro and wind for export) compared to base case. Thus, regional
power trade is an avenue for the Mekong countries to increase access to electricity
while mitigating GHG emissions. Integrated energy grids could also help improve
efficiencies and reduce investment needs. Thus, regional power trade is not only an
avenue for the Mekong countries to increase access to electricity while mitigating
GHG emissions. Integrated energy grids could also help improve efficiencies and
reduce investment needs.

8.5.3 Managing the Regional Financial Reserves

Leveraging and catalyzing low-carbon financing, especially through private capital,

requires special attention, as there are no carbon markets currently, and so future
financing should come from national budgets (for example, as part of adhering to
the INDC commitments), private sector investment in renewables and energy
efficiency, and international financing mechanisms (for example, the Joint Credit
Mechanism). These countries need to create an appropriate policy and legal envi-
ronment to attract more private sector participation, taking note of the size of their
economies, and the transaction costs involved. Regional cooperation and regional
project development could assist in addressing such issues. For example, the ADB
has established the Regional Cooperation and Integration Fund (RCIF) and the
Investment Climate Facilitation Fund (ICFF) under the Regional Cooperation and
Integration Financing Partnership Facility. These help pool and provide financial
and knowledge resources to support regional cooperation projects.
246 Sivanappan Kumar

8.5.4 Coalition for Regional Innovation Systems

Regional effort for sector or economy-wide institutional strengthening is needed.

Countries need to establish regional level low-carbon innovation centers and invest
in training programs to expand their capabilities to implement policies and
regulations.
Building on the model of special economic zones, these countries could consider
setting up a low carbon zone. Such a zone could be developed around a coherent
low carbon strategy that could help attract and focus investments into R&D for
mitigation technologies. The zone could also serve as a testing ground for new
technologies and economic policies that could then be transferred to other countries.

8.5.5 Partnerships for Collective Learning and Capacity

Building

A set of regionally accepted minimum efficiency standards should be developed and

applied to a limited but critical range of energy-intensive industrial and consumer
goods, and buildings, whether they are existing buildings being refurbished or new
buildings being constructed.
Developing MRV (measuring, reporting and verification) standards for low
carbon infrastructure projects for ultimate adoption by all countries would be
another step that will help regional cooperation and promote low carbon energy
systems.
In this context, it is important to note that A Climate Technology Center and
Network (CTCN) was formally established by the UNFCCC COP 17 as part of the
Cancun Agreements. The CTCN, confirmed during COP 18 in Doha, is jointly
managed by UNEP and the UNIDO, and has 11 regionally based technology
institutes serving as the CTCN consortium (AIT and TERI from Asia are members
of this consortium).

8.5.6 Regional Cooperation: Strategies

The CLM countries could consider the following strategies to promote low carbon
energy system development in the region, namely, to
• cooperate in the development and deployment of renewable energy technolo-
gies, with a focus on building R&D and manufacturing capacities and sup-
porting dissemination of the technologies.
8 Low Carbon Energy Systems and Indicator Framework … 247

• promote regional power generation and trade from low carbon sources that can
meet each country’s growing energy needs, reduce dependence on oil and coal
imports and lower greenhouse gas emissions from power generation.
• work together to develop regionally appropriate mechanisms to speed up the
diffusion of energy efficiency standards and technologies in particular as they
relate to infrastructure, such as buildings.
• explore the feasibility of setting up a low carbon zone spanning the three
countries to attract investments and aid that can support research, testing and
manufacturing of low carbon technologies and adaptation strategies.
• establish regional research networks to jointly develop climate change mitiga-
tion strategies and promote joint management strategies for climate change
mitigation in trans-boundary ecosystems.
The CLM countries could also consider the use of indicators for their low carbon
energy system development, and in the evaluation and estimation of a composite
index that can encompass the various indicators. Such a proposal can help the
countries not only to benchmark their activities amongst themselves, but also would
help monitor their overall progress towards low carbon energy system development.
Based on these, detailed analyses could be undertaken, and the primary one such
analysis could be that on the impact of fostering regional cooperation through
specific measures/activities.

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 Part II
Transition Experiments and Innovation
in Regional Cooperation
Chapter 9
Energy Policy and Regional Cooperation:
Australia’s Contribution to Low Carbon
Green Growth Initiatives

Gaminiratne Wijesekere and Arif Syed

9.1 Introduction

The existing evidence strongly supports the view that economic activities in the past
century or so have contributed to the climate change and that the concentration of
the level of Green House Gas emissions in the world has increased, contributing to
global warming. Considering such evidence the United Nations Framework
Convention on Climate Change (UNFCCC) requested all developed countries
including Australia take action to reduce Green House Gas emissions and helped
developing countries to do the same. Australia is rich in diverse energy resources. It
has large resources of coal that are used for low-cost domestic electricity produc-
tion, as well as for export. The uranium resources in Australia are used for export
only. It has substantial natural gas and coal seam gas resources. Australia produces
crude oil but not enough to meet total demand, and only has a limited supply of
liquefied petroleum gas (LPG). Australia’s renewable energy resources mainly
consist of wind, solar, geothermal, hydro, and biogas. Fossil fuels, coal, oil and gas
continue to be the main components of its energy mix, as will be discussed later in
this chapter.
Although Australia’s contribution to total global Green House Gas emissions is
comparatively small, around 1.5 %, with its small population (around 23 million)
its per capita emissions ranks the highest in OECD countries and second highest in
the world after the United States. This is due to a number of reasons: Australia’s
high dependence on fossil fuels for energy production; a large part of Australia’s

G. Wijesekere (&)
Australian National University, Canberra, Australia
e-mail: [email protected]
A. Syed
Bureau of Resources and Energy Economics, Canberra, Australia
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 251

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_9
252 G. Wijesekere and A. Syed

exports income being derived from energy-intensive products; and the use of fossil
fuel for domestic transport and its use for road transport over rail transport.
While Australia did not ratify the Kyoto protocol when it was presented in 2002,
it nevertheless it agreed to ratify at the 13th Conference of Parties held at Bali in
December 2007 and ratified in April 2008. The first commitment period under the
Kyoto which set legally binding Greenhouse Gas emissions reduction targets on
participating countries, ended in 2012. The second commitment period started in
2013 with a targeted reduction in emissions of 18 % below 1990 levels by 2020.
Australia pledged for this target.
This chapter examines Australia’s current climate change policy and its salient
features with special focus on low carbon growth initiatives of the Commonwealth
Government. It also discusses Australia’s multilateral and bilateral contribution to
assisting developing countries in the reduction of Green House Gas
(GHG) emissions and in particular its assistance to the countries in the Asia-Pacific
region. It also briefly discusses the liberalization of trade and the environmental
provisions in Australia’s Free Trade Agreements with its Asia-Pacific neighbours.

9.2 Primary Energy Mix

Total primary energy consumption growth has shown a downward trend since the
1970s, reflecting changes to Australia’s economic structure, the effect of techno-
logical developments, government policies on energy efficiency in energy con-
version and end-use sectors. In the 1990s, energy consumption grew by an average
annual rate of 2.3 %, followed by growth of 1.5 % a year in the 10 years to 2011–
12. Over the outlook period, growth in energy consumption is expected to continue
to be moderate (Table 9.1), with an average annual growth rate of 1 % from
6,016 PJ in 2014–15 to 8,541 PJ in 2049-50 (Syed 2014).
The decline in the growth rate of energy consumption reflects the net outcome of
countervailing downward and upward pressures on energy consumption.
Assumptions about energy demand management, weak manufacturing energy
demand, a shift away from more energy-intensive sectors in the economy, and the
existence of the Renewable Energy Target (RET) are some of the factors
influencing the dampening effect on energy demand. Partly offsetting this trend is
the increased energy demand in LNG production and mining, as well as economic
growth in Australia returning to its long-term potential as world economic per-
formance improves.
In 2014–15 fossil fuels contributed around 94 % of the total energy consumed in
Australia and renewables around 6 %. Black and brown coals provided 27 %, oil
40 %, and gas 27 % of primary energy consumption, respectively. Over the long
term, the shares of both black and brown coal is expected to fall to 23 %, and the
share of gas falls to 26 %, whereas the share of oil is projected to rise marginally to
account for 45 % of total primary energy consumption.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 253

Table 9.1 Primary energy consumption, by energy type

2014– 2034– 2049– % share % share Growth rateb
15 35 50 2014– 2049– 2014–15 to
(PJ) (PJ) (PJ) 15 50 2049–50
Non-renewables 5,675 7,220 8,078 94 95 1.0
Coal 1,635 1,871 1,945 27 23 0.5
Black coal 1,171 1,407 1,436 19 17 0.6
Brown 464 464 509 8 6 0.3
coal
Oil 2,431 3,304 3,879 40 45 1.3
Gas 1,610 2,045 2,253 27 26 1.0
Renewables 341 441 463 6 5 0.9
Hydro 68 68 66 1 1 −0.1
Wind 59 116 118 1 1 2.0
Bioenergy 195 220 231 3 3 0.5
Solar 19 23 34 <1 <1 1.7
Geothermal 0 14 14 0 <1
Totala 6,016 7,661 8,541 100 100 1.0
a
Numbers in the table may not add up to totals due to rounding: bAverage annual growth rate (%)
Source Syed 2014

Despite the rise in the consumption of renewables its share in the total primary
energy consumption is expected to fall slightly from 6 % in 2014–15 to 5 % by
2049–50. This is because the consumption non-renewable energy is expected to rise
by approximately 42 % compared to the consumption of renewable energy.
Although renewable energy is expected to increase by 36 % during the period, it
remains numerically small compared to the non-renewable energy. Wind energy
has the fastest growth of all fuels, at the rate of 2 % a year. Overall renewable
energy is expected to grow at the rate of 0.9 % over the projection period to 2049–
50. In contrast, consumption of coal (both black and brown) is projected to rise
relatively modestly over the outlook period—at an average rate of 0.5 % a year to
1,945 PJ by 2049–50. Australia’s primary energy consumption of oil is projected to
increase by around 1,448–3,879 PJ by 2049–50, or at an average rate of 1.3 % a
year (Table 9.1). Demand for products derived from oil for road, rail, air and sea
transport is projected to be the main source of growth in oil consumption.

9.3 Climate Change Policy in Australia

Australia’s policy response to climate change has changed in direction, largely

reflecting ideological differences in successive governments. Climate action and the
policies of the two major Australian political parties (the Australian Labor Party and
the Coalition made up of the Liberal Party of Australia and the National Party of
Australia, showed a difference in perspectives. However, while their policies on
254 G. Wijesekere and A. Syed

environment and climate change also have not been consistent, both parties
acknowledge the contribution of coal and gas for the economy and their continuing
significance to the economy for years to come. Due to the level and the strength of
the lobbying by interest groups, the private sector (mainly groups representing
electricity providers and mining & coal industries) and non-governmental organi-
zations including environmentalists, government energy policy has changed from
time to time. Energy policy responsibilities are shared across the different levels of
government in Australia. Much of Australia’s energy policy is developed and
implemented through cooperative action between the Australian and state and
territory governments.

9.3.1 Milestones

• Australia was represented at the Rio ‘Earth Summit’ in 1992, by a Labour

government and signed the United Nations Framework Convention on Climate
Change (UNFCCC). In the same year saw the release of the National Green
House Response Strategy which was agreed on by the Council of Australian
Governments;
• In 1997, the Australia Liberal Government signed the Kyoto Protocol to
the UNFCCC but refused to ratify the Protocol. They claimed that signing the
Protocol was bad for the economic interests of the country, representing the
views of the industry groups of the country;
• In 1998, at the Toronto conference, Australia agreed to a reduction of emission
target (20 % reduction of emissions by 2005 on 1988 levels). The revised
version of the targets was approved by the Government in 2009;
• In 2006, the Prime Minter appointed a Task Force to advise on emission trading.
This report was released in 2007 and it recommended the adaptation of an
Emission Trading Scheme for Australia;
• In 2007, Australia ratified the Kyoto protocol which came to force in 2008;
• In 2009, the Government introduced the Emission Reduction Bill and was twice
rejected by the Senate;
• In 2011, the Clean Energy Bill (consisting of a package of 18 bills) was passed
by the parliament. This act came into force from 1 July 2012;
• In 2013, the Clean Energy Act was repealed; and
• In 2015 the Government released the details of Direct Action Plan
(Commonwealth of Australia 2015a).
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 255

9.4 Carbon Pricing (Carbon Tax) in Australia:

Short-Term Impact on Electricity Demand
and Emissions

The experience of the carbon pricing Australia would benefit other countries, partic-
ularly those contemplating similar schemes. In Australia carbon pricing scheme was
operational for just two years and this short time prevents an examination of the full
economic and environmental impact of the scheme. However, a study which focused
on the National Electricity Market found that the two years of the carbon tax had a
discernible impact on emissions (O’Gorman and Jotzo 2014). The authors reported
that carbon pricing had increased household electricity prices on average by 10 %,
industrial electricity prices by 15 % and wholesale (spot) electricity prices by 59 %.
The study also showed that despite the effects of carbon tax on investments in power
generation, the level of investment did not progress as expected due to uncertainties
about the continuation of the carbon tax. The study found that the carbon tax has
worked as expected. The authors estimated that as much as 17 million tonnes of
emission reductions from the electricity sector were made during the two year period,
due to the carbon tax. The reductions, according to the authors, would have even more
had the industry sector responded to the carbon pricing scheme in a positive way. This
study further estimated that the drop in power demand attributed to the carbon tax was
between 2.5 and 4.2 terawatt-hours per year or about 1.3–2.3 % of the National
Electricity Market. During the period, brown and black coal-fired power generators cut
their emissions output by 4 GW. The observed shifts in mix of power supply resulted
in between 1.3 and 3.3 % reductions in energy-intensity.

9.5 Energy White Paper

The Government has prioritised a new Energy White Paper in 2015 to address the
challenges facing Australia’s energy sector and to provide industry and consumers
with certainty in government policy (Commonwealth of Australia 2015a). The
Energy White Paper 2015 articulates a coherent and integrated national energy
policy, addressing the issues of reliable and competitively priced energy supply,
streamlining regulation, and encouraging a commercially-driven energy market that
provides transparent prices and investment signals across all sources of energy and
proven energy technologies. The central plank of the Australian Government’s
emissions reduction policy is the Direct Action Plan. The Renewable Energy Target
(RET) is the other main feature of the energy policy in Australia, which substan-
tially contributes to carbon emissions reductions by substituting renewables for
fossil fuels. The Energy White Paper, the Direct Action Plan and the Renewable
Energy Target are discussed below. In the following, emphasis has been placed on
the description of the Direct Action Plan since its policy design has only recently
been developed and is still emerging.
256 G. Wijesekere and A. Syed

The Australian Government released its Energy White Paper in April 2015,
setting out the energy policy framework for Australia. The White Paper is devel-
oped to deliver competitively priced and reliable energy supply to households,
business and international markets. The White Paper has three main themes. The
first is to increase competition to keep prices down. Effective competition needs
adequate supply, choice of suppliers and informed consumers. If the states and
territories privatise their energy assets, with the support of the Australian
Government’s Asset Recycling Initiative, competition will improve.
The Australian Government will lead work through the Council of Australian
Governments (COAG) Energy Council to support the introduction of appropriate
electricity price signals for consumers, and to support the removal of
cross-subsidies. Gas supply on Australia’s east coast is tightening and this is not
helped by unnecessary policy barriers imposed by some states on new onshore
production. The Australian Government will continue to lead work through the
COAG Energy Council to address this problem. Demand for gas exports is pushing
up local gas prices towards the international price, affecting both Australian
industries and households. Responding to this challenge, they have therefore
addressed this through a cohesive approach that includes:
• increasing supply;
• ensuring there is an adequate competition and transparency in the gas market;
and
• encouraging more flexible trading arrangements.
The Australian Government does not support reserving gas for domestic use.
Reservation will have the perverse effect of discouraging needed investment in new
production. The second theme is to increase energy productivity to promote growth.
Improving energy productivity will help reduce business and household costs.
Productivity improvements can come from giving consumers the options, infor-
mation and tools to source and use energy appropriate to their needs, as well as
through more efficient buildings, transport, and equipment and appliances.
The Australian Government will develop a National Energy Productivity Plan to
improve how we use energy. The Australian Government will also work through the
COAG Energy Council to develop a national energy productivity policy framework
to deliver the collaborative actions in the National Energy Productivity Plan.
A national energy productivity improvement target will be determined as part of the
plan, in parallel with developing Australia’s post 2020 emissions reduction target.
The third theme is investing in Australia’s energy future. Australia depends on a
reliable supply of energy—whether it is electricity, gas or transport fuels—and
benefits from the jobs and investment the sector provides. Investment, particularly
foreign investment, is essential to realising the potential of Australia’s natural
resources and technology innovation. The White Paper highlights the actions being
taken to promote Australia as an investment destination.
The Australian Government supports a technology-neutral approach to our
future electricity and transport fuel supply and will continue to support the research,
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 257

development and demonstration of new energy technologies, while removing

unnecessary regulatory and other non-market barriers to future technologies. The
Australian Government will also improve its outlook capability to enable Australia
to respond quickly to major changes in the way we produce, transport and use
energy. The Australian Government has already initiated a comprehensive range of
actions that the Energy White Paper will build on to reduce pressure on electricity
and gas prices and increase Australia’s future competitiveness as a global supplier
of energy resources. Those initiatives are including:
• The Asset Recycling Initiative, which will encourage states and territories to
free up capital to invest in additional economic infrastructure by privatising state
and territory-owned assets;
• The Industry Growth Centres, which will lift competitiveness and productivity
by focusing on areas of competitive strength, including the oil, gas and energy
resources sector and the mining equipment, technology and services sector;
• The Industry Skills Fund, which will enable Australia to have the highly skilled
workforce needed to adapt to new business growth opportunities, rapid tech-
nological change and market-driven structural adjustment; and
• The Entrepreneurs’ Infrastructure Programme, which will provide Australian
companies with structural and strategic support to capitalise on growth
opportunities.

9.6 Direct Action Plan

Australia has also committed to a Direct Action Plan on climate policy. Its cen-
trepiece is the Emissions Reduction Fund (ERF) to help reduce Australia’s
greenhouse gas emissions by 5 % on 2000 emissions by 2020. The ERF imple-
ments a long-term framework for stable and sustainable climate change policy.
The ERF offers strong incentives to seek out actions that are in the interests of
business as they reduce costs and in the interests of the environment as they reduce
emissions. It will be administered by the Clean Energy Regulator (CER) and has
three elements. The first element is crediting emissions reductions. Crediting
involves determining an amount of emissions reductions delivered by an emissions
reduction project. The rules for this will be set out in the section on emissions
reduction methods. The CER will issue one Australian Carbon Credit Unit for each
tonne of emissions reductions delivered under a method. Credits can then be sold to
the Government through a reverse auction.
Purchasing emissions reductions is the second element. The CER will run
competitive reverse auctions to purchase emissions reductions at the lowest avail-
able cost. The CER will enter into contracts with successful bidders. The contracts
will guarantee payment in return for delivery of emissions reductions. Safeguarding
emissions reductions is the third element. The safeguard mechanism will ensure that
emissions reductions paid for through the ERF are not offset by significant increases
258 G. Wijesekere and A. Syed

in emissions elsewhere in the economy. The safeguard mechanism will commence

on 1 July 2016, to provide time for the Government to consult with business on
important technical details.

9.6.1 Emissions Reduction Methods

Emissions reduction methods set out the rules for estimating emissions reductions
from different activities. These methods ensure that emissions reductions are gen-
uine—that they are both real and additional to business-as-usual operations.
Emissions reduction methods are legislative instruments. This means that they must
be made in accordance with the ERF legislation and can be disallowed by the
Parliament.
The process for developing emissions reduction methods is as follows:
• The Minister for the Environment makes a decision on the priorities for method
development, following advice from business and the Emissions Reduction
Assurance Committee (ERAC).
• Emissions reduction methods are developed by technical working groups
comprising industry and other stakeholders, and the Department of the
Environment.
• Emissions reduction methods are subject to public consultation and assessed by
the ERAC.
• The Minister (or delegate) considers the advice of the ERAC and decides to
approve the method.

9.6.2 Crediting

The CER will issue Australian Carbon Credit Units for emissions reductions from
registered projects. Once credits have been issued they can be purchased by the
Government through the ERF or sold to organisations that wish to offset their
emissions. Project proponents will register their emissions reduction projects with
the CER.

9.6.3 Industrial Sector Methods

The Government has set up technical working groups to develop suitable methods
for emissions reduction opportunities in the industrial sector. The Government is
also working with businesses to develop land sector methods.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 259

The Government is working with businesses to develop two categories of ERF

methods:
• Facility-wide methods will be developed to join up (or aggregate) emissions
reductions from multiple activities at large facilities for which data are reported
under the NGERS.
• Activity methods will be developed for specific emissions reduction activities.

9.6.4 Purchasing Emissions Reductions

The ERF will purchase emissions reductions through a reverse auction or other
purchasing process for large projects. Proponents will register their projects with the
Clean Energy Regulator in order to participate in an auction. Proponents will
submit a bid—specifying a price per tonne of emissions reductions—with the
lowest-cost projects being selected out of the auction. Proponents will not be able to
see what other proponents are bidding as bids will be ‘sealed’ or secret.
Successful proponents will be paid the price that they bid (often called a
‘pay-as-bid’ auction). In submitting a bid, proponents will agree to be bound by the
terms of the contract if they are successful at an auction. The Government will enter
into contracts with successful proponents, which will guarantee the price and
payment for the future delivery of emissions reductions.

9.6.5 Contracting for Emissions Reductions

After an auction, the CER will enter into a carbon abatement contract with a
successful bidder. The contract will set out the Commonwealth’s obligation to pay
for emissions reductions at the bid price and the project proponent’s obligation to
deliver the bid quantity of emissions reductions. The contracts will be standardised,
provide commercial terms and conditions, and detail a schedule for delivery of
emissions reduction and subsequent payment. The design of the standard contract
will be developed in consultation with businesses and the legal profession, and will
be available in advance of the first auction.

9.6.6 Safeguard Mechanism

The safeguard mechanism will ensure that emissions reductions paid for through
the ERF are not offset by significant increases in emissions elsewhere in the
260 G. Wijesekere and A. Syed

economy. The safeguard mechanism will encourage businesses not to increase

emissions above historical levels and will be administered through the National
Greenhouse and Energy Reporting Act 2007, as set out in the Carbon Farming
Initiative Amendment Act 2014.

9.7 Monitoring, Verification and Reporting (MVR) Under

ERF

ERF expect industries/agencies receiving support (participants) to provide regular

reporting and the Clean Energy Regulator is empowered with the task of auditing
and monitoring reports submitted by participants. ERF participants will need to
submit regular reports on their registered projects, including reporting on their
emissions reductions. Reports can be submitted as frequently as every six months or
up to every two years (or five years for sequestration projects).
Legislative provisions specify the criteria by which the Clean Energy Regulator
will set the audit schedule for participants’ projects. The audit schedule will set out
the level of assurance, frequency, and scope of audits required for projects. In
general, these rules will require projects to undertake an initial audit at the begin-
ning of the crediting period, with a minimum of three audits (including the initial
audit) required in total over crediting periods of seven years or more. The audit
schedule will be provided to participants at the time their projects are registered.
Under certain circumstances, the Clean Energy Regulator can also give partic-
ipants written notice that they are required to undertake an additional audit, pro-
vided that this is appropriate and in accordance with the legislative rules. The Clean
Energy Regulator will monitor ERF participant’s ability and willingness to meet
their obligations under the legislation, using a risk-based approach to detect
non-compliance and actively encouraging the return to compliance.

9.8 Renewable Energy Target

The RET allows renewable energy power stations and owners of small-scale
renewable energy systems to create certificates for each megawatt-hour (MWh) of
eligible renewable electricity they produce. Liable entities (mainly electricity
retailers) are obligated to purchase certificates created by renewable electricity
generators such as wind farms, solar farms, hydroelectric power stations, rooftop
solar panels and solar water heaters. Certificates are surrendered annually to the
CER to demonstrate compliance with the RET and avoid payment of a shortfall
charge. This creates a market which provides financial incentives to increase the
generation of renewable electricity.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 261

As stated in the Renewable Energy (Electricity) Act 2000, the objectives of the
RET are to:
• encourage the additional generation of electricity from renewable sources;
• reduce greenhouse gas emissions in the electricity sector; and
• ensure that renewable energy sources are ecologically sustainable.
Commencing in 2010, the RET was expanded to ensure at least 20 % of
Australia’s electricity comes from renewable sources by 2020. To achieve this,
annual targets were increased to peak at 45,000 gigawatt hour (GWh) in 2020. The
Solar Credits multiplier was introduced to boost support for small-scale solar
photovoltaic systems; and Partial Exemption Certificates were introduced to pro-
vide assistance to emissions-intensive-trade-exposed (EITE) industries for the cost
impact of the RET.
Since the beginning of 2011, the RET has separately supported large scale
renewable electricity projects such as wind and solar farms [the Large-scale
Renewable Energy Target (LRET)] and installations of small-scale renewable
energy systems such as rooftop solar [the Small-scale Renewable Energy
Scheme (SRES)]. The annual targets under the LRET were amended to rise to
41,000 GWh in 2020 (changed to 33,000 GWh in mid-2015) and the uncapped
SRES was forecast to deliver at least 4,000 GWh by 2020 (Commonwealth of
Australia 2015b).
In 2014, an independent expert panel (Commonwealth of Australia 2014a)
undertook a review of the operation, costs and benefits of the RET and reached
several key conclusions:
• The RET had encouraged significant new renewable electricity generation,
which had almost doubled as a result of the scheme;
• The economic landscape had changed significantly since the expanded RET
commenced in 2010. In particular, electricity demand had been declining and
forecasts for electricity demand in 2020 were much lower. As a result, the RET
was contributing to a large surplus of electricity generation capacity;
• The main rationale for the RET is to contribute to the Government’s emissions
reductions targets in a cost-effective manner, however the RET provides rela-
tively high cost emissions reductions; and
• The renewable energy sector would benefit from a $22 billion cross-subsidy
from 2014 until the end of the scheme, on top of the $9.4 billion cross-subsidy
received from 2001 to 2013.
The expert panel recommended that the RET should be scaled back and pro-
vided the Government with options to amend the LRET and the SRES. Following
its consideration of the expert panel’s report and subsequent negotiations with the
opposition and cross-bench senators, the Government has decided to make changes
to the RET scheme to better reflect market conditions and to ensure renewable
energy continues to play a significant role in Australia’s energy mix and in
262 G. Wijesekere and A. Syed

Table 9.2 Required GWh of renewable source electricity (new targets effective from June 2015)
Year New target
2015 18,850
2016 21,431
2017 26,031
2018 30,631
2019 35,231
2020 41,850
2021–2030 33,000
Source Commonwealth of Australia 2014b: p. 8

achieving Australia’s 2020 emissions target. The changes have been implemented
from June 2015 and included:
• Reducing the profile of annual targets under the LRET so that the 2020 target
becomes 33,000 GWh of renewable electricity;
• Introducing a full exemption for the electricity used in emissions-intensive
trade-exposed (EITE) activities to replace the current partial exemption;
• Removing the requirement for legislated biennial reviews of the RET; and
• Reinstating biomass from native forest wood waste as an eligible source of
renewable energy.
The Table 9.2 shows targets under the new amendments (new target).

9.9 Australia’s Emissions Abatement Task

The Australian Government is firmly committed to reduce Australia’s greenhouse

gas emissions to 5 % below 2000 levels by 2020. This is equivalent to 13 % below
2005 levels. Australia’s cumulative abatement task from 2013 to 2020 has steadily
fallen by around 1,100 Mt CO2-e, from 1,335 Mt CO2-e in 2008 to 236 Mt CO2-e
in 2014–15 as the Australian economy became less emissions intensive (Syed 2014;
Commonwealth of Australia 2015b).
This reduction of 185 Mt CO2-e, compared to the abatement task of 421 Mt
CO2-e in the 2013 Projections report is due to a range of factors including:
• lower electricity demand forecasts due to uptake of household solar, energy
efficiency and higher retail electricity prices;
• worse than expected agricultural conditions due to drought;
• lower manufacturing output due to industrial closures; and
• two additional years of historic data and improved estimation methods that have
been applied to the National Greenhouse Gas Inventory and these projections.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 263

Table 9.3 Key components of Australia’s abatement task

Emissions reductions required to meet Australia’s 2020 target of five per
cent below 2000 levels
Cumulative abatement task 2013–2020 (Mt CO2-e)
Initial cumulative abatement task 2013–2020 365
Less estimated carry-over −129
Total cumulative abatement task 2013–2020 236
Abatement task in 2020 (Mt CO2-e)
Task in 2020 126
Change in indicators: 2019–20 relative to 1999–2000
Emissions per unit of GDP −35 %
Emissions per capita −14 %
Source Commonwealth of Australia 2015c
Note Carry-over has been adjusted to take account of cancelled Clean Energy Regulator units from
the first commitment period. Voluntary action abatement in the form of Green Power and the
National Carbon Offset Standard is treated as additional to the target

Australia’s gross domestic product (GDP) is projected to outpace projected

emissions growth, with emissions per unit of GDP projected to fall 35 % between
1999–2000 and 2019–2020 (Commonwealth of Australia 2015b). Australia’s
emissions per capita are projected to fall by 14 % over the same period (Table 9.3).

9.10 Commonwealth Energy Efficiency Programs

The National Framework for Energy Efficiency (NFEE) was a multi-level gov-
ernment policy announced by the Ministerial Council on Energy in 2004.
The NFEE promoted improvements in energy efficiency through encouraging a
shift in households’ and companies’ consumption behaviour by improving public
information, providing financial incentives, and enforcing standards for the energy
efficiency of goods such as light bulbs and air conditioners. To reinforce this
desired behavioural shift or ‘step change’, the Prime Minister’s Task Group on
Energy Efficiency recommended establishing a national energy efficiency target of
improving energy intensity by 30 % by 2020 (PMTGEE 2010).
In 2009, the Council of Australian Governments (COAG) agreed on the 10-year
National Strategy on Energy Efficiency (NSEE). The NSEE seeks to support the
NFEE in providing information regarding methods of reducing energy use and
improving efficiency, generating public awareness, and facilitating innovations in
energy efficient technologies and practices (COAG 2009). The NSEE also strives to
remove regulatory obstacles which may prevent improvements in energy efficiency,
such as duplication of processes and inconsistent standards. A number of NFEE and
264 G. Wijesekere and A. Syed

NSEE programs are already in place or currently in the process of development in

order to address energy efficiency opportunities. Some specific programs are
described below.

9.11 Equipment Energy Efficiency (E3) Program

The E3 Program is designed to improve the energy efficiency of appliances and

products. It has two main elements: energy rating labelling; and Minimum Energy
Performance Standards (MEPS). Energy rating labelling for major appliances in
Australia was first proposed in the late 1970s by the state governments in New
South Wales and Victoria. It was not until 1992 that a mandatory national labelling
scheme was finally agreed, and legislation in the last state and territory was not
passed until 2000. The energy rating labelling scheme aims to encourage consumers
to purchase more energy efficient appliances, and therefore provides incentive for
manufacturers to improve the energy performance of appliances.
Minimum Energy Performance Standards (MEPS) specify the minimum level of
energy performance that appliances, lighting and electrical equipment must meet
before they can be offered for sale or used for commercial purposes. Management
of the E3 Program is the responsibility of the E3 Committee. This committee
consists of officials from the Commonwealth, state and territory government
agencies as well as representatives of the New Zealand Government.

9.12 National Construction Code (Formerly Building

Code of Australia)

Heating and cooling accounts for the majority of the average Australian house-
hold’s energy use but efficient building design can reduce the reliance on artificial
temperature controls. To determine how efficient the design of an existing or
yet-to-be-built home is, it is given a star rating between zero and 10 since
November 2011, the Commercial Building Disclosure (CBD) Program requires
most sellers and lessors of large office spaces to provide energy efficiency infor-
mation to prospective buyers and tenants. The CBD Program mandates the dis-
closure of energy efficiency information for commercial aces of 2000 square metres
or more. Disclosure of this information before sale or lease assists prospective
buyers and tenants to make informed decisions. The CBD Program is an initiative
of the Council of Australian Governments and is delivered by the Australian
Government Department of Industry and Science.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 265

The Energy Efficiency in Government Operations (EEGO) Policy aims to reduce

the energy consumption of Australian Government operations with particular
emphasis on building energy efficiency. The EEGO Policy was announced by the
Australian Government on 6 September 2006. The EEGO Policy aims to pro-
gressively improve overall Australian Government energy performance by estab-
lishing energy efficiency targets for Government agency office buildings, including
those relating to tenant use. It also has a commitment to the development of similar
targets for other Government buildings.
A key objective of the EEGO Policy for Government office buildings in each
portfolio was to achieve the following energy intensity targets from June 2011:
• 7,500 MJ per person per annum for tenant light and power;
• 400 MJ per square metre per annum for central services.

9.13 Solar Hot Water Rebate Program/Renewable Energy

Bonus Scheme

The Solar Hot Water Rebate (SHWR) Program was introduced on 17 July 2007. It
provided a $1,000 rebate where a solar hot water system or heat pump replaced an
existing electric hot water storage unit and generated at least 20 Renewable Energy
Certificates (RECs). The rebate was means tested to household incomes below
$100,000.
The SHWR was superseded by the Solar Hot Water Rebate—Energy Efficient
Home Package announced as part of the then Government’s Economic Stimulus
package. The rebate was increased to $1,600 and the means test was removed.
On 4 September 2009, the rebate amount for heat pumps was reduced back to
$1,000. Those rebuilding following the February 2009 Victorian bushfires were
made eligible for the rebate. On 19 February 2010 the Solar Hot Water Rebate
Program and Energy Efficient Homes Package (and the Home Insulation Program)
were closed. On 19 February 2010 the REBS commenced providing a $1,000
rebate for a solar hot water system or $600 for a heat pump where they replaced an
existing electric storage hot water system. On 10 May 2011 REBS eligibility was
extended to residences that have had insulation removed under the Foil Insulation
Safety Program. On 30 June 2012 REBS closed. Since 2007, over $323 million was
provided for over 256,000 rebates.
266 G. Wijesekere and A. Syed

9.14 Cooperation for Low Carbon Growth Initiatives

9.14.1 Global and Regional Cooperation

The Australian government’s action on global and regional cooperation rests within
two areas: the success of forging an international agreement that achieve genuine
emission reductions, and has the participation of all major industrial countries and
developing countries who are major emitters; and using trade policy effectively to
support climate change initiatives, at the same time making sure that the environ-
mental issues of individual countries do not act as barriers to free trade.

9.14.2 Forging an International Agreement

These inevitably rests with the development of a multilateral agreement on climate

change and low carbon growth, within the UNFCCC which Australia became a
party to in 1992 and which came into force in 1994. Although Australia did not
ratify the Kyoto protocol at that time, by being a party to the UNFCCC Australia
has accepted the principle of ‘common and differentiated responsibility’ and the
need for developed countries (Annex 1 countries) to assist developing countries
financially and other means, including capacity building, technology transfer to deal
with mitigation and adaptation to climate change and continue to influence other
countries in climate change action and low carbon growth initiatives.
Attempts to develop an international agreement to control GHG emissions have
been negotiated since the Kyoto summit in 1997. The prospect for a global
agreement on GHG emissions has been a without success to date, despite UNFCCC
convening many times being held since the Kyoto summit. At the 2011 UNFCCC
in Durban (COP 17) countries laid the groundwork for negotiating a new agreement
to come into effect in 2020. Further work leading to the Paris conference has been
made in subsequent COP meetings in Doha, Warsaw and Lima. Based on these
preparatory meetings, the global agreement on INDCs at the COP 21 in Paris was
adopted in December 2015.

9.14.3 Intended Nationally Determined Contributions

(INDCs)

The UNFCCC expects that all member countries, after a careful consideration to
make quantified targets and firm commitments on post-2020 emission reductions
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 267

well ahead of the forthcoming Paris meeting. These commitments need to be

aligned with the globally agreed goal of keeping the increases in global temperature
below the 2 °C of the pre-industrial level. The 2015 issue paper of the Australian
Government re-iterated that it needs to maintain a balance between climate change
objectives and the Australia’s prosperity, job growth and maintaining the com-
petitiveness with major trading partners (Australian Government 2015).
The Climate Authority of Australia has proposed that the INDC for Australia
should be set at 40 % of the 2005 levels, given the Australia’s own climate change
circumstances and the 2 °C globally agreed temperature target, with slightly deeper
cuts introduced by 2030 (Climate Institute 2014). Australia appointed a committee
to advise the government on the new emission reduction targets post-2020 on 2005
levels. This report was submitted to the Government and In August 2015, the
Australian Government has decided to keep the post-2020 commitment to between
26 and 28 % (Commonwealth of Australia 2015d). However, detailed strategies to
achieve this target with State and Territory and sector-based allocation of the target
together with the indicators for monitoring the progress of achievements yet to be
known.

9.15 Sustainable Development Goals and Indicators

While the world witnessed the 2015 Paris agreement on GHG emissions, the year
2015 also marked the end of the Millennium Goals (MDGs) implementation period,
began in 2000. In 2016, MDG’s will be replaced by the Sustainable Development
Goals (SDGs), which recognizes the links between three pillars of pillars of sus-
tainability: social, economic and environmental. Each country is expected to
develop targets and a set of indicators to monitor the achievements of SDGs that
will be implemented in 2016. Although these two processes—climate change and
sustainable development—are progressed independent of each other, they are
inherently linked. A recent study has shown that any climate change action that
does not recognize this link has the potential to put vulnerable nations at further
risk, while any SDGs that ‘does not adequately address the causes of climate
change or need for climate resilience’ could jeopardize the long-term climate
compatible development (Ansutegi et al. 2015: 7). Each country is in the process of
developing targets and indicators for SDGs to be used for monitoring the progress
of the achievements of SDGs. Australia has recognized this need and currently
reviewing the targets and indicators proposed by the Monash Sustainability Centre
for consideration by the Government. The SDGs indicators proposed for each of the
climate change and low-carbon growth-related goals for Australia are presented in
Appendix C.
268 G. Wijesekere and A. Syed

9.16 Regional Cooperation

The Asian region, based on geographic and economic considerations, has formed
several regional blocks, namely, the Association of Southeast Asian Nations
(ASEAN), South Asian Association of Regional Cooperation (SAARC), and
Asia-Pacific Regional Cooperation (APEC). The ten member countries in East Asia,
forming ASEAN are due to become a single economic block later this year. While
substantial socio-economic, demographic and environmental diversity exists across
these countries, ASEAN represents the world’s fast growing economies and toge-
ther with China, India and Korea, ASEAN has recorded a more than three-fold
increase in energy demand since the 1990s.

9.16.1 Cooperation on Low Carbon Growth Initiatives

in the Region

Australia ratified the Kyoto Protocol at the Bali Conference in 1997. Ratifying the
Kyoto Protocol, which came to into force by 1998 provided Australia with the
opportunity to participate in numerous international climate change fora, tables, and
seats in multilateral institutions funding climate change programs. This gave
Australia the ability to influence others, particularly within the region. Australia is
among the Annex 1 countries in the Kyoto Protocol of the UNFCCC and the third
highest country in terms of per capita income. Australia has been providing
development assistance to countries in the region, including its Pacific and East
Asian neighbours, and those geographically away from it. With the rise of China
and India and the ASEAN economies combined together with economic strengths
of Japan and Korea, the economic performance of the Asia and the Pacific has been
impressive and has been outpacing other regions for several years. In this century,
the Asia-Pacific region has been and will become the world’s centre of gravity.
Australia considers that it is in its own interest to establish, maintain and develop
trade and investment and development ties with its Asia-Pacific neighbours. This
interest is extremely important in assisting emissions reduction strategies to become
development cooperation regimes with the countries in the region.
The Australian Government’s assistance to other countries address climate
change and low carbon growth initiatives includes provision of finance, technology
cooperation, and capacity building. The Australian assistance program particularly
focuses on supporting developing countries which are vulnerable to climate change
but are unable to develop and implement domestic policies by themselves due to
financial and other constraints.
The region in this analysis includes ASEAN, Japan, Korea, China and India
although reference is also made to the small island countries in the Pacific.
Australia’s assistance to individual countries and to the region has been deployed
through a network of multilateral institutions and programmes, mostly as grants.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 269

Funding has been provided to developing countries for implementing mitigation

and adaptation strategies. Australia has been traditionally assisting other countries
in the region on a bilateral basis, mainly focusing on development issues including
trade, security and achievement of Millennium Development Goals. Australia, with
its reservoir of skills and talents in climate science and experience in low carbon
growth technology, also provides assistance to developing countries in the transfer
of technology.

9.16.2 Assistance Through Multilateral Agencies

and Programs

From 2004–05 to 2010–11 Australia has contributed about AUD 1,522 million and
68 % of this was channelled through financial institutions (or programs managed by
these institutions), mainly the World Bank. Among multilateral agencies, Global
Environmental Facility received the highest contribution from Australia and in 2014
Australia committed a further AUD 93 million over the 2014–18 and also pledged
AUD 200 million for the Green Climate Fund (Table 9.4).
Multilateral collaboration for developing and implementing strategies for miti-
gation, adaptation and transference of low-carbon energy technologies is considered
an important strategy for developing countries to reduce emissions at the same time
as fostering economic growth and energy security. However, the number of
agencies being supported was too many. For example, the Sixth Communication
report (Commonwealth of Australia 2013: Tables 7.1 and 7.2) shows that between
2009–10 and 2011–12 Australia has deployed climate change funding through 21
institutions or programs.

Table 9.4 Australia’s financial contribution for climate change and low carbon growth initiatives
provided to multinational agencies and programs, 2005–6 to 2011–12 (AUD Millions)
Financial Multilateral Financial United Nations Total
year agencies/programs institutions Bodies
2004–05 29.3 0.0 1.3 30.6
2005–06 20.5 0.0 1.3 21.8
2006–07 35.8 0.0 1.4 37.2
2007–08 60.5 16.0 1.8 78.3
2008–09 154.3 81.3 2.3 237.9
2009–10 33.1 279.5 16.4 329.0
2010–11 30.8 354.8 19.9 405.5
2011–12 52.1 364.2 25.3 381.6
Total 416.4 1,035.8 69.7 1,521.9
Source From 2004–05 to 2008–09 (Commonwealth of Australia 2010). Data reported under
‘Other’ category have been distributed among relevant multilateral agency type; Data from 2009 to
10 (Commonwealth of Australia 2013)
270 G. Wijesekere and A. Syed

It has been observed that there exists a gap in coordination among funding
agencies in several fields, including agencies and programs funding climate change.
A review conducted for the Australian Government found that ‘there is scope for
significant improvement in how multilateral organisations work together in
addressing climate change, including Global Environment Facility (GEF), as well
as bilateral and multilateral agencies, which has increased complexity and created
some confusion in Pacific Island Countries (PICs)’. These areas suffer from over-
lapping mandates, with too many organisations attempting to raise funds and run
programs on the same sets of issues’ (Walter et al. 2013). The plethora of funding
agencies operating in some countries has also caused additional issues.

9.16.3 Fast Start Funding

Australia contributed AUD 599 million (USD 621 million) over a three year period
from 2010–11 to 2012–13, as part of the USD 30 billion fund pledged by developed
countries to be achieved by 2012 as a short-term measure. Funds were mainly used
for countries which are vulnerable to climate change in Asia, the Pacific and the
Caribbean. Guiding principles of the provision of aid to other countries include
clearly specified outcomes: finding a suitable partner to manage and implement
project; making sure that programs are in line with national priorities in countries;
where capacity to manage and implement such projects is lacking; and that the
funds are used in a transparent manner. However, it has frequently observed that
expected outcomes from projects were not always clearly specified in the project
documents, making the assessment of progress difficult (Australian Government
2013). Another issue relating to the fast-start projects involved tight deadlines and
this factor adversely affected delivery of program outcomes.

9.16.4 Bilateral and Regional Assistance

Australia has funded a major programme to help vulnerable developing countries

among the small Pacific Islands to improve their capacity to monitor and adapt to
climate change. In fact, Australia is the single source of funding and support to the
South Pacific Regional Environment Programme, which takes a ‘strategic and
coherent approach to climate issues’ in the region. Australia has also supported the
Enhanced Application of Climate Predictions in Pacific Islands Countries project,
established to strengthen Pacific island countries’ capacity for climate change
predictions and to help these countries gain environmentally-sound knowledge and
application of energy and pollution-control technologies.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 271

The following list outlines the major bilateral agreements and assistance pro-
grammes Australia developed with countries in the region which have specific
focus on climate change/low carbon growth:
• Pacific Appliance Labelling and Standards Programme: Designed to help 12
Pacific countries enact labelling regulations and implement standards for
appliances such as refrigerators, freezers, air conditioners, and lighting. Several
studies conducted reported that implementing energy labelling and minimum
energy performance standards for household appliances was not only feasible
but could be cost-effective. Australian Government agreed to provide AUD 3
million over a three year period (2012–2015) for this project. Its success is
affected by whether the standards were applied in the source country of appli-
ances. This type of program could be easily implemented in other countries.
• Reducing Emissions from Deforestation, and Forrest Degradation (REDD+):
Australia provided bilateral assistance to the Indonesia-Australia Forrest Carbon
Partnership project launched in the Kalimanthan province of Indonesia, with the
aim of producing carbon offsets by reducing the GHG emissions from defor-
estation and land degradation. This project was meant to be a world-first
large-scale demonstration with the aim of preserving up to 70,000 ha of peat
land forests in Kalimantan region and re-flood up to 200,000 ha of dried peat
land and to plant 100,000 million of trees on rehabilitated peat land. It was
expected that this project will reduce emissions substantially by preserving trees
and increased re-forestation with the support of communities who are attach-
ment to forest land. Although the pilot project initially proved promising but a
review conducted found that the project was not delivering the planned envi-
ronmental outcomes (Olberi and Howes 2012). The amount of peat land pre-
served under the program, the number of peat land rehabilitated and the trees
planted on rehabilitated land were all below the targets. More importantly there
was no community support for the project. As a result Australia withdrew its
funding from the project.
• The Vietnam Climate Change and Coastal Ecosystems Programme: This was an
Australia–German–Vietnam partnership initially focused on helping the
Kieng-Gianga area of the country to adapt to climate change and improve
coastal management. Based on the success of this project the programme was
extended to cover five provinces of the Mekong Delta.
• The Climate and Oceans Support Programme: This programme is helping
fourteen Pacific national meteorological services make seasonal forecasts and
use climate science to make useful information accessible to their governments
and communities and support planning in sectors including agriculture, water
security and health.
• Australia supported the China PCC Feasibility Study (PCCS) to assess the
feasibility of a post combustion capture facility in China, and it is considered the
largest co-ordinated agreement between Australia and China. The next phase
will extend from the pilot to a demonstration phase.
272 G. Wijesekere and A. Syed

• Community-based climate change action grants: Grants were for NGOs to work
with local partners in the Asia-Pacific countries to address climate change and
related-development issues. Grants under this program were used in Vietnam,
the Philippines, Papua New Guinea and several island countries in the Pacific.

9.17 Cooperation in Research

9.17.1 Asia-Pacific Renewable Energy Assessment

(APREA): A Comparative Study

The Bureau of Resources and Energy Economics (BREE), of the Department of

Resources, Energy and Tourism (DRET), undertook a study named ‘the Asia-Pacific
Renewable Energy Assessment (APREA) in 2014. This study has demonstrated that
Australia could extend its regional cooperation in the energy sector by supporting
research, and aiding development in the region. The study used the Australian Energy
Technology Assessment (AETA) model developed by BREE in Australia and
focused on six countries in the region: China, India, Indonesia, Japan, Korea, and
Australia (Syed et al. 2014). The main aim of the study was to provide an under-
standing of technology costs, as well as integration issues and possible solutions
across the Asia-Pacific countries. The study’s overall aim was to help these countries
to design appropriate policies to deliver the least cost electricity generation, using a
mix of fossil fuel and renewable technologies. Information provided by the study was
on levelised cost of energy (LCOE) estimates and policy or technical issues associated
with integrating technologies into existing energy networks. The LCOE is expressed
in the per-kilowatt hour cost (in real dollars) of building and operating a power plant
over an assumed financial life and duty cycle. The study showed that all countries
studied had made significant progress in investing in renewable energy policies and
strategies. All countries had also experienced many technical and policy issues
relating to the integration of renewable energy into existing electricity networks.
Some of the more specific issues experienced among countries included tech-
nical constraints, load balancing and frequency control issues (on weaker grids)
imposed by limitations in existing grid structures and capacities. There have also
been operational difficulties imposed by a general lack of capacity in forecasting
renewable electricity generation. Developing integration cost estimates will require
complex modelling that captures country specific, or even region specific factors
such as the size of the grid, feed in geographical area, availability and flexibility of
dispatchable generation and the capacity and technical sophistication of the grid’s
infrastructure and management systems.
Data constraints posed problems in applying the AETA model effectively in the
countries included in the study. It is important, therefore, that countries in the
region focus on the availability and the quality of data before the model can be
applied successfully in their own countries.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 273

9.18 Clean Coal Use and Associated Technological

Benefits

The high economic growth demonstrated in the last few decades in the Asia-Pacific
has been accompanied by an increased demand for energy and a significant rise in
demand for coal. Coal is noted to be the energy source with the largest CO2
emission, but it is the dominant source of energy in the world and so is in the
region. This is because its abundance, low cost and its reliably uninterrupted
supply. Approximately three-fourths of the total coal demand in Asia is met within
the region. The energy demand from coal is expected to increase further in the
region with the projected rise in economic activity, urbanization and industrial-
ization and population growth. As coal contributes heavily on emissions, countries
are now moving towards using clean-coal technology, before combustion to reduce
emissions. China has already commenced a clean coal project which was supported
by Australia. The Australian assistance to the project however, has been confined to
financial contribution towards the project and meeting the cost of workshops, and
academic seminars. The major difficulty of spreading clean coal technology in
developing countries is its high cost. If clean coal technology, which raises plant
efficiency and reduces emissions, remains unaffordable, countries will resort to
inefficient methods in generating coal-fired energy, thus continuing to contribute to
GHG emissions. Although Australia is well placed in the region with its high-level
of clean-coal technology and expertise in transferring the technology to other
countries in the region, there is no evidence of such technology transfer has been
taking place effectively.

9.19 Australia’s Private Sector Contribution

All Australian assistance to countries in the region was provided by the Australian
Government through bilateral arrangements or multilateral organizations. The pri-
vate sector participation in providing financial assistance or private sector invest-
ment in low carbon growth initiatives in the region is extremely low. The delay in
ratifying the Kyoto Protocol by Australia appears to have prevented the private
sector from participation in low carbon growth strategies and the provision of
renewable energy goods and services to other countries. Even after ratifying the
Kyoto Protocol, Australian entrepreneurs have not taken significant steps to enter
into the low carbon goods and service market in the region. Part of this is due to the
absence of bipartisan support to energy policy in Australia. Also, Australian par-
liament is chosen for a three-year period and many occasions elections have been
held before the full-term of the Parliament. Under the circumstances, many entre-
preneurs appear to have followed the ‘wait and see-approach’ rather than seizing the
opportunity of producing and exporting low carbon growth goods and services and
directly investing in these industries in the region.
274 G. Wijesekere and A. Syed

9.20 Trade Policy

9.20.1 Trade Policy and Climate Change

Existing evidence relating to the link between liberalized trade and GHG emissions
is mixed. The long-held view is that increasing liberalized trade will increase
income and demand for goods and services which extends pressure on natural
resources and energy resulting in increases in GHG emissions. Among the eco-
nomic sectors most affected by emissions in developing countries are the primary
industries (agriculture, forestry and fisheries), which are linked to livelihood of
many. Climate change arising from GHG emissions could therefore weaken any
comparative advantage these countries may have in these sectors.
Liberalized trade is likely to increase CO2 emissions through increases in eco-
nomic activity and domestic transportation (the scale effect). On the other hand,
increased trade could result in reduced emission-intensity through the adoption of
new technologies (the technique effect) which are possible through the technology
transfer associated with free trade. Such adaptation could lead to a shift in the
‘production mix’ from energy-intensive to less energy-intensive sectors and these
sectors could maintain a comparative advantage (the composition effect). Most
studies to date have found that in many circumstances the scale effects dominate the
trade-climate change relationship more than the technique and composition effects.
The difficulty however, is to know the relative magnitude of the impact of these
three factors separately ex-ante (Onder 2012).
A report published by the United Nations Environment Programme and World
Trade Organization (WTO) suggests that liberalized trade could have a positive
impact on the reduction of GHG emissions because the free trade on environmental
goods and services is likely to accelerate the spread of clean technology and the
widespread adaptation of those technologies in developing countries (UNEP-WTO
2009).
Australia is a strong advocate of liberalized trade and the trade policy statement
(Australian Government 2011) reinforces its commitment to it. Australia does
recognize the legitimate use of trade policy to meet labour, health, environmental
and community safety objectives, but it does not approve of using trade policy
measures as a backdoor way of imposing trade barriers to protect local industries
(Australian Government 2011: 13).
In 2014, Australia with a group of 13 WTO Members (including China, the
European Union, Japan, Korea, New Zealand, and the United States), accounting
for over 85 % of global trade in environmental goods, announced their interest in
negotiating an agreement to eliminate tariffs on environmental goods ‘that are
needed to protect the environment and address climate change’. These goods
included solar panels, wind turbines, and catalytic converters and are based on the
2011 APEC list of 54 environmental goods. The aim was to reach a consensus
regarding the reduction of tariff for these goods to 5 % by 2015. Removing or
lowering tariffs, on environmental goods was expected to lower prices and improve
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 275

the availability of those products. Later, this list was expanded and the Trade and
Investment Minister announced that Australia would join other WTO countries to
negotiate a plurilateral agreement to remove tariffs, on a range of environmental
goods and services (Robb 2014).

9.21 Free Trade Agreements and Climate Change

Provision

9.21.1 Free Trade Agreements

Australia has responded well with the ‘Asia-Pacific Century’ and entered into
partnerships and free trade agreements with a number of countries especially in the
Asia-Pacific region. Australia is also currently negotiating agreements, with several
other countries.

9.21.2 Free Trade Agreements in Force

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA);

Japan-Australia EPA (JAEPA); Korea-Australia FTA (KAFTA); Australia-New
Zealand CER (ANZCERTA); Australia-United States FTA (AUSFTA);
Malaysia-Australia FTA (MAFTA); Singapore-Australia FTA (SAFTA); the
Thailand-Australia FTA (TAFTA); China-Australia FTA (ChAFTA). ChAFTA was
signed in June and is not yet in force.

9.21.3 Free Trade Agreements Under Negotiation

Australia Gulf Cooperation Council (GCC) FTA; Australia-India Comprehensive

Economic Cooperation Agreement; Indonesia-Australia Comprehensive Economic
Partnership Agreement; Pacific Agreement on Closer Economic Relations
(PACER) Plus; Regional Comprehensive Economic Partnership; Trade in Services
Agreement; and Trans-Pacific Partnership Agreement. However, not all of these
agreements in force have climate change or environmental provisions included or
expected to cover environmental issues in all those under negotiations. Such pro-
visions would allow participating countries to cooperate on environmental issues
and flow of environmental goods and services under low or no tariff regimes.
276 G. Wijesekere and A. Syed

9.21.4 Climate Change Provision in Free Trade Agreements

Among the free trade agreements in force the ASEAN-Australia-New Zealand Free
Trade Agreement acknowledged climate change in the preamble of the agreement.
In individual agreements with ASEAN member countries investment opportunities
in environmental goods and service provision was mentioned a few times. For
example, the Lao PDR agreement included investments on environmental services
and the Philippines agreement referred to sewerage services and environmental
goods, both of which were necessary for the two countries in improving energy
efficiency and the capacity for adaptation.
The Japan–Australia Free Trade Agreement included climate change and envi-
ronmental aspects, which is consistent with the Environment Policy of Japan and
Japan has been applying in trade negotiations since 1995. The Australia-United States
Free Trade agreement included a chapter on climate change and provision on envi-
ronmental goods and services, which was also included at the request of the United
Nations. Japan, United States and Australia are strong supports of the WTO and free
trade and have acknowledged in respective free trade agreements that each party has
the right to have their own environmental laws, but have agreed that environmental
concerns should not affect the free trade and flow of environmental goods and ser-
vices and investment potential between these countries. A review carried out by the
US (United States Trade Representative 2004) on the environmental component of
the US-Australia free trade agreement made this point clear: ‘Both the United States
Australia seek to ensure that trade and environmental policies are mutually supportive
and contribute to their respective abilities to protect the environment and meet the
international environmental obligations’ (USTR 2004: 6)
The Korea–Australia Free Trade Agreement included provision to invest in
environmental goods and services and renewable energy technology transfer. The
Singapore–Australia FTA (SAFTA) included provision to further liberalize the
environmental good and services sector. The Free Trade Agreement with Thailand
was mainly focused on the mining sector and the agreement allows Thai invest-
ments in Australia in selected environmental service sectors.
ASEAN-Australia relations and the effective implementation of the
newly-adopted Plan of Action (PoA) developed under the Joint Declaration on
ASEAN-Australia Comprehensive Partnership (2015–2019). The PoA covers a
range of fields in ASEAN-Australia cooperation such as political conflicts and
security issues, economics, trade and investment, socio-cultural, people-to-people
exchanges, tourism, development cooperation and education issues. It has a focus
on climate and green house gas reductions. The PoA has a chapter dedicated to
‘energy and resources’ and environmental and emission issues are also covered in
‘finance’, ‘transport’, ‘agriculture’, and ‘forestry chapters’.
ASEAN countries, despite their enormous diversity in terms of geography,
political structures, the level of economic development, urbanization and population
growth, are all growing economies with increasing demand for energy. The energy
demand in this region is expected to grow by almost 80 % by 2035 (IEA and
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 277

AREA 2013). The report also refers to the growing importance of the power sector
in the energy outlook. Coal will continue to grow as a source of energy, mainly due
to its availability and low cost. This makes the need urgent for the use of more
efficient clean-fired plants in the region. While the need for clean-coal technology is
emerging, it is surprising that the clean-coal technology transfer did not occupy an
essential component of the FTAs ASEAN countries signed with Australia.
Australia has entered into many bilateral agreements with a number of countries
both within and outside the region. While it has concluded some regional agree-
ments, it still has been continuing to negotiations several others including large
countries like India. In the completed bilateral agreements, environment related
issues are not always considered seriously. Nevertheless, a few Australia’s FTAs do
have environment issues as an important component. For example, among the
ASEAN countries, Australia’s FTA with Thailand and Cambodia had included
environmental goods and services and investments as important components of
agreements.

9.22 Trans Pacific Partnership and Regional

Comprehensive Economic Partnership

Two multilateral free trade agreements, currently being negotiated are the Trans
Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership
(RCEP). Australia considers its participation in these mega-trade agreements will
benefit the country, both economically and politically. The interesting question is as to
the type of contribution Australia can make to green growth low-carbon energy sys-
tems strategies discussed in TPP and RCEP. Unlike in bilateral agreements, where
Australia has an influence and power, Australia’s role and power to influence appear to
be limited in these two mega agreements. Any benefit accrued from the two processes
depends largely on the status of world trade and investment, particularly those based on
agricultural products. Australia’s economy is vulnerable to events in the world such as
the financial crises, and Australia is keen to expand its export markets. Yet, with the
TPP and RCEP being led by large players, Australia has little room for dictating trade
terms and rules. The role of the WTO, of which Australia has been a strong supporter,
appears to have been overtaken in these processes by large players, who will ultimately
decide all matters including tariffs non-tariff barriers to trade. Australia has trade
agreements with many other countries and these other countries are also negotiating
multiple agreements with several countries. It is currently unclear as to what extent
Australia will be able to use these two mega trade agreements to achieve its objectives.
The latest TPP meeting at Honolulu held in mid-2015 did not produce any indication
regarding the shape of the agreement. Nevertheless, negotiations are still continuing
with the hope to reach a fruitful agreement that benefits all.
Environmental goods and services flowing across countries, without any tariff
(or with a low tariff), would benefit Australia and other developed countries who
278 G. Wijesekere and A. Syed

export low-carbon goods and technology. Developing countries would gain from
this process, as low-carbon goods would be accessible to them at a low cost. The
increased movement of low-carbon goods and technology between countries under
the globalized trade system may also provide developing countries with the
opportunity to participate in the global supply chain. The amount of participation
for each country will depend on the low cost structures and technical know-how
available to them. The globalization of trade involves the manufacturers of
developed countries taking advantage of the low cost of manufacturing components
in developing countries.

9.23 Tariff Removal for Environmental Goods

As discussed earlier, Australia and several other countries are pushing for an
international trade agreement on environmental goods and services. Although there
is no unanimity over the type of environmental goods and services that should be
included, the APEC list of 54 currently being considered, along with some addi-
tional goods and services, by the parties supporting free trade. These environmental
goods and services are likely to be included in the RCEP.
It is expected that Australia to benefit from the removal of tariffs on a wide range
of environmental goods and that this will lead to an innovative sector with the
potential to develop and facilitate new investment in climate and clean energy
technologies within in Australia. The goods currently under negotiation include
equipment relating to air pollution control; solid and hazardous waste management;
environmental remediation and clean-up; cleaner and renewable energy; energy
and resource efficiency; waste water management and water treatment; noise and
vibration abatement; environmental monitoring, analysis and assessment; and
environmentally-preferable products.

9.24 Conclusion

Being a country expected to affect by climate change it is Australia’s own good to

implement a national plan to reduce emissions to do its fair share to limit global
warming to 2° or below. The national plan would focus on switching to renewable
energy improving energy efficiency, and phasing out of fossil fuel (mainly coal)
exports. Australia is well placed to effectively shift to a low carbon economy over a
number of years due to the abundant solar, wind, geothermal and wave energy
available. This shift is also possible as Australia has the knowledge, expertise and
resources to support it. According to modelling results, this transition can be made
without sacrificing the economic prosperity of the nation (Climate Works Australia
and Australian National University 2014). More importantly Australia could con-
sider ways of increasing the renewable energy target (RET) at least to 50 % by 2030.
9 Energy Policy and Regional Cooperation: Australia’s Contribution … 279

Australia has agreed to a modest target for post-2020 set by Australia for sub-
mission to the Paris meeting. However, as the opinion polls tend to suggest public
demand much more than just the key elements of the direct action plan to reduce
emissions. More specifically the recent research has shown that that the Direct
Action Plan that includes the taxpayer-funded ERF, resulted in 76 % of voters
surveyed suggesting ‘that the climate policy should shift responsibility for pollution
reduction to the polluters, not taxpayers’ (Climate Institute 2015). The same survey
found just over half of all voters consider that Australia’s post-2020 pollution
reduction targets should be based on the science, and not what other nations do. The
lack of bipartisan support over the last three decades or so is one of the key issues
that prevents Australia from adopting consistent and effective low carbon- growth
strategies. The time has come for the Australian Government to negotiate with the
opposition, for a common approach to climate change in general and low carbon
growth initiatives in particular.
Australia has entered into a number of trade agreements with countries in the
Asia and the Pacific even though a very few of these countries have incorporated
environmental goods and services and climate change action in those agreements.
Australia is the largest exporter of coal for manufacturing and energy supply in
other countries, but it has only participated in the clean coal technology project in
China. Australia has the expertise and capacity to through for example, TPP and
RCEP which could assist countries in the region, mainly those of emerging
economies in defusing clean coal technology. At the same time, by phasing out of
coal exports would contribute to regional climate improvements without sacrificing
its advantage in economic competitiveness in the global economy. It is to be noted
that emerging economies are increasingly becoming low carbon growth economies.
Australia’s ability to export knowledge and renewable technology could become
profitable for both recipient countries in the region, as well as those entrepreneurs
developing and exporting low carbon technologies. The success of low carbon
strategies in Australia and its international reputation depends largely on what
action Australia will take towards a lower-carbon growth economy, and how it
provides assistance to countries in the region.

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Walter, G., Hunnam, P., Pratt, C., & Hey, J. (2013). Australian support for climate change,
environment and disaster risk management in the Pacific: Findings and recommendations of an
independent review and needs assessment. Report prepared for AuisAid, Department of
Foreign Affairs and Trade.
Chapter 10
Aiding the Transition: Innovations
with Japan’s Bilateral Offset Mechanisms

Akira Ogihara and Venkatachalam Anbumozhi

10.1 Introduction

The East Asia Summit (EAS)1 region is becoming the centre of gravity of the world
economy. According to the International Energy Agency’s (IEA) Outlook, eco-
nomic growth in this region in the coming 20 years will exceed the average level of
the world economy, boosting a continuous increase in primary energy demand (IEA
2010). While such economic development offers great opportunities for poverty
eradication in this region, it would sharply increase greenhouse gas
(GHG) emission levels as well as negative impacts in the region, unless future
development is properly designed in line with sustainable development, as
Table 10.1 indicates.
A sharp increase in the CO2 emission levels would result in a climate change
outcome seriously endangering the future environmental quality and human well-
being in the EAS region and, eventually, of the Earth. Global warming is already a
tangible threat for the EAS countries. Around 1.2 billion people in the this region
faces the prospect of freshwater shortages by 2020, while crop yields in Central and
South Asia could drop by half by 2050 (ADB 2009). Therefore, how to solve these
problems is the urgent and challenging issue not only for developing countries but
also for developed countries in this region. This indicates that the needs for bilateral

1
Brunei, Indonesia, Cambodia, Lao PDR, Myanmar, Malaysia, Philippines, Singapore, Thai,
Vietnam, Australia, China, India, Korea, New Zealand, Russia, US.

A. Ogihara (&)
V. Anbumozhi

Institute for Global Environmental Strategies, Hayama, Japan
e-mail: [email protected]
V. Anbumozhi
Economic Research Institute for ASEAN and East Asia, Jakarta, Indonesia
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 281

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_10
282 A. Ogihara and V. Anbumozhi

Table 10.1 Current and projected CO2 emission trend of Asia

Country/region CO2 emissions CO2 Emissions Electricity Total energy
emissions intensity consumption demand
per capita
Year 2009 2035 2009 2035 2009 2009 2035
Unit Mt t/capita tCO2/GDP kWh/capita Mtoe
China 6,877 10,253 5.14 7.39 0.6 2,648 2,271 3,835
India 1,548 3,535 1.37 2.34 0.35 597 669 1,464
Indonesia 376 … 1.64 … 0.4 609 198 …
Thailand 227 … 3.36 … 0.41 2,073 107 …
Viet Nam 114 … 1.31 … 0.38 904 59 …
Non-OECD 1,565 2,899 1.49 2.11 … … 784 1,472
Asia (excluding
India, China)
Japan 1,088 918 8.58 … 0.32 7,833 472 478
Australia 395 … 17.87 … 0.56 11,038 130 …
Korea 515 … 10.57 … 0.45 8,980 … …
OECD Asia 2,021 1,655 9.96 8.15 … … 850 912
Oceania
World 28,999 5,442 4.29 4.14 0.45 2,730 12,271 16,748
Source ADB and ADBI (2013)

and regional environmental cooperation are increasing in order to tackle upon and
solve these emerging environmental problems (Fig. 10.1).
In order to deal with these issues, various actions are required for the paradigm
shift, from establishment of extensive infrastructure as a foundation for economic
development to establishment of low carbon and sustainable society. When we
establish such environmentally sustainable infrastructure in the nation-wide, the
important issue would be to develop an “environmental grand design” which will
function as a comprehensive blueprint in order to avoid conflict of interests in
different fields. This is an essential issue to develop the environmentally friendly
and economically viable society.
Developed countries should maximize utilisation of their advanced environ-
mental technologies in order to enhance and expand regional environmental
cooperation, based on the lessons learned which was accumulated through efforts
against the environmental problems. To this end, the creation and mobilisation of an
on-going and comprehensive cooperation framework in particular between the
public and private sectors should be emphasised.
Advanced low-carbon technologies and products such as renewable energy,
highly efficient power generation, home electronics, low-emission vehicles, and
energy-savings in factories are now widely developed, however it is not easy to
apply them to developing countries. In order to realise a low carbon society in the
developing countries through leapfrog development as shown in Fig. 10.2, it is
crucial to transfer appropriate technologies, know-how, and services from devel-
oped countries to developing countries.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 283

Fig. 10.1 CO2 emissions from fossil fuel combustion (2010). EAS: East Asia Summit Countries.
Source IEA (2012)

Advanced
GHG emissions per capita

countries

Economic damage due

Diversity in Asias to serious climate
Low carbon
society changes

Leap frog
Developing development
countries
Present Future

Fig. 10.2 Leap frog development. Source NIES (2013)

The concept of the Carbon Development Mechanism (CDM) was developed as a

market based tool for reducing the GHGs in developing countries under the
UNFCCC (United Nations Framework Convention on Climate Change) and the
Kyoto Protocol. The major purposes of the CDM are to realise sustainable
284 A. Ogihara and V. Anbumozhi

development and contribute to the ultimate goal of the UNFCCC, for instance,
stabilization of GHG concentrations (UN 1992, 1998).
In addition, the CDM is a mechanism where industrialized countries, which have
their own GHG emission reduction target under the Kyoto Protocol, can obtain its
reduction target as a credit and utilise them as their own reduction targets (UN
1998). However, it is difficult to say that this CDM scheme worked well so far,
taking into account the current situation of CDM projects summarised below,
although 7,678 projects2 were registered as of 27 October 2015.
If implemented well, CDM projects should have promoted transfer of low car-
bon technologies. However, the administrative complexity of a project-based
mechanism has restricted the inherent ability to bring about major change (Bell and
Drexhage 2005). In the Asian context, the predominance of unilateral CDM pro-
jects and their limitation to specific projects that produce a large amount of certified
emission reductions (CERs) (especially biomass, hydropower and wind power
projects) indicate limited prospects for the transfer of a greater number of low
carbon technologies to, and within, the region through CDM projects. Furthermore,
the skewed distribution of CDM projects toward a small group of developing
countries hosted by China and India also indicates limited prospects for the transfer
of low carbon technologies toward a wider number of countries in the region
through CDM projects (Tables 10.2, 10.3 and 10.4).
One of critical issues is the institutional problem of the CDM, which is men-
tioned in Sect. 10.4. The other one is the market prices. The price of CDM credits
was around €20 per CO2 in 2008, however, the CO2 price was getting down to €1,
mainly due to the unclear future demand (World Bank 2013; CDM Policy Dialogue
2012). The current situation of CO2 price does not provide strong incentives for
mobilising the GHG reduction projects. Because of this reason, the Government of
Japan has developed the new mechanism called Joint Crediting Mechanism (JCM).
This chapter identifies benefits, the existing problems and future challenges of
JCM and proposes the possible solutions, taking into account difference in diverse
business areas and implementation modalities in JCM projects, comparing to CDM
project.

10.2 Basic Concept of the JCM—A New Market

Mechanism for Up Scaling of Low-Carbon Energy
Projects

In July 2015, Japan Submitted its Intended Nationally Determined Contributions

(INDC), which included a 2030 target of reducing GHG by 26 % below the fiscal
year 2013 level by 2030. In addition to undertaking domestic emission reductions,
Japan intend to contribute to global efforts through technologies and financial

2
Total CER: 1,627,345,311 tCO2.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 285

Table 10.2 Technology transfer in CDM projects

Technology No. of No. of projects with Country origin of technology
projects technology from
outside country
Biogas 6 0 China, India
Biomass 10 0 India
Energy 1 0 South Africa
efficiency
Fuel 1 1 Germany, USA
switching
HFC-23 3 2 Germany, Japan, UK
Hydropower 22 12 China, Australia, France, India, Japan,
Panama, Brazil, Peru, Spain, Sri Lanka,
Switzerland, USA
Landfill gas 10 8 Belgium, Netherlands, Japan, France,
Brazil, USA
Methane 3 0 Chile
capture
Nitrous 2 2 France
oxide
destruction
Wind 5 4 Spain, Denmark
energy
Total 63 29
Source Brewer (2008)

Table 10.3 No. of CDM projects in selected East Asia countries (as of 1 February 2012)
Type Coal
bed/ Geo-th Landfill Total
Biomass Hydro Solar Tidal Wind
mine ermal gas projects
Country methane
Bhutan 0 0 0 3 0 0 0 0 3
China 138 96 1 1,231 107 78 0 1,097 3,311
India 381 0 0 191 31 59 0 764 1,998
Indonesia 20 1 11 21 19 1 0 0 165
Lao 1 0 0 6 0 0 0 0 10
Malaysia 45 0 0 5 15 0 0 0 170
Nepal 0 0 0 1 0 0 0 3 9
Philippines 14 1 2 9 8 0 0 3 96
Korea 3 0 1 26 7 42 2 14 124
Thailand 37 0 0 6 8 13 0 4 181
Vietnam 13 0 0 200 7 0 0 1 251

Source Abdessalem Rabhi and Yuki Shiga (2012)

assistance to developing countries. Although JCM is not the basis of accumulated

reductions towards Japan’s 26 % reduction targets, the scheme aim to appropriately
count emission reductions coming from low carbon energy system absorption
achieved through JCM as Japan’s reduction.
286 A. Ogihara and V. Anbumozhi

Table 10.4 Major reasons why CDM does not work as expected
Major reasons Details
Insufficient contribution to sustainable • Host countries do not define the details in their SD
development • It is biased to the reduction of non-CO2 reduction
• Energy saving or new energy-related projects are
limited
Insufficient contribution to target • Without selling CER by Russia and Ukraine,
achievement of developed countries developed countries will face difficulties in
achieving efficient goals
Reliability reduction of the CDM • Delay of approval work in council and
executive board methodologies panel is becoming bottle neck of
CER supply
Limited contribution to the developing • Developing countries tend to continue credit
countries of activities acquisition
Source Ogihara (2013)

10.2.1 Expectations to JCM

The JCM is a unique tool developed by the Government of Japan seems to be more
functional to reduce GHGs emissions than the CDM. In order to achieve the pur-
pose of the JCM, the tripartite cooperation among the Government of Japan,
Governments of the partner country,3 and the UNFCCC is essential. For example,
clear benefits between Japan and the partner country are basic requirement for
development and continuous implementation of JCM projects. In addition, the JCM
must be a system that meets with the requirements derived from the UNFCCC
Decision1/18 (Box 10.1).

Box 10.1: UNFCCC Decision1/18 D. Various approaches, including

opportunities for using markets, to enhance the cost-effectiveness of, and
to promote, mitigation actions, bearing in mind different circumstances
of developed and developing countries.
Recalling decisions 1/CP.13, 1/CP.16 and 2/CP.17,
1. Framework for various approaches
41. Acknowledges that Parties, individually or jointly, may develop and
implement various approaches, including opportunities for using markets
and non-markets, to enhance the cost-effectiveness of, and to promote,
mitigation actions, bearing in mind different circumstances of developed
and developing countries;
42. Re-emphasizes that, as set out in decision 2/CP.17, paragraph 79, all such
approaches must meet standards that deliver real, permanent, additional
and verified mitigation outcomes, avoid double counting of effort and
achieve a net decrease and/or avoidance of GHG emissions;

3
The country which concludes agreement for JCM.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 287

43. Requests the SBSTA to conduct a work programme to elaborate a

framework for such approaches, (omitted), with a view to recommending
a draft decision to the COP for adoption at its 19th session;
44. Considers that any such framework will be developed under the authority
and guidance of the Conference of the Parties;
Source: UNFCCC (2012)

Until a new international framework will be developed and authorised under the
UNFCCC after year 2020, the Japanese government has decided to conclude the
signatures with developing countries on a “Low Carbon Growth Partnership”, and
to implement JCM projects. Currently the agreements with 15 countries were
concluded, as indicated in Table 10.3.
As Fig. 10.3 shows, the JCM mainly aims at;
• facilitate diffusion of leading low carbon technologies, products, systems, ser-
vices, and infrastructure as well as implementation of mitigation actions, and
contribute to sustainable development of developing countries;
• appropriately evaluate contributions to GHG emission reductions or removals
from Japan in a quantitative manner, by applying Measurement, Reporting and
Verification (MRV)” methodologies, and use them to achieve Japan’s emission
reduction target; and
• significantly contribute to the ultimate goal of the UNFCCC, by facilitating,
bilateral, regional and global actions for the reduction or removal of GHG
emissions.
The JCM was started its operation as the non-tradable credit. The both
Governments continued consultation for technical transfer to the tradable crediting
mechanism and reach a conclusion at the earliest possible timing, taking into
account implementation of the JCM. The JCM aims at substantial contributions to
assist adaptation efforts of developing countries, after the JCM is converted to
tradable credits. Basically, the JCM will cover the period until when a new inter-
national framework will come into effect under the UNFCCC. Comparing to the
CDM, the uniqueness of the JCM can be characterized as below:

Fig. 10.3 Overview of JCM scheme. Source Joint crediting mechanism (JCM 2015b)
288 A. Ogihara and V. Anbumozhi

Table 10.5 Expectations to JCM

Actors Expectations
Government of International cooperation through innovative low carbon technologies
Japan and know-how
Credits created by JCM
Enhancement of international cooperation
Host country Introduction of innovative low carbon technologies
Contribution to realisation of low carbon and sustainable society
Development of capacity
Complement CDM
UNFCCC Substantial GHGs emission reduction
Source Umemiya et al. (2013)

Table 10.6 15 sectors applicable for the JCM scheme

1. Energy industries 9. Metal production
(renewable/non-renewable 10. Fugitive emissions from fuels (solid, oil and gas)
sources) 11. Fugitive emissions from production and consumption of
2. Energy distribution halocarbons and sulphur hexafluoride
3. Energy demand 12. Solvents use
4. Manufacturing 13. Waste handling and disposal
industries 14. Afforestation and reforestation
5. Chemical industry 15. Agriculture
6. Construction
7. Transport
8. Mining/mineral
production
Source JCM (2015b)
Note Only Indonesia includes REDD+

1. Simple procedures and short processing time;

2. Applicable to broader areas with co-benefits, including energy saving, transport,
wastewater and waste management; and
3. Applicable to various countries, which agree with the concept of the JCM.
Through the new scheme, Japanese government, host country and the UNFCC
are basically expecting the followings: (as shown in Table 10.5)
In the 19th Conference of the Parties of the UNFCCC (COP19), the Government
of Japan declared that the numbers of the signing countries with the JCM would be
doubled in three years from 8 to 16 countries in 2016. In addition, the Government
submitted to the UNFCCC a letter, which explained the implementation status and
also had an appeal to international society of the Japan’s emission reduction efforts
using the JCM (Government of Japan 2013) (see Table 10.6).
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 289

10.2.2 Progress of JCM Projects

As shown in Table 10.7, bilateral agreements at nation level were concluded in the
15 countries (as of 5th October, 2015).
Based upon the bilateral agreements at national level, many cities concluded
“City to City (C2C)” collaborations towards development of “low carbon and
sustainable society”. The below list is the examples of the C2C collaboration. Based

Table 10.7 Bilateral agreements and progress of JCM projects

Countries Date on Joint Projects Adoption of Auxiliary
signature committees registered methodologies businesses and
hold (times) (no) no. in the process demonstration
(cases) projects (no)
Mongolia January 8, 2 times 2 2 2
2013
Bangladesh March 19, 2 times 1
2013
Ethiopia May 27, 1 time
2013
Kenya June 12, 1 time 1
2013
Maldives June 29, 2 times 1 1
2013
Vietnam July 2, 3 times 1 3 5
2013
Lao PDR August 7, 1 time
2013
Indonesia August 26, 3 times 3 4 (3 in the 14
2013 process)
Costa Rica December 0
9, 2013
Palau January 2 times 1 1 3
13, 2014
Cambodia April 11, 1 time
2014
Mexico July 25, 1 time
2014
Saudi May 13,
Arabia 2015
Chile May 26,
2015
Myanmar September
16, 2015
Total 15 19 times 7 11 (3 in the 27
countries process)
Source JCM (2015b)
290 A. Ogihara and V. Anbumozhi

upon the on-going JCM projects, 9,699 t-CO2 eq is expected to be reduced by year
2020, as indicated in Table 10.8.
• Ho Chi Minh city + Osaka city
• Surabaya city + Kitakyushu city
• Da Nang city + Yokohama city
• Bandung city + Kawasaki city etc.

Box 10.2: Japan’s Intended Nationally Determined Contribution (INDC)

According to the Japanese government’s INDC (Intended Nationally
Determined Contribution) towards post-2020, GHG emission reductions
should be at the level of a reduction of 26.0 % by fiscal year (FY) 2030,
compared to FY2013 (25.4 % reduction compared to FY2005) (appropriately
1.042 billion t-CO2 eq. as 2030 emissions), ensuring consistency with its
energy mix, set a feasible reduction target by bottom-up calculation with
concrete policies, measures and individual technologies, taking into adequate
consideration, inter alia, technological and cost constrains, and set based on
the amount of domestic emission reductions and removals assumed to be
obtained
Source Ministry of Foreign Affairs (2015).

With the rapid growth of the emerging donor countries, business market in the
developing countries is becoming more competitive. Even advanced technologies,
which have strong advantages in the world business market faces some difficulties.
For instance, in order to transfer technologies to developing countries, it has
become essential that the governments would strongly boost the efforts by private
sectors, based upon the Public-Private Partnership (PPP) framework.
In the “United Nations Conference on Sustainable Development (Rio + 20)”
which was held in Rio de Janeiro in 2012, the concept of “green economy” which
aims at realising both environmental protection and economic growth was not well
defined. However, it was recognized that the importance and necessity to change
our business activities and lifestyle in society towards sustainable development.
Realisation of “Sustainable and low carbon society” in developing countries is
identified as the most important and priority issue, not only by avoiding repetition
of serious environmental problems in developing countries but also by realizing a
“virtuous circle of the environment and the economy”. For instance, it is necessary
for the growing developing countries to transform the policies from “brown
economy” to “green economy”.
From this perspective, it can be mentioned that private sector plays important
roles in JCM related activities as a key player. In this sense, business development
through cooperation between the government and private sector is essential.
 10

Table 10.8 Expected GHG reductions by the on-going JCM projects (FY2013–FY2015) (Unit t-CO2 eq.)
Project title (country) Year
2013 2014 2015 2016 2017 2018 2019 2020 Total
Project of Introducing High Efficiency Refrigerator Indonesia 0 1 25 25 25 25 25 25 151
to a Frozen Food Processing Plant
Project of Introducing High Efficiency Refrigerator Indonesia 0 5 140 140 140 140 140 140 845
to a Food Industry Cold Storage
Energy Saving for Air-Conditioning and Process Indonesia 0 97 117 117 117 117 117 117 799
Cooling by Introducing High-efficiency Centrifugal
Chiller
Promotion of green hospitals by improving Vietnam 0 0 250 500 500 500 500 500 2,750
efficiency/environment in national hospitals
Eco-Driving by Utilizing Digital Tachograph Vietnam 0 0 136 328 328 328 328 328 1,776
System
Small scale solar power plants for commercial Palau 0 36 259 259 259 259 259 259 1,590
facilities in island states Subproject 1: 20 years
Centralization of heat supply system by installation Mongolia 0 0 206 206 206 206 206 206 1,236
of high-efficiency Heat Only Boilers in Bornuur
soum Project
Installation of high-efficiency Heat Only Boilers in Mongolia 0 0 92 92 92 92 92 92 552
118th School of Ulaanbaatar City Project
Total 0 139 1,225 1,667 1,667 1,667 1,667 1,667 9,699
Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms

Source Expected GHG reduction based on the data from the new mechanism information platform
291
292 A. Ogihara and V. Anbumozhi

“Package-based infrastructure projects4” which include a wide range of infras-

tructure development together with operation and maintenance is recognised as an
important policy which could promote a paradigm shift towards “green economy”.
It is necessary to develop comparative advantage with other countries, by not
only competitiveness of products and technologies but also overall management
covering various areas such as construction, operation and management, mainte-
nance, finance and risk management etc. In this business development, collabora-
tion between companies, between governments, and between public and private
sectors are becoming more important.

10.3 Major Challenges for JCM Projects

The JCM aims to disseminate advanced low carbon energy technologies to

developing countries, quantify emission reductions achieved, and use part of the
reductions to fulfil Japan’s emission reduction targets for 2020 and 2030. Credits
are issued in the country where low-carbon energy projects take place under JCM.
JCM projects have to have other benefits to realise additional emission reductions.
As one of the main cause of insufficient dissemination of low-carbon energy
technologies in developing countries is the high cost of capital investment, financial
assistance from the Japanese government toward the initial investment for project
implementation are offered at present as an incentive provided by the JCM.
The JCM focus on this support, and the subsidy scheme of Japan, provides financial
assistance up to 50 % of the initial cost as an effective counter measure towards this
factor. In addition, based on the proportion of the contribution resulting from this
assistance, project participants must deliver the credits earned upon achievement of
the reduction amount into the Government of Japan’s account.
This section discusses the major challenges in implementing the JCM projects,
particularly focusing upon the key issues on how to develop competitive and
supportive projects for environmental cooperation. The most important issues
identified based upon some investigations with private sectors are summarised as
follows:
1. how to get the information related to local needs and opportunities,
2. how to share the information among the stakeholders concerned, and
3. how to manage the projects coordinating stakeholders concerned.

4
This approach sees city as a package of low carbon projects. Comparing to the conventional
approach, this approach includes a wide range of new infrastructure development projects.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 293

10.3.1 Insufficient Information Sharing

and Communication for Project Development
and Implementation

Most crucial factor in the process of business matching and development is how to
obtain appropriate information on local needs and potential projects; also how to
share such information with appropriate stakeholders related to the project devel-
opment. In reality, it is quite difficult to share necessary information required for
project development among the related stakeholders.
One of the reasons is that such information is sometime very closely linked with
the corporate and inside information of the related local companies. On the other
hand, we should recognise that the information and know-how which local trading
companies and consultants accumulated are very useful for project development in
general.

10.3.2 Insufficient Risk Management

Asia is now changing into the area where significant amount of funds flow in not
only from developed countries but also from the emerging economies. However,
because of the reason why financial institutions and investors are warning against
various potential risks existed in potential projects, it is not easy to form JCM
projects but also disturb project implementation. Such cautious against the potential
risks lead to the situation that it is difficult to create projects.
In fact, although not necessarily sufficient information is pointed out that not in
the situation that is shared, and to work in the field, such as trading companies and
consultants such as information and know-how that have been accumulated so far,
it is useful in project formation through development assistance.
Package based infrastructure development projects seems to be a useful mech-
anism to procure fund and know-how, which are related to operation and mainte-
nance from private sector in addition to conventional infrastructure development. It
can be recognised that this approach maximises the value of the public services
provision. However, since the project which involves various stakeholders may
occur larger risk and be not clear about the division of responsibility, it can be seen
the case where companies become reluctant to invest for the business.
It is not realistic that single company oversees and takes responsibility of overall
project, which include various areas, take into account the diverse risks in software
fields, which require different expertise. Rather, as Fig. 10.4 shows, the risk
management in specific areas by each expert under the overall management would
be safer than the conventional comprehensive risk management.
294 A. Ogihara and V. Anbumozhi

Fig. 10.4 Potential risks and PPP. Source Ogihara (2012)

10.3.3 Institutional Barriers in Mobilising Technology

Transfer and Foreign Investment

As part of the climate change mitigation measures, private sector is deploying

low-carbon projects, since there are high and significant investment potentials in
CDM business markets.
Taking into account the situation that institutional problems derived from the
CDM scheme may have caused the vigilances against the low-carbon businesses,
some countries already announced policy shift to the bilateral carbon trade from the
CDM.
According to the prior investigation, institutional development is indispensable
and important in order to mobilise low carbon businesses and minimise the risks
derived from the businesses (Ogihara 2012a). In particular, the survey result indi-
cates that institutional development is very important because of its significant
effects, which contribute to risk minimisation on investment and enhancement of
collaboration among the stakeholders.
It should be noted here is “additionality”. Initially, the Japanese government
does not refer to this concept in the JCM scheme. Rather, the Government con-
sidered that the JCM projects could be simply judged according to eligibility cri-
teria of the methodology. Now, in order to obtain the international recognition in
the future, there is a tendency to think that “additionality” should be taken into
account for the project selection.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 295

If the “additionality” needs to be proved in the process of project evaluation, it is

necessary to judge the relevance of JCM projects by “check list” as well as
“positive list”. In this regard, since it has been studied so far. We hope to establish
necessary institutions for the “additionality” near future.

10.3.4 Lack of Human Resources in the Areas of Capacity

and Institutional Development

As mentioned above, the JCM project identifies the importance and effectiveness of
the “package-based infrastructure development” approach, which includes not only
hard and soft areas but also a wider range of infrastructure projects as a package, in
order to create more competitive project. Therefore, of course, support in the soft
area such as human resource and institutional development is becoming more
important. In case of Japan, know-how and knowledge have been developed
through a wide range of experiences in pollution solution and ODA are expected to
be fully utilized.
In order to ensure the sustainability of the JCM projects, strengthening of
institutional development and operation and maintenance (O&M) in the projects is
becoming more important. From this reason, capacity building in the private sectors
and the governments in both developing and developed countries.

10.4 The Way Forward

Based upon the above analysis, we can recognise that many of the issues are clearly
linked to public and private partnership (PPP). This reveals that it is not so easy to
solve the potential problems of JCM projects. Standing on such recognition, major
policies below are summarised in the respect not only for improving relationship
between government and private sectors but also for improving efficacy in project
development and implementation.
In order to enhance regional cooperation, “platform” plays important roles in
providing the basic information such as potential needs for project development
with related stakeholders. If such “information platform” is developed, which
makes it easy to share necessary information among various actors or stakeholders,
by clarifying the strengths of respective stakeholders. In addition, such platform
enables to formulate projects efficiently and effectively.
Based upon need assessment in the developing countries, it is important to
accumulate the related data on environmental data, institutions and technologies,
and in addition to aggregate the knowledge, experiences and know-how that have
been cultivated as important “wisdom”. In other words, this indicates that infor-
mation aggregation and systematization, which should include what kind of
296 A. Ogihara and V. Anbumozhi

technologies are useful under what kind of institutional settings in both Japan and
developing countries.
In Rio + 20, in order to realise green growth in both developed and developing
countries, it is recognized the importance of sharing the “toolbox” or “best practice”
with other countries. From such a perspective, the following are proposed as
intellectual support system, which should be built in the future.

10.4.1 Private Proposal Based on PPP

The concept of PPP is similar to that of the Private Finance Initiative (PFI) that was
developed in Britain in the 1990s, utilizing private funds social infrastructure.
The PPP refers to the new form of public-private cooperation in a broad sense that
public and private sectors work on business together.
In the case of PFI, national and local governments develop business plan and
decide the private companies which will work on the businesses through bidding
process. On the other hand, in the case of the PPP, private sector has a wider range
of roles such as participation from the planning stage of the project, compared to
PFI.
The PPP approach has the two major advantages. The government can provide
the public services while reducing financial burden, utilizing the technologies and
services of private sector. On the other hand, private sector can have a wider
business opportunity, having relaxed entry barriers to public services.

10.4.1.1 Reinforcement of Competitiveness

When Japanese companies expand business in the world market, market expansion
by the government called “ground manufacturing” is extremely important. While
the circumstances associated with the PPP in the partner countries, by forming and
implementing a “pilot project” as a future model cooperate and Japan and the
partner country in the initial stages of the business, and package type infrastructure
projects as well as enhance the competitiveness of our country in the field of, it is an
effective means to the implementation of mitigation and smooth business of risk
associated with the implementation of the project.

10.4.1.2 Institutional Development for PPP

As shown in Table 10.9, the country situation on institutional development on PPP

in the EAS region is varied. In order to mobilise and expand regional collaboration
continuously and effectively, it is important that social systems particularly related
to PPP developed through the revision of the existing institutional frameworks. For
instance, it is important to support:
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 297

Table 10.9 PPP in the EAS region: status of the related legislations
Country Efforts on PPP Related laws and regulations
Korea (1) The Government are actively Act on Private Participation in
promoting PPP as a leading Infrastructure (PPI Act)
agency
(2) The Research institution under the
Planning and Finance Department
consists of approx.100 PPP
experts provided capacity
development for local
governments etc.
(3) State-owned enterprises take a
lead for developing international
businesses from the project
formulation stage
(4) State-owned enterprises play a
central role, risk-taking is
corresponds to the difficult
projects in the private sector
China (1) There is a movement to develop PPP-related legislation has not been
PPP scheme. However, there is no developed
case where public competitive
bidding processes were conducted
as can be seen in Europe and Asia
(2) There is no SPC, which operates
an individual infrastructure
projects in China. Therefore, it is
difficult to invest the equity
Indonesia (1) After 2005, PPP related Presidential Decree (PERPRES) 2005
legislations have been No. 67 issue “Cooperation between
strengthened. (Risk management the government and business body
guidelines, Procedures for PPP regarding infrastructure supply”
formation, etc.)
(2) Infrastructure demand amount in
2010–2014 has been decreased by
approx. 70 %
Thailand (1) A PPP law will be enacted shortly The Act on Private Participation in
weak commitment to PPP mainly State was enacted in BE 2535 (1992)
due to infrastructure demand is
not so growing
(2) On the other hand, BMA made
significant efforts on PPP
implementation in the areas of
urban transport, water supply and
sewerage systems etc.
(clarification of PPP definition,
establishment of PPP Task Force
unit, establishment of evaluation
indicators for PPP businesses, and
risk sharing model etc.)
(3) New PPP law may include
unsolicited project procedure
(continued)
298 A. Ogihara and V. Anbumozhi

Table 10.9 (continued)

Country Efforts on PPP Related laws and regulations
Vietnam (1) BOT projects which International “Prime minister decision on
companies participate is formed, promotion of PPP investment pilot
it is a stage that the market which project in nine areas”
promotes PPP is being formed (71/2010/QDj-TTg) Draft
(2) According to PPP Decree 71, “Regulation on PPP Investment Pilot
pilot projects will be implemented Projects” (enacted on 15th January
every 3–5 years. Based on the 2011)
results, the PPP law plans to be
revised
(3) “Foreign investors (private sector)
is selected in the public tender”,
etc., many constraints on
private-sector employers, there are
many problems
Philippines (1) There are continuous demands Republic Act No.7718:
over PPP Philippines BOT method (Reformed
• PPP Center was established Republic Act No.6957 on finance
(formerly BOT Center) infrastructure projects by private
• PPI Committee was established. businesses, construction, operation,
The Committee members consist of maintenance)
the President, NEDA Secretary, BOT Republic Act No.8974: laws and
authorities Secretary (chairman and regulations to promote the land use
compiled), permanent secretary, local rights and land acquisition for
government officials, representatives infrastructure projects by the state
of government agencies and financial government
institutions, representatives of the Republic Act No.8975: by the lower
private sector court, with penalties for violations
• The contents of concession, joint other, temporary stop instruction, by
venture, management services, prohibiting the issuance of the
contract details, such as a lease-a preliminary injunction, to be quick
Fermat Ju except BOT are decided execution and completion of the
(2) BOT authority alone has approval infrastructure projects by the
authority over infrastructure government laws and regulations for
projects which the Government the purpose
recognises a high priority. It Executive Order No.8: reorganized
should be carried out by the from BOT center to PPP center, and
Secretary under the President presidential Decree on affiliation
(National project) transfer from Department of Trade
• More than 3 billion pesos “National and Industry to National Economic
Economic Development Authority and Development Authority
(NEDA)” The Omnibus Investments Code of
• Less than 3 billion pesos 1987, Executive Order No.226:
“Investment Coordination regulated comprehensive and
Committee (ICC)” international investment
(Local projects) law/Presidential Decree No. 226
• Local governments, State – Provisions for incentive mechanism
governments, and Development on private and foreign investment
committee of the region, depending Philippine Constitution:
on the project sizes – Provisions on restrictions for land
• NEDA-ICC has jurisdiction over the ownership
projects more than two billion pesos
(continued)
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 299

Table 10.9 (continued)

Country Efforts on PPP Related laws and regulations
India (1) The below listed projects have Procedure for approval of PPP
been implemented under the PPP projects in the central sector-setting
schemes: up of PPP Approval Committee
• PPP India (PPP Approval
Committee)
• Assam: PPP Unit
• Andhra Pradesh: PPP Cell
• Karnaraka: PPP Cell
• Madhya Pradesh: PPP Unit
• Orissa: PPP Unit
• Rajasthan: PPP Unit
• Uttarakuhand: PPP Cell
(2) However, participation of
international companies is limited
Singapore (1) Comprehensive entry system is Public Private Partnership
already developed by company (PPP) Handbook (Ver. 1) (2006)
consortium
(2) Although the government
investment company has invested
in the project, private sector faces
difficult situation where it have to
solve difficult long-term risks
(3) Government system developers
(Ascendas, Keppel Corp,
SembCorp, Maple Tree, etc.)
mainly deal with infrastructure
projects
Source Ogihara (2012a)

1. reform of PPP
2. promote the state-owned enterprise reform,
3. development of medium and long-term support plan for policy and institutional
reforms in central and local government.

10.4.2 Effective Platforms for Project Development

and Implementation

10.4.2.1 Regional Actions for Knowledge and Information Sharing

The 1st East Asia Low Carbon Growth Partnership Dialogue5 was held in Tokyo,
Japan on April 15 2012. Ministers from the 18 countries of the East Asia Summit

5
In order to embody “Japan’s Vision and Actions toward Low-Carbon Growth and a
Climate-Resilient World” in EAS Region which becoming the world's economic growth centre, as
300 A. Ogihara and V. Anbumozhi

and, as observers, representatives of regional and international organizations

attended the Dialogue. The Dialogue served as a great opportunity to kick off
discussions regarding the promotion of low-carbon growth in the EAS region, the
center of gravity of the world economy as well as the world’s largest GHG emitter.
Participants exchanged views on each country’s actions and strategies toward
low-carbon growth, cooperation between developed and developing countries, the
importance of low-carbon technologies, financial support and market mechanisms,
and the significance of effective networks among the various stakeholders.
Participants shared the view that the low-carbon growth is a key to realizing sus-
tainable growth toward the future and that they would promote cooperation in line
with the following 3 pillars:
1. development of their own low-carbon growth strategies in each country,
2. development of technology, market and non-market mechanisms, and
3. cooperation among various stakeholders (central/local governments, interna-
tional organizations, universities, research institutes, private companies, NGOs
etc.), including the establishment of East Asia Knowledge Platform for
Low-carbon Growth describes below.

Box 10.3: East Asia Knowledge Platform for Low-carbon Growth In

order to help EAS member countries, particularly developing countries, create
and implement low carbon and resilient development strategies compatible
with their development goals, this platform will provide an opportunity for
researchers, policy makers and development practitioners to:
• Originate and share policy oriented research skills and outputs
• Digest and translate research outputs and best practices into policy
proposals
• Train and assist policymakers to create and implement strategies
Source: Ministry of Foreign Affairs (2014).

(Footnote 5 continued)
well as the largest GHG emissions area (63 % of the global emission) as indicated in Sect. 10.1,
Japan advocates East Asia Low Carbon Growth Partnership under the framework of EAS. The
partnership aims to establish models for low-carbon growth, which serve both economic growth
and challenges against global warming by sharing member countries’ efforts, experience and
environmental technology through promoting regional cooperation.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 301

10.4.2.2 Japanese Efforts for Knowledge and Information Sharing

The organization and management systems for aggregating innovative knowledge

and know-how which not only the government but also private sectors have are
becoming more important, in addition to the government based “program
approach” conducted by JICA (Japan International Cooperation Agency) and JBIC
(Japan Bank for International Cooperation). As shown in Fig. 10.5, the “New
Mechanism Information Platform” was created by the Japanese Government, in
order to provide the latest trends and information for various stakeholders related
the JCM projects.
• Helpdesk also accepts and answers inquiries regarding the JCM.
• Another dedicated website for the JCM was launched. In the meantime, all the
documents regarding the JCM development (e.g. outcome, decisions, method-
ologies and projects of the JCM) are uploaded on this website.
In addition to the information sharing system among the related stakeholders as
shown above, it is considered important that consultation process at the early stage
of the project, consisting of various stakeholders which include experts of partner
countries, consultants, manufacturers, engineering companies, academics, finance
experts and etc., in order to develop appropriate projects which match with the
needs from the partner countries.

Fig. 10.5 New mechanism information platform and knowledge hubs

302 A. Ogihara and V. Anbumozhi

Such platform which shares the project related information with stakeholders will
envisage concrete discussions based on the PPP, taking into account the various situations
in order to promote effective proposals based on the needs of planning and developing
countries. For instance, the platform is used as a “place” to share information/knowledge
for participating companies, relevant ministries and agencies that lead to system “ac-
ceptance of the proposal of the PPP projects by private companies”.

10.4.3 Top Sales

The Chair’s Summary of “The 3rd East Asia Low Carbon Growth Partnership
Dialogue” emphasised that the central governments should prioritize climate
actions in the economic and development policies, while the private sector play
important role to promote low carbon growth. This indicates that governments
should also send strong signals to the private sector and provide the long term
certainty of climate policies and and actions, which is necessary to encourage
private sector investment (MOFA 2014).
Taking into account the nature of the buyer of infrastructure development pro-
jects is normally the government of a particular country. For instance, leaders of the
side of the country in which orders perform a “top sales” also in order to enhance
the international competitiveness there is a very big meaning. In other words, so
that it can promote the market development of the private sector that will actively
engaged in the sales as well as the Japanese government, there is no objection that
the logistical support to the private sector.
Such an approach not only leads to efficient project development and implemen-
tation, but also will boost the business activities of private enterprises. Such sales are
also actively developing, and created a reliable project as projects, proposal-based
PPP is considered to be also required effort, such as bringing in business.

10.4.4 Overall Coordination Among Various Stakeholders

Since JCM projects involve the various stakeholders in its implementation, the
presence of “coordinator” is essential in the respective of overall coordination of
project. In particular, the low-carbon city projects such as package based infras-
tructure projects generally consist of diverse projects. Therefore, the roles of the
coordinator, which oversees the project are very important. In addition, in case that
the project includes “operation and maintenance”, it is important to take care of the
followings:
1. risk management, which mitigates operational risk and country risk,
2. asset management, which aims at efficient business operations, and
3. long-term financial strength related to business operations.
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 303

Developed countries Developing countries

Government Government

collaboration by stakeholders

Enterprises Enterprises
NGO etc. NGO etc.

Fig. 10.6 Collaboration between developed and developing countries through PPP. Source
Ogihara (2012a, 2013)

By ensuring collaborative relationship between the companies associated with

the government of the recipient countries is important. Based on the interview
survey,6 the trading companies or consulting companies should be the coordinator
which oversee and coordinate the entire business in collaboration with the gov-
ernments in both developing and developed countries (see Fig. 10.6).

10.4.5 Improvement of Investment Environment

10.4.5.1 New Subsidy Schemes

For private sector, “viability gap” between the price set by cost recovery levels and
the price set by public pricing policy is a crucial factor, which affects
decision-making on project development. In many cases of packaged based
infrastructure projects, which create big viability gap. Because of this, companies
judge that projects do not create enough benefit from the business. Finally, the
companies decide not to participate in the projects.
Taking into account that companies face such difficulties in obtaining investment
mainly due to a wide range of risks (see Fig. 10.4), it is necessary that the gov-
ernments should support improvement of investment environment, by introducing
the following policies:
1. both governments create programmes that clearly describe the project imple-
menters and their roles as an initiative, and
2. both governments support the entry of companies.

6
authors conducted interview survey with various actors which were involved in the international
projects.
304 A. Ogihara and V. Anbumozhi

Viability Gap Funding (VGF) would be another approach to promote the

commercial investment in the social and economic infrastructure development
businesses which Japanese companies have difficulties in investment. In case of
Japan, the Government tries to increase the predictability and feasibility of busi-
nesses by providing investment with such businesses, utilizing Overseas
Development Assistance (ODA) scheme. From this perspective, it can be assumed
that “Overseas Investment and Loan Business” scheme would be a supportive
mechanism to enhance investment from business side. However, it must be aware
that a mechanism is still indispensable to ensure the exchange risk which will be
accompanied with investment is still indispensable.

10.4.5.2 Financial Mechanisms to Support Investment

Low-carbon city project, which encompasses a wide range of businesses has

attracted attention as a new market, as compared with the conventional approach.
Risks in various areas will be significant barriers for smooth project development
and implementation. Therefore, it is necessary to have innovative ideas in order to
solve such problems. The use of public funds and valid financial mechanisms which
promote investments would be essential. For instance, the public funding initiatives
such as expanding the money supply and the public and private sectors work
together to encourage the inflow of private funds.
In the case of the CDM, the gain on the sale of the credits obtained from GHG
reduction is a strong incentive for companies. On the other hands, the JCM cur-
rently prohibited to trade the credits in the market (Government of Japan, 2014). In
addition, this clearly stated in the JCM bilateral agreement concluded between
Mongolia and Japan in 2013 that market trading of the credits is prohibited for the
time being. However, this does not mean that credit trading is entirely denied.

Table 10.10 Subsidy schemes

Budget Ministry of the environment Ministry of economy, trade and industry
source
Implementer GEC NEDO
Scale of 12 million USD 35.1 million USD
Budget
(2013)
Characters • To assist in the maximum • NEDO covers expenses on the
half of capital investment demonstration project of technology and
• 3 years will be maximum system. However, subsidies contractor
• Some relocation obligations needs to purchase the facilities after
to the Japanese government of depreciation
credit • 3 years will be maximum
• Credit applications are determined by the
operators
Source Umemiya et al. (2013)
10 Aiding the Transition: Innovations with Japan’s Bilateral Offset Mechanisms 305

Institutional
investors

Fund

Package investment
(Developing country)
developing country)

Local governments
(developed and

Sewage treatment
Renewable energy
Researches

Fig. 10.7 Package investments for low-carbon city business. Source Ogihara (2013)

Rather, based on the JCM agreement, the countries will continue to discuss whether
the credits can be market tradable or not and will get the conclusion near future
(Japan-Mongolia JCM 2013).
As an economic incentive to replace in this, the Japanese government has set a
subsidy to the project. The current subsidy systems consists of the two types as
shown in Table 10.10.
Taking into account the situation that private investments cannot be expected, it
is necessary to see “package investment” which fully utilise public investment and
secondary market as shown in Fig. 10.7. For that reason, it becomes more
important not only to understand the potential needs of the investors, but also to
propose possible funding mechanisms for obtaining investment.

10.5 Conclusions

The JCM has developed a market mechanisms that can be recognised as new
approach to fund low carbon energy technology transfer. As work in progress, JCM
requires learning by doing as CDM did in disseminating renewable and energy
efficiency projects. It is important to continue to consider how different bilateral,
306 A. Ogihara and V. Anbumozhi

multilateral and global approaches can be harmonised and incentivise the markets
for low-carbon energy systems.
It is likely that partner countries will encounter unique challenges of accounting
their use of market based mechanisms towards financing the credits. Therefore, we
propose several recommendations: (i) JCM should identify the needs of capacity
building and incentivise support provided for developing countries (ii) The JCM
team and their counterparts in developing countries—the project developers of low
carbon energy system projects should technically review the capacities that have
been built for project viability and (iii) the team should also pay attention to
Public-Private partnership projects on low-carbon energy systems that are poten-
tially qualified under INDC framework.
It is recommended that Monitoring, Reporting and Verification elements of JCM
should consider these points so that all concerned stakeholders in developing
countries to choose market based mechanisms for the uptake of low-carbon energy
systems.

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Chapter 11
Regional Cooperation and Asia’s Low
Carbon Economy Transition: the Case
of New Zealand

Douglas Hill

11.1 Introduction

The Asian region is large and diverse, with extremely variable levels of develop-
ment, however we may describe that, existing between and within the countries of
the region. At the same time, there is little doubt that as the global economy
transforms, a significant proportion of economic growth will be taking place in this
part of the world. One of the most significant challenges confronting the region is to
transform their economies in a way that does not accelerate the Earth’s already
precipitous journey towards carbon concentration above 450 ppm. Indeed, there are
significant challenges ahead in transitioning towards low carbon growth in Asia.
For example, there are existing and emerging technologies that are less carbon
intensive ways of generating energy and the widespread introduction of such
technologies might go a considerable way in creating a transition away from
dependence upon fossil fuels. Indeed, there are economic drivers that are facilitating
a shift away from fossil fuels, such as falling costs of PV, wind and other renewable
technologies, and a concomitant growing reluctance to invest in carbon emitting
industries by risk adverse banks. Nevertheless, as the analysis will demonstrate,
there are significant issues that are at this time impeding investment in low carbon
growth from outside the region into Asia’s economies, particularly outside core
countries such as China.
Certainly, much can be achieved in decarbonizing the economy by shifting the
balance of energy supplies towards renewable sources, particularly in those coun-

Senior Lecturer in Development Studies, Department of Geography, University of Otago, New

Zealand.

D. Hill (&)
University of Otago, Dunedin, New Zealand
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 309

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_11
310 D. Hill

tries that are undergoing major transitions in their economic structures, as we see in
may parts of Asia, such as China, India, and the so-called second generation tiger
economies of South East Asia. However, ultimately, this will not be sufficient, and
what is needed is a whole range of changes to the society and economy. Efficient
technologies need to be introduced into homes and businesses, transport systems
need to be decarbonized and energy needs to be distributed more effectively,
including through the introduction of smart grids (Stephenson 2011). Whilst there
are clear gains to be made in smaller and more remote areas through the deployment
of these kinds of technologies and systems, arguably the most efficient way for
these gains to be maximised is through their deployment in the parts of the region
that are urbanizing. As such, the urban form will take on greater importance and
there are significant opportunities in that regard to transition towards low carbon
growth models, including in transport and distributed energy.
In light of all of these challenges, this chapter joins others in the current volume
in arguing that regional cooperation represents a great opportunity to collectively
move towards low carbon green growth in Asia. As scholars are beginning to
recognize regional cooperation can be best achieved through a combination of
market and non-market mechanisms. Such regional cooperation should be seen as
able to complement and augment, rather than substitute for, domestic actions (Yao
and Anbumozhi 2014; Anbumozhi 2015). Anbumozhi (2015) has recently pub-
lished a comprehensive study of the conditions under which such regional coop-
eration for low carbon green growth might be achieved in Asia; he notes that there
are significant institutional, regulatory and financial difficulties associated with
creating the conditions for effective regional cooperation. Nevertheless, there is a
range of policy mechanisms that are thought to be appropriate in the transition to a
low carbon economy, for which countries such as New Zealand could contribute.
These policy instruments include financing mechanisms and credit; enhanced trade
in environmental services; taxation and, the integration of each country’s carbon
markets with a broader global or regional consideration. In addition to these policy
mechanisms, there is clearly also a significant need for capacity building so that the
energy sector can be appropriately planned and strategies implemented at a range of
different scales. Each country in Asia has different kinds of needs in this regard, and
the geographic diversity within countries means that some measures may be best
achieved nationally while others are more suited to local measures. There are, in
other words, significant technical and social challenges associated with the wide-
spread adoption of different kinds of technology that may facilitate low carbon
growth.
In this chapter the specific example of New Zealand is utilised to discuss the
challenges and opportunities associated with regional cooperation for low carbon
growth in Asia. The chapter will begin by outlining the New Zealand domestic
context, and here we will learn that New Zealand enjoys certain advantages in
pursuing a pattern of low carbon growth, such as a widespread usage of renewable
energy, but also has some serious issues to confront, partly stemming from the
significance of (carbon intensive) agriculture in the economy as well as a high
dependence upon fossil fuel for transport.
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 311

With this background in mind, Sect. 11.2 then moves on to discuss New
Zealand’s current regional cooperation and to examine the potential to broaden and
deepen this engagement. In doing so a range of different institutions and mecha-
nisms are examined. There has been a fairly extensive literature documenting New
Zealand’s domestic carbon economy and a growing body of literature that looks at
its international efforts; however, there has been to date almost nothing that
examines the possibilities for regional cooperation with Asian nations. There are a
number of possibilities for such regional cooperation, which includes New
Zealand’s role as part of the multilateral donor community; its bilateral aid pro-
gramme; the potential of linking carbon markets; and the role of institutional
investment originating from New Zealand.
Section 11.3 of the chapter then moves on to examine New Zealand’s contri-
bution to the international environment for emissions reductions and low carbon
green growth. Section 11.3.1 examines emissions trading scheme (ETS), which is
one of the earliest such schemes set up anywhere in the world. Significant changes
to the scheme in the last few years has meant that it is no longer as well-regarded as
it once was, and some critics believe that considerable changes need to be made if it
is to play an effective part in reducing New Zealand’s emissions. The New
Zealand ETS is far more linked into global markets than many of its counterparts
and so it is perhaps not surprising that country has played an important role in
trying to examine and facilitate how domestic carbon markets throughout the
Asia-Pacific might be linked in the future.
The next part of the chapter, Sect. 11.4, examines the role of institutional
investors in financing and sometimes building energy infrastructure in Asia. The
focus here is on companies that are explicitly committed to exploring opportunities
around low carbon growth and for that purpose Sect. 11.4.1 of the chapter examines
the Investor Group on Climate Change (IGCC) and some of its members, most
notably the New Zealand government backed sovereign wealth fund and
New Zealand Superfund. An examination of the role of trade liberalization follows
in Sect. 11.4.2, focusing specifically on environmental goods and detailing the
contribution that this can make. Again, New Zealand has played an active role in
the development of a number of bilateral and multilateral agreements.
As Sect. 11.5 makes clear, development cooperation is an area where countries
such as New Zealand could clearly have an impact on Asia’s low carbon growth
trajectory. In recent years New Zealand’s aid programme has become increasingly
narrowly focused around the Pacific Region and in areas targeted at sustainable
economic development. It can be argued that this focus means that there is less
engagement with Asia than one might expect given the expertise in New Zealand in
areas that might help Asia chart a path towards low carbon economies.
Nevertheless, as this section shows, there are areas that demonstrate New Zealand’s
commitment to engendering a low carbon growth pattern for Asia through its aid
programme. Section 11.6 concludes the discussion and summarises the lessons for
regional cooperation that can be taken from the experience of New Zealand.
312 D. Hill

Table 11.1 Basic sustainable development indicators of New Zealand

Population (thousands) 2012 4,459.9
GNI per capita ($US) 2012 30,620
Gini coefficient 2012 0.33
Life expectancy at birth 81 years
Total adult literacy rate 99
Primary school net enrolment ratio (%) 2008–2011 99.5
Use of improved drinking water sources (%) 2011 100
Source UNICEF (2014), Statistics New Zealand (2013)

11.2 The New Zealand Context

New Zealand is classified as a developed country and as Table 11.1 demonstrates,

its basic indicators are similar to many other Organisation for Economic
Co-operation and Development (OECD) countries.
While in many respects the country is similar to many of its contemporaries in
terms of the above indicators, it varies considerably when it comes to energy.
Indeed, New Zealand has rightfully been regarded as an important case study in
terms of the significance of renewable energy its overall energy mix and there are
some suggestions that it could be an example for other countries in this regard. It is
certainly the case that, given the preponderance of hydroelectricity as the mainstay
of its grid, supplemented by wind power, geothermal, tidal and other sources New
Zealand is in an unusual situation. Indeed, more than 70 % of its electricity is
derived from renewable sources, as Fig. 11.1 demonstrates.
New Zealand clearly has significant potential to generate future energy from
renewable sources. Indeed, some commentators argue that it would be possible to
increase the proportion from these current levels and move towards 100 % gen-
eration from renewable sources, although it is acknowledged that this would require

60,000
Projection
50,000

40,000
Gwh

30,000

20,000

10,000

0
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030
Hydro Gas Geothermal Coal Wind Other Energy Outlook 2009

Fig. 11.1 Electricity generation in New Zealand by fuel source. Source Ministry of Economic
Development (2011)
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 313

considerable political will and that there are of course costs and benefits, including
environmental trade-offs, to such a strategy.
Despite the country’s commitment to move towards carbon neutrality, its
greenhouse gas emissions profile, which in 2013 amounted to 80,962 kt carbon
dioxide equivalent, is far less impressive than its energy generation profile.
Although New Zealand emits only 0.15 % of global Greenhouse gas (GHG), the
country’s significant agricultural base, including methane intensive dairy as well as
a huge reliance on fossil fuels for transport, means that it has one of the highest
GHG per capita profiles of any country in the OECD. Indeed, agriculture and the
energy sector respectively contributed 48 and 39 % of total GHG emissions, with
road transport being the fastest growing source of emissions in that sector.
Figure 11.2 shows New Zealand’s emissions, while Fig. 11.3 total and net emis-
sions (under the Climate Change Convention) from 1990 to 2013.
Figure 11.3 above shows that total emissions have increased by 21 % in the
period 1990–2013. Indeed, the Ministry of Environment’s own modelling suggests
that GHG emissions will grow at an average rate of 0.8 % to 2040, by which time
emissions will be 51 % higher than the 1990 baseline (Royal Society of New
Zealand, 2014). Figure 11.4, details these projections.
An important aspect of New Zealand’s GHG emisisons profile is the significant
divergence between New Zealand’s net GHG emissions per capita and its gross
emissions per capita. However, a significant reason for this divergence is due to the
fact that allowances are made for plantation forest area in current GHG acounting

MtCO2e
–30.0 –10.0 0 10.0 30.0 50.0 70.0

Fig. 11.2 New Zealand’s 2012 emissions profile. Source Harrison (2015)
314 D. Hill

Fig. 11.3 New Zealand total greenhouse gas emissions (1990–2013)

Fig. 11.4 New Zealand energy sector greenhouse gas emissions. Source Stephenson (2011)

rules. Many of these plantations are due to be harvested in the next decade, with the
result that the country’s net emissions are expected to rise significantly.
The New Zealand government has a target of an unconditional reduction of 5 %
compared with 1990 gross emissions by 2020 and a 50 % reduction by 2050.
Unfortunately this is unlikely to occur if the current trajectory continues. In a
recently released consultation document the Ministry of the Environment details
estimates for the reduced average household consumption in 2027 compared to that
which would occur in a Busines as Usual scenario. Its assumes that stronger cuts
will lead to slower growth, which will have impacts upon household consumption
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 315

Table 11.2 Impact of different targets on annual household consumption in 2027 (based on a $50
per tonne carbon price)
Target Impact (reduction in consumption for
different targets) (in $NZD)
5 % below 1990 −$1,270 per annum
10 % below 1990 −$1,300 per annum
20 % below 1990 −$1,400 per annum
30 % below 1990 −$1,600 per annum
40 % below 1990 −$1,800 per annum
Average annual consumption per household in $85,000
2027 if not target were taken
Source Ministry of Environment (2015b)

and translate into a reduction in consumption growth for different reduction targets.
Of course, how these costs are distributed across society depends to an extent on
domestic policies and political decisions about whether some households will bare a
greater proportion of the reduction in household consumption. The main impacts
are projected to be as a consequence of reduced wage growth and increased price of
some goods and services, particularly those related to energy (e.g. electricity and
vehicle fuel) (Ministry of Environment 2015a) (Table 11.2).

11.3 New Zealand’s Role in Global Climate Change

Agreements

If the story of New Zealand’s carbon economy is a mixed one, it is nevertheless the
case that the country has consistently been an important global player when it
comes to climate change; certainly to an extent that is disproportionate to its modest
population base. In the section below, this contribution is examined, focusing
specifically on New Zealand’s role in multilateral financial institutions and in
carbon markets.

11.3.1 New Zealand Emissions Trading Scheme (ETS)

An important step to creating economic incentives for internalising the costs of

emitting carbon is by creating a carbon market and then by linking regional and
national carbon markets together. At the present time there are a number of carbon
markets developing in different parts of the world, with 17 ETS in operation and
another 15 in preparation or under consideration (ICAP 2015). Many of the most
significant developments in terms of the growth of carbon markets are taking place
in the Asia-Pacific region, including China, Korea, Indonesia, Chile, Japan,
316 D. Hill

New Zealand, Singapore, Thailand, California, and the North American Regional
Greenhouse Gas Initiative.
New Zealand was one of the first countries to develop an ETS in 2008 and is an
important initiative for the government as the country’s primary response to
charting a future towards decarbonising its economy. The ETS includes all six
gases listed in the Kyoto protocol as well as all sectors except agriculture, which
has been controversially delayed (Wright 2015; Macey 2012). The domestic
emission unit used for the ETS, called the NZU, is not compliant with the Kyoto
units and thus can only be used within the country. However several other inter-
national Kyoto units can be used in the NZ ETS, including emission reduction units
(ERUs), certified emission units (CEUs) and removal units (RMUs). Compared to
most other carbon markets to New Zealand ETS has a high degree of international
linkages, but this also means that it is a price taker when it comes to these units
(Macey 2012).
The New Zealand ETS has undergone significant changes in the past few years
and this has led some to question its effectiveness. Although New Zealand is a
signatory to the Kyoto protocol its relationship to the international community with
regards to climate change arguably altered at the UNFCC conference in 2012 when
the country decided not to sign on the second commitment period 2013–2020.
According to Macey (2012), this meant that New Zealand was effectively, in his
words, ‘locked out of UN carbon markets from 2013’. However, the wash-up
period of the Kyoto Protocol meant that there was some trading activity until June
2015.
The changes that have occurred to the ETS scheme after 2012 have been con-
tentious within New Zealand. Many critics, including the Parliamentary
Commissioner on the Environment, suggest that the ETS scheme has been sig-
nificantly compromised in the period after 2012 and there are questions about
whether the carbon credits that are being purchased after that time represent actual
greenhouse gas emissions (Wright 2015). This controversy stems from the fact that
the New Zealand ETS system has no limits on the amount of international units that
can be purchased. In the last few years many of the carbon credits purchased under
the ETS were those that had originally been allocated to Russia and the Ukraine
under the Kyoto protocol (Macey 2014), but which those countries did not use
subsequently because of the contraction in their economies. These so-called hot air
units sell for well below the New Zealand price of $25 and in fact many of them
have been traded for just a few cents. The Parliamentary Commissioner on the
Environment argued in June 2015 that:
These hot air units do not represent real reductions in emissions. The price of these hot air
units have been running at a few cents. Taking advantage of the difference in price between
these hot air units and the units allocated by the government to admit as has damage the
integrity of the ETS (Wright 2015).

It is unclear what the future will hold for the New Zealand ETS scheme.
However, as the next section demonstrates, the country continues to be at the
forefront of actions to try and link international carbon markets. This is
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 317

understandable, since there are many within the country that believe that because
New Zealand has such a strong reliance on renewable energy, there is little capacity
to make serious reductions in its emissions and so it needs to be engaged inter-
nationally with other carbon markets (Ministry of Environment 2015b).

11.3.2 New Zealand and Asia–Pacific Carbon Markets

Roundtable (APCMR)

Many commentators suggest that there is a need to linkup the various domestic
carbon markets throughout the region. An important initiative in this sense is the
Asia–Pacific Carbon Markets Roundtable (APCMR) that was initiated by New
Zealand in 2011 and had its fifth iteration in 2014. The roundtable is an informal
gathering of representatives from jurisdictions that have already considering
domestic market based carbon instruments. It was set up as a way to encourage the
growth of domestic carbon markets and do so in a manner that makes future
bilateral regional level linking of those markets possible. Some of the domestic
carbon markets included in this roundtable are China, Korea, Indonesia, Chile,
Japan, New Zealand, Singapore, Thailand, California, and the North American
Regional Greenhouse Gas Initiative.
The APCMR is an opportunity for representatives of these jurisdictions to dis-
cuss ways in which future market linkages may be arranged and potential obstacles
overcome. Some of the issues covered in these discussions include environmental
integrity, emissions MRV, governance, and registry arrangements. At the present
time, materials stemming from deliberations at the various APCMR fora are not
publically available. Again, whilst it is unclear how and in what form carbon
markets will be linked in the future, the example of the APCMR shows that
leadership from countries such as New Zealand can assist in moving dialogue along
and in doing so help create the conditions for the emergence of such linked markets,
that will ultimately assist Asian countries in transitioning towards a low carbon
economy.

11.4 Financing Low Carbon Technologies

The financing of low carbon technologies is an area where regional cooperation can
foreseeably be of assistance. In theory, many low carbon technologies should be
attractive investment opportunities because they are relatively low risk, since they
are operationally simple and have no fuel costs. Indeed, there are now substantial
cost reductions and efficiency improvements in renewable energy systems such as
solar PV and onshore wind. Thus, even though global investment in those areas
dropped between 2013 and 2014, a great deal more power capacity was added,
much of it without the need for subsidy support (FSFM 2014). In 2014,
318 D. Hill

investment in renewable energy to developing countries rose 36 % from the pre-

vious year, with several countries in Asia, such as China, India, Indonesia,
Philippines and Myanmar all seeing large gains (FSFM 2015). This is particularly
impressive because falling capital costs means that a great deal more power is
generated than an equivalent investment would have yielded even three years
previously.
However, for many investors looking to invest in renewable energy in Asia,
there are often uncertainties around the broader issues around the regulatory
environment, feed-in tariffs and difficulty in accessing finance. Moreover, while
capital costs are falling, for many companies in Asia the upfront capital costs
associated with some forms of low carbon growth still remain prohibitively high,
with a recent estimate suggesting that up 90 % of the total lifetime cost of a
renewable energy project are from capital costs (New Climate Economy 2015).
Obtaining long-term financing is often one of the most difficult obstacles faced by
companies wanting to introduce low carbon technologies. Again, it has been esti-
mated that access to low-cost, long-term finance might reduce the cost of
low-carbon electricity by up to 30 % in emerging economies (New Climate
Economy 2015). However, attracting such finance from outside the Asian region is
problematic given that the regulatory environment that confronts the investors in
different jurisdictions is extremely uneven throughout Asia, meaning that signifi-
cant local understanding is indispensable. Even if such expertise is available the
regulatory environment that will emerge in the coming decades is uncertain and
difficult to predict.

11.4.1 Institutional Investment

Previous chapters in this volume have touched on the significant private sector
investment needed to finance low carbon growth in Asia. One significant source of
investment in low carbon technologies is institutional investment. There are several
regional associations around the world that attempt to harness institutional invest-
ment, including superannuation funds, in ways that can contribute to lessening
climate change and facilitating a transition to low carbon intensity growth. These
groupings, such as the Institutional Investors Group on Climate Change (UK),
Investor Network on Climate Risk (USA) and Asia Investor Group on Climate
Change (AIGCC) encourage government policies and investment practices that
address the risks and opportunities of climate change. In Australia and New
Zealand, the equivalent body is the Investor Group on Climate Change (IGCC),
which has approximately A$1 trillion under management (IGCC n.d). The IGCC is
interested in raising awareness about the impacts of climate change among inves-
tors, government, corporate and community sectors. It seeks to institutionalise
inclusion of climate change impacts in investment analysis. It does this by assisting
the investment industry to understand the potential costs and benefits of climate
change through the provision of relevant and timely information.
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 319

11.4.2 NZ Superfund and Its Difficulties in Investing

in Renewable Technologies in Asia

An important example of a managed fund that is active in the IGCC is the NZ

Superfund. This is a Sovereign wealth fund (approximately NZ$25.82 billion under
management) that invests Government capital contributions, and the returns from
those investments, to contribute to the cost of paying superannuation entitlements in
the future. It is a long-term, growth-oriented, global investment fund. It is a member
of the Responsible Investment Association of Australasia (RIAA) and abides by the
guiding principles set out by that organisation.
NZ Superfund has been pro-active in investing in renewable energy, including
an equity and debt investment in Massachusetts-based wind turbine manufacturer
Ogin Inc (NZ Superfund 2014). Ogin develops smaller, high-performance wind
turbine, and aims to help wind-energy developers bring clean energy production
closer to customers. It should begin generation this year. NZ Superfund has also
invested in California-based Bloom Energy, a maker of on-site power generation
systems using fuel cell technology (NZ Superfund 2014).
The NZ Superfund is clearly an example of a institutional investor that is
interested in investing in renewable energy technologies and thus could be expected
to be interested in investing in Asia’s fast growing and energy hungry economies.
However, qualitative interviews with figures associated with the IGCC suggested
that the story is repeated across many of the member organisations of the IGCC.
They have encountered significant issues with entry into ASEAN markets. For
example, because there are different regulatory environment in each jurisdiction,
there is a need for very specialist knowledge of each of those markets. However,
NZ Superfund has had difficulty in establishing good relationships with local
partners. They have also struggled to find expertise that stretches across the region
rather than in particular countries. Further, there was perceived to be an adversarial
attitude towards foreign investment in some countries, which translated into
reluctance on the part of some members of IGCC to invest in projects in Asia.
The experience of NZ Superfund has many comparable examples around the
world. A recent submission by a coalition of all responsible investment organisations
mentioned previously, as well as intergovernmental partnerships PRI and UNEPFI,
urged governments to work with investor groups to ensure a regulatory environment
where it was mandatory for risks to be adequately disclosed and an emphasis was put
on a stable and transparent investment climate that supported the deployment of low
carbon technologies (Global Investor Statement on Climate Change 2014). This
group argued that investment would continue to be stymied unless there were sig-
nificant regulatory changes taking place. The group argued that:
Ultimately, in order to deliver real changes in investment flows, international policy
commitments need to be implemented into national laws and regulations. These policies
must provide appropriate incentives to invest, be of adequate duration to improve certainty
to investors in long-term infrastructure investments and avoid retroactive impact on existing
investments (Global Investor Statement on Climate Change 2014).
320 D. Hill

There are examples, however, of niche firms that have been able to profitably
capitalize on the merging opportunities for investing in low carbon growth in Asian
markets. H.L.R. Morrison & Co. is a New Zealand infrastructure investment
company that specializes in the brokering of expertise and capital. In 1994 it
launched Infratil, one of the world’s first listed infrastructure funds, which now
controls NZ based energy company Trustpower. Morrison & Co. have formed a
successful partnership with the China General Nuclear Power Group (CGN) on
renewable energy projects throughout China. As of 2014, CGN operates power
generation plant of the capacity: nuclear 8.3 GW, wind 4.7 GW, hydro 4.0 GW and
solar 600 MW. Elsewhere in the world, Morrison & Co. has also built a stake in
Drax Group, which is transforming itself into biomass-fuelled generator business
through the burning of sustainable biomass in place of coal at the UK’s largest
power station. This transformation will see what is the UK’s single largest source of
carbon dioxide emissions become one of the largest renewable generators in
Europe.
There are several lessons to be learnt from the experience of H.L.R Morrison &
Co. Firstly, the form had experience in developing renewable energy in New
Zealand but then successfully partnered with local firms. They combined this
experience with combined with specialist abilities to manage assets and raise funds.
Morrison & Co. have undoubtedly benefited from the fact that their forays into Asia
have been in China, where there is an evolving policy framework to induce
investment to transition to renewables, including in terms of pay-in tariffs needed to
create revenue stream in case subsidies or support withdrawn and the concurrent
development of generation transmission infrastructure such as regional grids. One
of the lessons that emerges from the case of Morrison & Co. is that success in China
has come from niche expertise as well as because of the kind of conditions which
exist in that country to engender the take-up of renewable energy projects. It is
certainly not the case that similar conditions exist everywhere in the region and thus
it is far from an easy task to replicate this success elsewhere.

11.4.3 Free Trade Agreements, Environmental Goods

and Technology Transfer

Another area that can increase the uptake of low carbon technologies is in the trade
of environmental goods. The global market for environmental goods is estimated to
grow to approximately $3 trillion by 2020 from a 2013 base of $1 trillion. Many
commentators believe that if such a market potential is to be reached then there will
have to be a liberalisation of the tariff and non-tariff barriers in low-income
countries. Indeed, it has been observed elsewhere that many developing countries
continue to impose high tariff and non-tariff measures on low carbon goods and
services. If such countries were to be tariff free and quota free, Kalirajan (2012) has
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 321

estimated that this could lead to substantial increase in trade in renewable energy
generation and efficient technologies.
New Zealand has been a significant player in efforts to reduce tariffs in envi-
ronmental goods, a variety of fora including the WTO context, APEC and the free
trade agreements. In 2012, APEC countries committed to reducing applied tariff
rates on 54 environmental goods to 5 % or less by 2015. In 2014 New Zealand was
one of 14 members of the WTO that were involved in plurilateral negotiations on
environmental goods. Collectively these members account for 86 % of all global
trade in environmental goods. New Zealand is also one of only 7 countries that are
involved in both RCEP and TPP. Although there is significant opposition in New
Zealand, particularly to the TPP, the Ministry of Foreign Affairs and Trade (MFAT)
has consistently stated that these two treaties will both bring considerable benefits
to the country (Kim 2015).
One of the reasons usually cited for the country’s enthusiasm for these trade
pacts has been the potential for New Zealand industry to export environmental
goods, including those related to energy. In 2012, the export of environmental
goods including wastewater management and potable water treatment; management
of solid and hazardous waste and recycling systems and renewable energy plants,
was valued at NZ$750 million. The liberalisation of environmental goods could
undoubtedly benefit technology transfer from countries such as New Zealand to
region’s that are transitioning to low carbon growth economies such as in those in
Asia.
An important example of low carbon energy where New Zealand has a expertise
is geothermal energy. This energy source has the advantage of being clean, with
relatively low environmental impacts. It is also reliable since generation is inde-
pendent of weather and climate. New Zealand has legitimate claims to be regarded
as a world leader in the uptake of this technology. Indeed, in the period between
2008 and 2014 half of all the geothermal energy installed around the world
(1,100 MW) took place in New Zealand, leading to a doubling of the country’s
geothermal electricity genertion capacity. This is potentially an important aspect of
the RCEP given the importance geothermal technology could have for countries
such as Indonesia, Vietnam and Philippines.

11.5 New Zealand Development Cooperation and Role

in Multi-lateral Financial Institutions

There is a growing global recognition that Development Financial Institutions are

an important player in the transition to low carbon growth, particularly in the Global
South. Certainly, Multilateral Development Banks (MDB) (such as the World Bank
and its regional affiliates) have already made significant investments in this direc-
tion, having provided US$24 billion in 2013, and US$75 billion in total in the three
years from 2011 (New Climate Economy 2015). The description above of
322 D. Hill

institutional investors, however, also suggests that the role of these MDBs could
also extend to assisting in technical assistance in infrastructure investment for
private sector investment and public-private partnerships. Indeed, infrastructure
finance is an important area that MDBs have clear specialist expertise in; whilst
direct loans are the most obvious area of importance, they also can also provide
technical assistance and help to mitigate risk. In doing so, they create the conditions
that will attract greater private sector investment (New Climate Economy 2015).
Countries such as New Zealand can also use their influence in these institutions to
argue for a redirection of investment priorities towards areas that will support low
carbon growth to a greater extent than is currently occurring.
New Zealand has considerable investment in multilateral institutions and is an
active player, relative to its size, in a number of institutions that are important in the
regional and global development architecture. As well as contributing to overall
subscription, New Zealand has also co-financed a number of initiatives with the
Asian Development Bank that are directly aimed at a transition to a low carbon
economy. However, New Zealand has stronger relationships in the Pacific, and has
in the past most of its co-financing with the ADB has been in that region, such as
the access to renewable energy for Papua New Guinea.
As well as being a long-standing contributor to well established multilateral
institutions, New Zealand has also been an early signatory to the new Asian
Infrastructure Investment Bank (AIIB) and has pledged approximately USD$87
million to this purpose (Rutherford 2015). Of course, the AIIB is in its formative
stages and so it is premature to speculate about the role that this may take in future
years in the provision of low carbon economy infrastructure in different parts of the
region. What can certainly be asserted with some confidence is that early indica-
tions suggest that institutions such as these can do a great deal in a range of different
areas that will help to encourage low carbon transition.

11.5.1 New Zealand Aid as a Source of Capacity Building

and Technical Assistance

Another potential source of regional cooperation is New Zealand’s aid programme,

which takes place through an entity called NZAID, which is itself a part of the
country’s Ministry of Foreign Affairs and Trade. For example, NZAID has sig-
nificant expertise in the provision of renewable energy and this is a focus of its
programme in many countries, drawing on the country’s expertise in this sector as
well as the established relationships in the Pacific, Asia and beyond.
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 323

11.5.2 Geothermal and Wind as Key Areas for Development

Assistance

An important milestone in the New Zealand aid programs engagement is the Gadjah
Mada University’s (UGM) Community Resilience and Economic Development
(CaRED) program. This is the first integrated collaboration between New Zealand
and Indonesia and involves all of the relevant stakeholders in eastern Indonesia.
These include government, academia, and communities. The program aims to
catalogue and mitigate risks from corrosive fluids, build capacity by developing
guidelines for exploration, development and monitoring of geothermal fields in this
part of the country. It also has a community development focus and aims to enhance
public understanding of geothermal resource development, including enhancing
livelihood opportunities associated with this development.
Arguably New Zealand’s priorities in its development cooperation are not
focused on Asia to the extent that it might be. In 2008, the New Zealand aid
programme underwent significant changes with regards to its focus and geographic
orientation (Zweifel and Hill 2015). The newly elected National government decided
that they needed to narrow the focus of the aid programme so that it concentrated on
the Pacific region and specifically those countries, such as in Polynesia, where it was
able to exercise the greatest influence. The government defended this move on the
grounds that it was simply being pragmatic and attempting to use the aid budget in
the most effective and efficient manner; however, critics of this approach thought that
this shift was overly driven by geopolitical considerations and retreated from
New Zealand’s historic role as a good international citizen. There was also con-
troversy accompanying the shift away from poverty alleviation as the central driving
feature of the aid programme, towards a focus on sustainable economic develop-
ment. In an institutional sense, the linking of the aid program to broader foreign
policy considerations was explicit in that NZAID was incorporated back into the
MFAT and as such lost its semi-autonomous status.
In light of these changes is unsurprising that NZAID does not have a significant
suite of programs focused on low carbon development in Asia. Nevertheless, if the
government did decide to re-engage with the region more vigorously there is no
doubt that there are many learnings built up through engagement with small island
states that could be beneficial, particularly in the archipelago nations that have
relatively isolated populations such as in Indonesia or the Philippines. NZAID is
supporting a variety of solar and wind projects in the Pacific, including wind and
photo vault take systems connected to the main grid, (such as in Rarotonga in the
Cook Islands), as well as smaller scale PV based mini-grids on some outer islands
that nation (MFAT n.d). New Zealand is also working with PIC governments to
build capacity, so that these nations can develop and implement their own energy
sector plans. A refocusing of the NZAID geographic scope in the future could mean
remote and rural parts of Asia also gain access to this technology as part of
development cooperation.
324 D. Hill

Although the government has been rhetorically very assertive about the need to
narrow the geographic and sectoral focus of its activities, the reality is that it hasn’t
completely stopped engaging with other regions, particularly those places where the
lessons of its core programme are arguably easily transferred, at least in a technical
sense. Thus NZAID is supporting Small Island Developing States in Africa
(Comoros) and the Caribbean (Dominica, St Vincent and the Grenadines, and St
Kitts and Nevis) by helping them develop their own geothermal energy sectors
(MFAT n.d). NZAID has also assisted with geothermal surface exploration and has
extended technical assistance. This technical and financial assistance is particularly
useful for a sector such as geothermal because of the high upfront costs associated
with this form of energy. This expertise is potentially invaluable for countries in
Asia that have significant geothermal capacity, such as Indonesia and the
Philippines.

11.5.3 Capacity Building and Development Cooperation

There is no doubt that one of the strongest contributions that New Zealand can
make to the development of the low carbon economy in Asia is in terms of capacity
building, and an important part of this is scholarships to allow students from the
region to study in New Zealand tertiary institutions. Of particular note here are the
NZ ASEAN scholarships, which are open to students from those member countries.
Preference is given to students interested in undertaking studies in renewable
energy, such as geothermal, solar, hydro engineering and wind energy, as well as
renewable energy distribution systems. There is also a focus on areas, which can
improve governance such as public sector management and private sector devel-
opment courses, as well as help in resilience and adaptation to climate change, such
as disaster risk management degrees.
An interesting and important example of the technical capacity that New Zealand
possesses in these sectors is the University of Auckland’s geothermal Institute,
which has more than 60 years experience and expertise in harnessing this energy.
The institute offers postgraduate certificate in geothermal energy technology; master
of energy; and MD or Ph.D. in geothermal engineering. It has been particularly
active in recent years in training postgraduates from Indonesia.

11.6 Conclusions

This chapter has argued that there are substantial opportunities to foster regional
co-operation towards low carbon growth in Asia. Technical assistance, capacity
building, institutional investment and carbon markets are all areas where countries
such as New Zealand can contribute. Certainly, the promotion of regional carbon
markets, of which New Zealand is a strong proponent, has significant potential,
11 Regional Cooperation and Asia’s Low Carbon Economy Transition … 325

both for that country and emerging economies in Asia. However, recent policy
changes in New Zealand have raised significant concerns about whether its ETS
will be effective in the future.
Another important facet examined in this chapter has been the potential for funds
from outside the region to be mobilised to invest in technologies associated with the
development of low carbon economies. It was argued that because of the regulatory
diversity of the region, and the need for specialized knowledge of each market,
there are significant barriers to entry for outside investors and governments and
multilateral banks with experience in infrastructure provision also have a role to
play in facilitating the appropriate investment conditions. The chapter has outlined
examples of where institutional investors from New Zealand have struggled to
capitalise on emerging opportunities (such as New Zealand Superfund), as well as
cases (such as H.L.R. Morrison & Co.), which demonstrates that there is potential
for dedicated infrastructure investment companies to play a part in promoting low
carbon growth in Asia.
The latter part of the chapter also discussed the contributions that the
New Zealand Aid programme could make in facilitating the transition to low carbon
growth in Asia. As the UNEP has noted, a green economy must be built upon the
three pillars of low carbon, resource efficient and socially inclusive and so devel-
opment cooperation has an important role here. Whilst there is clearly expertise and
experience in New Zealand’s development assistance sector that could be of greatly
useful to low income countries in Asia, at the present time the priorities of the
New Zealand aid programme are focused on different geographic areas, although
the extension of some programmes to Africa and the Caribbean in recent years
suggests there may be possibilities in the future. Whether this is an opportunity lost
for the aid programme—in terms of making a contribution to a highly populous and
fast growing region in Asia, or is instead a pragmatic distribution of its resources
through the targeting of the Pacific, where it has unusually strong connections, is a
debate that will continue in New Zealand. Further, New Zealand’s expertise in
mature technologies such as geothermal provides the possibility of technology
transfer to countries such as Indonesia, Vietnam and the Philippines under the
RCEP. Overall, then, it is clear that regional co-operation has a significant role to
play in promoting low carbon growth in emerging Asian energy systems.

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Chapter 12
Low Carbon Energy Transition in EU:
Lessons from Economic, Institutional
and Management Approaches

Matthias Helble

12.1 Introduction

The European Union can be described as the most advanced outcome of regional
cooperation efforts in modern times. It is often forgotten that regional cooperation in
the area of energy policies was at the center of the process of European integration
when it started shortly after the Second World War. In order to minimize the risk of
future conflict, the founding members of today’s European Union decided to create a
common market for coal and steel in 1951, the so-called European Coal and Steel
Community (ECSC). The ECSC became the first international organization based on
the principle of supranationality and was thus became an important building block
for the integration of Europe. Shortly after, the European Atomic Energy
Community (EURATOM) followed suit aiming at creating a common market for
nuclear power. Both of these early initiatives of regional energy cooperation were
not without shortcomings, however, they demonstrated the willingness of European
Member States to closely collaborate and coordinate on energy policy issues.
In 2008, the European Union adopted a European Strategy for Energy and
Climate Change. This document can be considered as a landmark of regional
energy cooperation for various reasons. Most importantly, the European Union
became the first region in the world to adopt binding unilateral emission targets.
The strategy gives detailed national targets for Member States. While some
instruments to reach these targets are based on domestic energy policies, others
work through regional integration efforts—the focus of this chapter. For the sake of

Research Economist (ADBI). Special thanks go to Khan Kikkawa (Research Associate at ADB)
who provided very valuable research assistance.

M. Helble (&)
Asian Development Bank Institute, Tokyo, Japan
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 327

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_12
328 M. Helble

simplicity, we label the regional cooperation efforts in the area of in energy policies
as regional energy cooperation (REC). REC instruments can be divided into
market-based and non-market based instruments. In the case of the European
Union, the most prominent market-based instruments are the EU common for
goods, services and energy as well as the European Emission Trading
Scheme (ETS). The most common non-market instruments include the exchange of
information related to energy and environment, standards and technical regulations
as well as the promotion of new energy technologies.
As Fig. 12.1 shows, the EU has successfully started its transitions towards
low-carbon economy. Since 2003, GDP growth was modest, while GHG emissions
fell substantially.
Similarly, the EU has been able to slowly move away from fossil fuels and
continuously expanded the share of renewable energies in the energy mix
(Fig. 12.2). Especially the share of coal and oil has been substantially lowered from
around two thirds in 1990 to 2013. At the same time the share of renewable
energies has more than doubled and accounted for 12 % in 2013 of gross inland
energy consumption.
An interesting feature of the energy policy in the European Union is the large
difference in terms of energy dependency. As Fig. 12.3 illustrates, in the year 2012
the energy dependency ratio varied between almost 100 % for countries, such as
Cyprus, Luxembourg and Malta, to levels below 20 % for countries, such as
Denmark and Estonia. Another important determinant of energy policy in Europe is
the varying degree of dependency from certain energy exporting countries outside
the European Union. Both elements combined with different levels of economic
development render REC a challenging undertaking. In this chapter we will explain
how the European Union has been able to bridge these differences and formulate a
common and ambitious low-carbon energy policy.

120

115

110

105

100

95

90
Real GDP
85
GHG Emissions
80
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Fig. 12.1 Real GDP in EU versus GHG emissions profile between 2003 and 2013 (indexed
100 = 2013). Source EuroStat (2015)
12 Low Carbon Energy Transition in EU … 329

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Solid fuels Total petroleum products
Gas Nuclear Heat
Renewables energies Other Sources

Fig. 12.2 Gross inland energy consumption, EU-28, 1990–2013 (Mtoe). Source EuroStat (2015)

100
80
60
40
20
0
Czech Republic
EU 28

Slovakia
Germany

Luxembourg

Slovenia
Austria

Bulgaria

Italy

Poland
Belgium

Denmark
Estonia
Finland

Greece

Ireland

Lithuania

Romania

Spain
Cyprus

France

Hungary

Netherlands

Sweden
UK
Croatia

Latvia

Malta

Portugal

Fig. 12.3 Energy dependence of EU countries (2012). Source EuroStat (2015)

The objective of this chapter is to give an overview of the energy policy in the
European Union with a focus on regional cooperation. In addition, we attempt to
evaluate what Asia might learn from the EU experience and which examples of
REC might be applied most successfully in Asia. The chapter is structured as
follows: Part 2 provides an overview of EU’s history of energy cooperation
from the post-war period until the turn of the millennium. In Part 3 we introduce the
European Strategy for Energy and Climate change. In Part 4, we evaluate the
different REC policies in the context of Asia and attempt to identify possible
pathways for enhanced REC in Asia.
330 M. Helble

12.2 The History of Energy Cooperation in Europe

After the devastating experience of the Second World War the Western European
countries decided to try a new approach for peace building based on re-conciliation
and economic integration (instead of requesting for compensation and reparation
after the First World War). As geopolitical rivalries about energy resources had
been among the main reasons for going to war, European governments took the
visionary decision to put the production of coal and steel under collective control.
This step was followed a few years later by the creation of the EURATOM. Both
institutions were unique in their supra-regional nature and became cornerstones of
the European integration and its energy policy. This section provides a brief
description of both initiatives. Even though their history reaches back over
60 years, the idea of pooling energy resources and its implementation can provide
useful insights for policy makers in other regions.

12.2.1 European Community of Coal and Steel

The idea of creating a European Community of Coal and steel was first proposed
the by the French foreign minister Robert Schuman on 9 May 1950 as a means to
mend Franco-German relations. In his famous Schuman Declaration of May 9 1950
he called for a common market across Europe in order to foster economic recovery
and growth. The first two commodities to benefit from a common market were coal
and steel, two vital ingredients for reconstruction (as they had been for warfare).
Schuman’s objective was “to make war not only unthinkable, but materially
impossible.” (Schuman 1950). Although initially conceived to create lasting peace
between Germany and France, the declaration was understood as a truly European
project, including Italy, the Netherlands, Belgium and Luxemburg.
The Treaty creating the European Community of Coal and Steel (ECSC 1951)
was signed by the six countries on 18th April, 1951. The objective was to establish
a common market for coal and steel which would foster economic growth, increase
employment, and ultimately raise the standard of living. The treaty further aimed at
promoting “the most rational distribution of production at the highest level of
productivity” (ECSC, Article 2). To achieve this goal, the treaty prohibited com-
munity members to impose any import and export duties or quantitative restrictions
on the movement of coal and steel, or measures discriminating producers, buyers,
or consumers relating to prices, delivery terms and transportation rates, subsidies or
state assistance, or restrictive practices to divide markets or exploit consumers
(ECSC, Article 4).
The most outstanding characteristic of the ECSC was that it created the first
international organization based on the principle of supranationality. The so-called
“High Authority” was based in Luxembourg and had the competence to implement
the treaty and to monitor the smooth functioning of the common market. As a
12 Low Carbon Energy Transition in EU … 331

supranational institution it was entitled to issues legally binding laws (called

decisions) as well as recommendations for community members. The High
Authority was headed by a nine-member executive body. Although appointed by
individual governments, the members of the executive body had to pledge not to
represent their national interest, but to consider the interests of the entire
Community.
Opening up the market of coal and steel in early 1953 helped spur trade in both
commodities, especially steel, and lowered the Community’s dependence on US
imports. The High Authority was also successful in promoting the modernization of
the coal and steel industry resulting in higher output and lower costs. It also played
an important part in improving the housing conditions of workers and supporting the
redeployment of workers. The impact on the European coal and steel market,
however, was limited. The High Authority was able to prevent the emergence of
large monopolies, however, cartels re-emerged resulting in price fixing. The emer-
gence of new sources of energy such as oil and gas provided a natural competitor for
coal. At the same time, it meant that coal was losing its significance for Europe’s
economic development. As for steel, supply was not critically scarce. Another
problem was that the High Authority did not possess the regulatory power to amend
some other sources of market distortions, namely exchange rate policy, national
regulatory rules, and low-interest government loans (Alter and Steinberg 2007).
Despite the somewhat limited success of the ECSC in managing the coal and
steel market in Europe, its significance for the European integration should not be
underestimated. It was the first time that the idea of economic integration among
countries had been pushed that far. In order to achieve this objective Community
members were ready to transfer some of their competences to a supranational body.
In addition, they committed themselves to create a common market and to consider
the economic development as a common endeavor.
Another major contribution of the ECSC was in terms of institution building.
The ECSC led to the creation of not only the High Authority, but also to an array of
institutional bodies. The Common Assembly composed of 78 representatives had
the mandate to supervise the High Authority and became as such a predecessor of
the European Parliament. The Special Council of Ministers (composed of repre-
sentatives of national governments) was established to guarantee a smooth col-
laboration between the High Authority and national governments. Another
important institutional addition was the Court of Justice which ensured that the
ECSC law was properly followed. Finally, in order to include the civil society the
Consultative Committee was created. It was composed of between 30 and 50
members equally representing producers, workers, consumers and dealers in the
coal and steel sector.
The ECSC provides an early example of REC. The main success was in
introducing the idea of economic integration through the pooling of energy
resources and creating a common market. Establishing a supranational entity to
implement the treaty was visionary. Furthermore, well-functioning institutional
set-up provided important lessons for European Community Members to further
build up the European community.
332 M. Helble

12.2.2 European Atomic Energy Community

The discovery of nuclear power as a new energy source and the desire to share its
benefits among European Community Members triggered discussion to expand the
ECSC and to create an energy community covering all major sources of energy.1
However, this plan went too far for France who suggested establishing a new
supranational institution only dedicated to atomic energy. The treaty establishing
the European Atomic Energy Community (EURATOM 1957) was signed in Rome
on March 25th, 1957. The same day the Members of the Community signed the
Treaty of Rome establishing the European Economic Community.
The EURATOM was given its own Common Assembly, Council of Ministers
and Commission. However, the Commission was given fewer competences com-
pared to the High Authority. The main objective of the EURATOM was to create
necessary conditions to promote nuclear energy to raise the standard of living in
member states (EURATOM, Article 1). In order to realize this objective an
important part of EURATOM’s mandate was to coordinate nuclear energy research
and development among Community Members and in financing the costs. In
addition, EURATOM was also granted powers to establish joint undertakings under
a single legal personality in areas “of fundamental importance to the development of
the nuclear industry in the Community” (EURATOM, Article 45).
Furthermore, EURATOM was tasked to monitor the production and distribution
of fissionable materials in order to avoid any military misuse. The Commission was
given “a right of option on all ores, source materials and special fissionable
materials produced in the territories of Member States and having the exclusive
right of concluding contracts” related to such materials coming from within or
outside the Community (EURATOM, Article 52.b). Finally, the Commission
enjoyed exclusive authority to negotiate and conclude agreements with third powers
such as individual countries or international organizations in regard to nuclear
resources.
The success of EURATOM was, however, mixed. EURATOM’s core objective
to develop jointly nuclear energy was only partially achieved. The main reason was
the France, soon after the establishment of EURATOM, favored the use of
American nuclear technology based on basic uranium, whereas the other
Community Members wanted to promote a technology based on enriched uranium.
The conflict was only settled in 1969 in favor of the solution based on enriched
uranium. Furthermore, instead of pooling resources to develop new types of nuclear
plants, Community Members were competing against each other. Despite these
setbacks, the EURATOM made important contribution to the process of European
integration and its energy policy. First, EURATOM was successful in promoting a
common market for nuclear energy and in enhancing the operational safety and
efficiency in nuclear plants. Furthermore, EURATOM offered a new platform for

1
Another motivation was the Suez crisis in 1956 which sparked fears that Europe’s access to the
rich oil fields of the Middle East might become blocked and alternative energy sources needed.
12 Low Carbon Energy Transition in EU … 333

European scientists, government officials and business groups to interact (Bernhardt

1983). Another positive achievement was that EURATOM was perceived as a
united and stronger player in international nuclear affairs contributing to
non-proliferation (O’Driscoll 2001).

12.3 European Union’s Strategy for Energy and Climate

Change

12.3.1 From EURATOM to the EU Energy Action Plan

Despite the promising beginning of European energy cooperation in the 1950s, the
1960s were marked by the re-orientation of energy policy towards national inter-
ests. Several developments triggered this shift. First, oil, which was not covered by
any energy treaty, quickly became the most important source of energy. Second, the
level of energy dependency started to diverge among European countries. It was
only the oil crisis in 1973/1974 that brought European countries again together to
further enhance their collaboration in terms of energy policy. The oil embargo
resulted in oil supply deficits and a sharp increase in prices. However, not all
members of the European community were equally affected which brought to light
an underlying conflict between national interests and European solidarity
(Bjornebye 2010). The outcome of the subsequent negotiations between European
community members was the 1974 “Council Resolution concerning a new energy
policy strategy for the Community” (European Council 1974). In this resolution
Members agreed to reduce their energy consumption, to look for alternative energy
resource and to diversify the energy sources.
Another international initiative that brought the European countries closer
together in questions of environment was the 1979 Geneva Convention on
Long-range Transboundary Air Pollution. In the 1970s scientific evidence showed
the links between sulphur emissions in continental Europe and the acidification of
forests and lakes in Scandinavia. In order to solve the problem of this transboundary
pollution, international cooperation was required. In 1979, 34 governments and the
European Community signed the Convention on Long-range Transboundary Air
Pollution. The Convention requests Parties to limit and, as far as possible, gradually
reduce and prevent air pollution of certain long-range air pollutants, such as
Polychlorinated dibenzofurans. The implementation of the Convention is monitored
by European Monitoring and Evaluation Program.
In the 1980s the idea of environmental protection gained ground in Europe,
however, it did not lead to an immediate change in European energy policy and
environmental legislation. The main change in European energy policy trigged by
the efforts to foster the economic regional integration. In early 1986, the by-then 12
European Economic Community members signed the Single European Act setting
the objective of establishing a single market by the end of 1992. Later in 1986 the
334 M. Helble

European Council followed and set new energy policy objectives for the EEC for
1995. Most importantly, it called for “greater integration, free from barriers to trade,
of the internal energy market with a view to improving security of supply, reducing
costs and improving economic competitiveness” (European Council 1986). It also
urged Member States to find a “balanced solutions as regards energy and the
environment, by making use of the best available and economically justified
technologies and by improving energy efficiency,…” (European Council 1986).
The next milestone in the process of European integration was the Treaty of
Maastricht. Signed in 1992 it created the European Union and led to the creation of
a common currency seven years later. The regional integration efforts where sub-
stantially extended beyond the economic integration and covered also the areas of
foreign policy, military, criminal justice, and judicial cooperation. Interestingly, the
Member States failed to agree to include a separate energy chapter. Once again,
the Member States were reluctant to give away competences over energy policy to
the European institutions. The main reasons were the divergent policy objectives in
energy policies (including different levels of energy dependence, see Fig. 12.3) as
well as the perceived strategic character of energy supply for every Member State
(Cameron 2009).
The next two important treaties further enhancing the European Union, namely
the Treaty of Amsterdam (1999) and the Treaty of Nice (2003), were unable to
break this resistance against achieving a common energy policy.
The breakthrough was only achieved in the run-up of the Lisbon treaty (2007).
In the 2000s there had been an increasing public interest on the topic of climate
change. The Stern Review commissioned by the British government (Stern 2006)
and the assessment reports of the Intergovernmental Panel on Climate Change
(IPCC) enjoyed increased public awareness. At the same time, the European
Member States started to realize that the effective fight against climate change
required a coordinated effort among all and made a common energy policy nec-
essary. Another incentive to agree on a common energy strategy came from the new
EU Member States in Central and Eastern Europe. The majority of them had
concerns about their dependency on oil and gas from Russia (Gehe and Fischer
2014).
The idea to develop a comprehensive European energy strategy was first dis-
cussed at the informal European Council summit in October 2005 in Hampton
Court. It was the first time that the EU Heads of States agreed to develop a common
EU energy policy. The main motivation came from the increasing dependency of
energy oil and gas imports which according to the European Commission would
increase to 90 % in a few years (Blair 2005). Following this decision, in March
2006 the European Commission presented a green paper “A European Strategy for
Sustainable, Competitive and Secure Energy” (EC 2006). Building on that paper
the European Commission published a proposal “Energy Policy for Europe” in
January 2007 (EC 2007a, b). The Commission’s proposal was endorsed with slight
12 Low Carbon Energy Transition in EU … 335

changes by the European Council in March 2007 and became the first EU energy
action plan, marking the beginning of a more integrated European energy policy.
The three key objectives of the European energy strategy are:
(i) A reduction in EU greenhouse gas emissions by at least 20 % below the
1990 levels by 2020.
(ii) A minimum of 20 % of EU’s energy consumption must come from
renewable resources by 2020.
(iii) Improved energy efficiency will result in 20 % reduction of primary energy
use by 2020.
The three objectives became known as the 20/20/20 targets and still constitute
the core of current European energy policy. These objectives were to be achieved
through a mix of national and EU action. The role of the EU was thus not limited to
set the targets, but also to develop instruments to help to reach the latter.
In October 2007, the Lisbon Treaty for the first time included a separate chapter
on energy policy. Energy was declared as a shared competence between the
European Union and its Member States, meaning that both, the European Union
and Member States, can legislate and adopt laws in the area of energy. The Member
States would exercise their competence in those areas where the European Union
would not exercise its competence or had decided not to exercise it (Cameron
2009). Furthermore, the Lisbon Treaty established four key objectives:
(i) Completing the internal energy market.
(ii) Ensuring the security of energy supply.
(iii) Promoting energy efficiency and energy savings as well as developing new
forms of energy.
(iv) Promoting cross-border energy networks.
Following the Lisbon Treaty, the EU Commission started the legislative process
and already in 2009 published directives on emission trading (EU 2009a), the
promotion of renewable energies (EU 2009b) as well as on carbon capture and
storage (EU 2009c). The directives became known as the “climate and energy
package”. However, the “climate and energy package” did not address the target of
energy efficiency. It was only in 2011 when the EU Commission published it
Energy Efficiency Directive accompanied by the Energy Efficiency Plan.
The following three subsections will discuss the measures which are in place in the
EU to reach the 20/20/20 targets as well as the progress achieved so far.

12.3.1.1 Reduction of GHG Emissions by 20 %

In the EU energy action plan the EU Member States recognize climate change as an
imminent threat to the region and the world’s future development. To limit the
increase of greenhouse gas emissions (GHG) to within two degrees Celsius above
pre-industrial levels, the EU has made a commitment to unilaterally reduce their
336 M. Helble

Table 12.1 GHG emissions in business as usual scenario EU 27

GHGs (Mt CO2 equivalent) 1990 2000 2005 2020 2030
All GHGs 5,578 5,101 5,211 5,496 5,380
All CO2 4,379 4,128 4,267 4,610 4,639
ETS sectors 2,290 2,340 2,557 2,573
ETS without aviation 2,156 2,193 2,339 2,319
Aviation 134 147 218 255
Non-ETS sectors 2,811 2,871 2,940 2,806
Energy related non-ETS 1,838 1,927 2,054 2,065
Non-CO2 GHGs 1,199 973 944 886 741
Source Capros et al. (2008)

GHG emissions by 20 % by 2020 compared with 1990 levels.2 When the EU

Member States agreed on the reduction in 2007, the level of ambition appeared
high. Several scientists had predicted in the business as usual (BAU) scenario GHG
emissions would remain roughly stable by 2020 (see Table 12.1, Capros et al.
2008).
The 2009 climate and energy package introduced the benchmark of 2005 against
which the future objectives would be assessed. The 20 % reduction in GHG
emissions compared to 1990, was equivalent to a reduction of 14 % compared to
2005. This objective was divided into two targets:
(i) A 21 % reduction compared to 2005 for emissions covered by the EU ETS
and
(ii) A 10 % reduction compared to 2005 for all other emissions and shared
between the 28 Member States through differentiated national GHG targets.
In the following two subsections we will study the reduction achieved through
the European ETS as well as through the Effort Sharing Decision.

The European Emission Trading Scheme

The European Emission Trading Scheme (ETS) was launched in January 2005 as
the world’s largest greenhouse gasses emission trading scheme. The ETS covers
GHG emissions for energy activities, production and processing of ferrous metals,
mineral industries, and the production of pulp and paper (EC 2003, Annex I).
Altogether, the system currently covers 11,500 installations, representing almost
about 40 % of CO2 emissions in the EU (EEA 2014). The EU ETS does not only
cover CO2 emissions but also other GHG gases, in particular nitrous oxide (N2O)

2
The EU also included the offer to move toward a reduction of 30 % in case other developed
countries also committed themselves to comparable emission reductions and developing countries
contribute according to their responsibilities and respective capabilities.
12 Low Carbon Energy Transition in EU … 337

from the production of nitric and other acids from the production of aluminum
(Perfluorocarbons).
From 2005 to 2012 the emission cap were determined by national authorities
based on pre-established National Allocation Plans each Member State submitted to
the EU Commission for approval. The individual caps of each EU Member States
formed the total EU cap. The EU ETS Directive from 2009 introduced a single
EU ETS cap covering all EU Member States and the three participating non-EU
Member States (Iceland, Liechtenstein and Norway) starting in 2013 (Article 9).
The cap is now being continuously lowered by 1.74 % yearly in order to help
achieve the 21 % reduction in GHG emission by 2020 compared to 2005.
From 2013 onwards most of the allowances have been distributed by auction.
At least 50 % of the revenue generated from the auction must be used to finance the
Global Energy Efficiency and Renewable Energy Fund (see Sect. 12.4.2.3). The
objective of the Global Energy Efficiency and Renewable Energy Fund are to
develop renewable energies to meet the 20-20-20 target, forestry sequestration and
increase reforestation in developing countries, safe capture and storage of CO2,
encourage a shift to low-emission and public transport, finance research and
development in energy efficiency, and cover administrative expenses managing the
scheme (2009, Article 10).
By 2013, the EU ETS emissions had already fallen by 19 % compared to 2005.
The EU ETS has certainly made an important contribution to curb the emissions.
However, the global financial and economic crisis (GFEC) has probably equally
resulted in a reduction of GHG emissions. In the four years prior to the GFEC,
experts estimate that the EU ETS contributed to emission savings in the range of
40–80 MtCO2 per year, representing 2–4 % of total capped emissions. After the
GFEC the prices of the allowance fell rapidly (see Fig. 12.4), but it was not only the
economic downswing that caused a decrease in prices. A considerable number of
companies started to participate in the Clean Development Mechanism as well and
in the Joint Implementation and thus enjoyed considerable entitlements. By 2011,
77 % of all installations held even surplus allowances. Another challenge of the
EU ETS in managing GHG emissions was caused by the technical difficulty and
tough political choices resulting from industries possessing asymmetrical infor-
mation over regulations and national governments producing emission projections
using opaque methodologies to protect their industries.
The low cost for GHG emissions raised doubt about the effectiveness of the
EU ETS in curbing GHG emissions. Studies on the impact of the EU ETS on
corporate investment decisions have revealed that some companies integrated
carbon costs into investment decisions, however, it seems that the EU ETS has had
little impact on large scale investment in power plants or R&D, nor on the
investment decisions of other industries (Neuhoff et al. 2011).
338 M. Helble

Fig. 12.4 Price trends for European Union Allowances (EUA) and Certified Emission Reductions
(CER), 2005–2013. Source EEA (2014)

Effort Sharing Decision

The second element in the European efforts to reduce GHG emissions by 20 % by

2020 works through the so-called Effort Sharing Decision (ESD). The ESD sets
binding national emission targets [Annual Emission Allocations (AEAs)] to be
reached by each EU Member State. The ESDs cover most emissions from sources
outside the EU ETS.3 These emissions currently account for approximately 60 % of
all GHG emissions and concern mostly small scale emitters in a wide array of
sectors, in particular transport, buildings, services, agriculture and waste.
Figure 12.5 shows the GHG emission targets for 2013 and 2020 by all EU
Member States. The 2020 targets by EU Member State range from −20 % in the
case of Denmark, Ireland and Luxembourg to +20 % for Bulgaria. However,
overall, the 28 EU Member States aim for a reduction of GHG emission by −9.3 %
by 2020. The ESD allows certain flexibilities such as carry-over of
over-achievements or the transfer of AEA between Member States.
25 out of 28 EU Member States are on track to reach the ESD target. In 2013,
only Germany, Luxembourg and Poland were above the target. Projections for the
period 2013–2020 show that 15 Member States will achieve the target given

3
Exceptions are the GHG emission by international maritime and emissions and removals from
land use, land-use change and forestry.
12 Low Carbon Energy Transition in EU … 339

20
2013 target
15
2020 target
10

-5

-10

-15

-20
UK
Luxembourg
EU 28

Sweden
Austria
Finland
Netherlands

Belgium
France
Germany

Spain
Cyprus
Greece

Slovenia

Czech Republic
Hungary

Estonia
Slovakia
Poland
Lithuania
Latvia
Denmark
Ireland

Romania
Bulgaria
Italy

Portugal

Malta

Croatia
Fig. 12.5 National 2013 and 2020 GHG emission targets (compared to 2005 base-year emission,
sorted by level of ambition of EU Member States). Source EEA (2014)

existing measures. Additional seven will reach it with additional measures (EEA
2014). For the remaining EU Member States it might be necessary to further
increase domestic efforts or to make use of the flexibilities offered in ESD, such as
purchasing AEAs from other EU Member States. Overall, it is expected that the
largest contributions will be generated by improved energy efficiency in the resi-
dential and services sectors. The expected contributions by the transport sector and
agriculture will be rather limited (EEA 2014).
Progress has been achieved through a mix of national measures as well as
European legislation. The EU Commission published several energy related direc-
tives, such as the Energy Services Directive (EU 2006a, b) or the Energy
Performance of Buildings Directive (EU 2010a), which were transposed into
national legislation. In addition, the EU Member States adopted national measures
which target in particular the transport sector, the residential sector as well as the
industry and construction sector. Recently, the EU legislation has been adopted
which will further facilitate progress in reducing GHG emission, most importantly
the regulation on emissions of cars and vans regulation (333/2014 and 253/2014, EU
2014a, b) as well as on the eco-design of boilers and heaters (813/2014 and
814/2014, EU 2013a, b). The success under the ESD is thus a result of both, national
efforts to curb emissions, but also continuous developments of EU legislation.
Taking all GHG emissions together the EU-28 has achieved a reduction of 19 %
between 1990 and 2013, with emissions decreasing by 1.8 % between 2012 and
2013 (EEA 2014). The majority of these emission reductions are a result of
emission decreases in manufacturing industries (258 million tons CO2 equivalent)
and public electricity and heat production (214 million tons CO2 equivalent)
(Gugele et al. 2014).
340 M. Helble

12.3.1.2 Renewable Energy Target

In order to meet the target of 20 % renewable energies in the gross final energy
consumption by 2020, the EU adopted the Renewable Energy Directive (RED) in
2009 (EU 2009b). It established legally binding target for each EU Member States
(see Fig. 12.6). The targets spread from 10 % in the case of Malta, to 49 % in the
case of Sweden. The EU Member States were given an indicative trajectory for the
period 2011–2018. The RED further required each EU Member State to submit
National Renewable Energy Action Plans in 2010 outlining the pathways to reach
the target. Every two years the EU Member States are requested to inform the
EU Commission on their progress. Apart from this reporting obligation, the EU
Member States are free in the choice of instruments to achieve their targets. The EU
has not yet developed a genuine European tool to facilitate progress toward the
target. The only directive of direct relevance is the Energy Performance of Building
Directive which requests a compulsory share of renewable energy consumption in
new constructed buildings and certain refurbishments (EU 2010a).
According to the latest numbers, the EU is on track to reach the 2020 goals. As
of 2012, the share of renewable energies in the gross final energy consumption was

60
2004
2013
2020 Target
Share of Renewable Energy (%)

50

40

30

20

10

0
EU - 28
Austria
Belgium
Bulgaria

Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland

Lithuania
Luxembourg

Netherlands
Poland

Romania
Slovakia
Slovenia
Spain
Sweden
UK
Croatia

Italy
Latvia

Malta

Portugal

Fig. 12.6 Share of renewable energy in final energy consumption. Source EuroStat (2015) and
EU Directive (2009b)
12 Low Carbon Energy Transition in EU … 341

14.1 % and thus higher than the targeted level of 13.0 % (EEA 2014). In 2012, 22
Member States reached their national target. However, further progress is needed as
the targeted trajectory makes it necessary that the RES consumption grows by
5.4 % annually between 2012 and 2020. Another challenge is that the Directive
does not include a specific enforcement or penalty mechanism that can be directly
exercised on EU Member States (Wyns et al. 2014). As a consequence, options for
the European Commission to force EU Member States to implement additional
measures are limited.

12.3.1.3 Energy Efficiency

The goal to improve energy efficiency by aiming for 20 % of energy savings in

2020 was more difficult to formulate compared to the other two objectives. The
reason was that when the EU Head of States agreed on the target in 2007, it
remained unclear to which projections for 2020 the 20 % of energy savings referred
to. It was only through the adoption of the Energy Efficiency Directive (EED) (EU
2012) in 2012 when the targets were stipulated: The EU energy efficiency target
was established at the level of 1483 Mtoe in primary energy consumption (and thus
an annual reduction of 0.9 % for the period 2005–2020). As for the final energy
consumption, the EU Member States committed to reach 1086 Mtoe (equivalent to
an annual reduction of 0.6 % over the period 2005–2020). In the EED each EU
Member State sets its own national target for primary and final energy consumption.
In contrast to the other two headline targets, the energy efficiency target is not
binding, but only indicative.
The EED includes several provisions to increase the energy efficiency. In Article
7 it urges EU Member States to set up an energy efficiency obligation scheme
which should ensure that energy distributors and/or retail energy sales companies
achieve energy savings targets. Furthermore, the EED recommends rendering the
consumption and billing of energy more transparent for consumers. Finally, it
reiterates the importance of the Energy Performance of Building Directive (EEU
2010a) and extends it for buildings of public bodies.
The EED appears to contain a rather short list of measures. However, the energy
saving targets are also meant to be achieved by the measures introduced primarily
to reach the first two energy targets. For example, new EU regulations on the CO2
emission of cars and vans are expected to contribute to energy savings. Other pieces
of legislation might further contribute to energy savings, namely the Eco-Design
Directive (EU 2009d) as well as the Energy Labelling Directive (EU 2010b).
In 2012, EU’s primary and final energy consumption was below the target.
However, it was clear that the low energy consumption was mainly due to eco-
nomic recession in several EU Member States and not due to improved energy
efficiency. In 2014, the EU Commission estimated that about one third was due to
the economic slowdown and that an economic recovery could quickly trigger an
increase in energy consumption (EC 2014a, b). The EU Commission therefore
urged EU Member States to fully implement the current measures. Observers are,
342 M. Helble

Fig. 12.7 Current and projected progress toward EU 20/20/20 targets. Source EEA (2014)

however, doubtful whether the objectives can be reached. One reason is that several
EU Member States believe that aiming for a reduction in energy consumption is a
questionable target, as it risks to slowdown economic growth.
The European Strategy for Energy and Climate Change has been successful in
keeping on the track to meeting their 20-20-20 targets by 2020, representing the
EU’s contribution to curbing climate change (see Fig. 12.7). Although the EU has
not yet reached their targets, the EU Commission has stated that the EU is on track
to meet their targets by 2020 and assuming full implementation of the Energy
Efficiency Plan, the Commission expects the EU to be able to outperform their
targets and reach a 25 % reduction by 2020 (Ea Energy Analyses 2012).

12.4 Lessons for Asia

The process of regional integration in Europe is without precedent in history. As we

have seen in the previous section, considerations about energy policy triggered
European countries to cooperate shortly after the Second World War. The ECSC
and EURATOM were important building blocks in the process of European inte-
gration. However, the EU experience also shows that despite the promising
12 Low Carbon Energy Transition in EU … 343

beginnings for a common EU energy policy, for many decades energy policy
remained basically in the hands of EU Member States. It was only in 2007 when the
EU Member States declared energy policy as a “shared responsibility” and were
ready to transfer additional competences to the EU. At that time other policy areas
had achieved much higher levels of integration. In contrast, energy policy has
remained a sensitive topic for many EU Member States. Their different levels of
import dependency have been one of many reasons why the progress has been
rather slow compared to other policy areas.
This section attempts to study the European experience in order to draw lessons
for the case of Asia. We are aware of the fact that the European experience is
unique and cannot easily transferred to other regions. However, we believe that by
identifying the main market-based and non-market based instruments for REC in
the case of Europe, we can draw important lessons for Asia.

12.4.1 Market-Based Instruments

First, we would like to identify the instruments in the European Union that are based
on market instruments. In this chapter we define market-based measures as all those
measures that work through a price mechanism. Market-based REC in the EU has
been mainly achieved by three instruments: First, by creating a single market for
environmental goods and services (Sect. 12.4.1.1) as well as for energy
(Sect. 12.4.1.2). Second, by internalizing the environmental costs of greenhouse gas
emissions through taxes or the European Emission Trading Scheme (Sect. 12.4.1.3).

12.4.1.1 Common Market for Goods and Services

One of the most obvious instruments of REC is a common market for goods and
services. The EU common market for goods was already achieved in the early 1990s.
In 1986, the EU Member States signed the Single European Act establishing a
common market by 1 January 1993. A common market does not only mean duty free
market access to all EU Member States, but also that no non-tariff barriers will impede
market access. For services’ trade the common market was only completed by the
Directive on services in the internal market, which was adopted in 2006 (EU 2006a, b).
For the case of Asia, one important step forward would be to further liberalize
the market for environmental goods. APEC members have already agreed in 2012
to lower their tariff on 54 environmental products to 5 % by 2015. One obvious
suggestion would be to go one step further and provide duty-free market access to
all of the 54 environmental goods. As a next or parallel step, APEC could negotiate
with the ASEAN AEC to provide duty-free market access to the same 54 products.
Finally, the scope of environmental goods included in the list should be progres-
sively extended. In the near future, new environmental technologies will become
available and thus the list would require a constant adaption. The negotiations
344 M. Helble

Ambition

Coverage

Membership

Fig. 12.8 Achieving a common market for environmental goods in Asia

should not only ensure that the tariffs on environmental goods are removed, but that
also non-tariff barriers (NTBs) are eliminated. NTBs can take different forms, such
as national technical standards that are not harmonized with international standards
or certain labelling requirements. ASEAN has started to reduce NTBs by providing
more transparency and by facilitating the harmonization and mutual recognition of
standards.4
Figure 12.8 shows how the current APEC list of environmental goods could be
further expanded in three directions: (i) Membership (countries included)
(ii) Coverage (environmental products included) (iii) Ambition (tariff reduction and
elimination of NTBs).
A common market for environmental goods means that all goods can flow freely
across countries. The benefits should then come in three forms. First, the price for
environmental goods would fall and access to environmental technologies becomes
easier. Second, environmental protection would be cheaper and thus more wide-
spread. Third, more trade and competition in environmental goods will put the
region into a stronger position when competing with the rest of the world.
As for environmental services, improving market access across East Asia will
probably be more difficult to achieve. In the Doha Development Agenda of the
WTO the liberalization of environmental services is included in the mandate,
however, so far WTO members have not started negotiations on the liberalization of
environmental services. Plurilateral negotiations on the liberalization of environ-
mental goods that started in July 2014 only include environmental goods. Given the
low level of liberalization of services in general, pushing for a market opening for
environmental services in Asia might be a tall order.

12.4.1.2 Common Energy Market

The EU has been continuously working on creating a common energy market.

The EU is confident that a common energy market would bring three major

4
http://www.asean.org/communities/asean-economic-community/item/elimination-of-other-non-
tariff-barriers.
12 Low Carbon Energy Transition in EU … 345

benefits. First, a common energy market will translate into more competition and
thus lower electricity prices for individual consumers and companies. Second, a
common energy market contributes to the security of energy supply. Third, a
competitive energy market allows for the effective and fair application of economic
instruments, such as the emission trading scheme.
The current efforts to develop a common market have already delivered benefits.
For example, the wholesale electricity prices have declined by one-third between
2008 and 2012 and consumers have more and more choice when picking an energy
supplier (EC 2014a, b). Despite this progress, the EU is still rather far away from
the realization of a truly common energy market. The cross-border infrastructure is
not yet in place. The EU Commission estimates that to-date the average intercon-
nection level of the energy infrastructure stands at about 8 % (EC 2014a, b).
Achieving the goal of 15 % by 2030 will thus require substantive investments.
Furthermore, national energy markets are still subject to very different regulations
as well as subsidies. Whereas subsidies for fossil fuels have basically been phased
out, support schemes for renewable energies are diverging across Europe. Since
these support scheme target renewable energies within each national territory,
substantive gains from trade and from market integration remained unrealized
(Böckers et al. 2013). For example, solar energy should be more promoted in the
South of Europe, whereas locations in Northern Europe are more suitable for wind
power. Achieving a fully common energy market will therefore take a long time.
However, advancing the integration seems to already pay out for consumers and
private companies in form of lower energy prices and greater choice. In the future a
better market energy market integration will also promote the transition to
renewable energy, as the peaks and troughs can be more easily balances by trading
energy across borders. Deeper energy market integration also enhances energy
security and reduce the reliance on individual countries as source countries for
energy.
In Asia one first step could be to facilitate the power transmission among
countries. This would increase the energy security and help develop new sources of
energy, including renewable energy. Efforts in this direction are already underway.
For example, the countries of the Greater Mekong Subregion (GMS) have estab-
lished an Expanded Energy Roadmap (2009) as well as a Strategic Framework,
2012–2022. The objectives are to foster regional power integration and intercon-
nection, to further develop the regional energy market, to promote hydropower
projects and to further extend the grid for economic corridors and rural areas. In
2014, GMS governments also agreed to establish a Regional Power Coordination
Center (RPCC) to promote harmonized performance standards, grid codes and
market rules (GMS 2014). The main projects under the GMS energy cooperation in
terms of costs will be to improve the power interconnection between countries.
Other important examples of improved regional energy interconnections are the
ASEAN Power Grid as well as the Trans ASEAN Gas Pipeline. Continuous
improvements of the interconnection in Asia will facilitate cross-border energy
trade and thus help to cope with the soaring energy demand in the region.
346 M. Helble

12.4.1.3 Taxes and Emission Trading Schemes

An obvious measure to reduce GHG emissions is to put a tax on the release of CO2
into the atmosphere. This so-called “carbon tax” is usually applied to fossil fuels
and increases with the carbon-content of the fuels. In other words, higher
carbon-content fuels, such as gas and oil, are taxed higher compared to lower
carbon-content fuels, such as natural gas. In the EU, the “carbon tax” has been
introduced by six countries (Denmark, Estonia, Finland, Italy, Slovenia and
Sweden). Most of these programs started already in the 1990s and typically cover
all fossil fuels. Another possibility to curb GHG emission is by introducing an
“energy tax”. The tax is typically levied on fuels and based on the energy content of
the latter. For example, natural gas and oil both possess high energy contents and
are thus highly taxed. Finally, other than CO2 emissions GHG emissions can also
be taxed. For example, France has a tax in place for nitrous oxide emissions. In
contrast to these domestic efforts to lower GHG emissions, several Asian devel-
oping countries have still fuel subsidies, which have the effect of incentivizing to
burn fossil fuels. Phasing out fuel subsidies should therefore be a priority in the
transition towards a low-carbon economy.
Emission trading schemes are designed in a way to charge a cost on activities
that have negative environmental externalities. Emission trading schemes can have
two types of target: first, an overall emission level or second, an emission standard
for each source. The EU ETS is based on the first principle. One of the key
challenges of an emission trade scheme, may it be domestic or regional, is the
monitoring and enforcement mechanisms. The effectiveness of an ETS depends on
how well the GHG emissions can be monitored by the regulator. Furthermore, if
violations are detected, then the regulator must be able to sanction those (Boemare
and Quirion 2002). For example under the EU ETS, if the GHG of an installation
exceed its annual allowance, a fine for non-compliance is levied. In the case of
developing countries, the monitoring of GHG may constitute a major challenge.
And even if the monitoring succeeds, the enforcement of the emission allowances
may be equally difficult.

12.4.2 Non-market Based Instruments

Non-market based instruments referred in this chapter referred as measures that are
not directly aimed at altering prices, but might exhibit an indirect price effect. The
non-market based instruments used by the EU and presented in this chapter include:
(i) information exchange (Sect. 12.4.2.1), (ii) Standards and technical regulations,
in particular the eco-design and energy labelling directives (Sect. 12.4.2.2)
(iii) Financial incentives to promote the development and deployment of
low-carbon technologies (Sect. 12.4.2.3).
12 Low Carbon Energy Transition in EU … 347

12.4.2.1 Information Exchange

A key ingredient of REC is to share in a transparent manner information related to

energy and the environment. Information gathering is important for various reasons:
First, it helps managing the transformation process towards a low-carbon economy.
Second, it allows partners to benchmark their achievements against others. Third, it
allows identifying laggard and possibly imposing sanctions. And finally, it provides
transparency for the public and the larger world community, which is of particular
relevance when international commitments have been made, such as in the case of
the EU with the 20/20/20 targets.
The cornerstone of EU’s information exchange on environmental issues con-
stitutes the European Environment Agency (EEA). It was established in 1990 with
the mandate to provide scientifically sound and independent information on the
environment.5 Today, 33 countries participate in the EEA. The EEA works closely
with national environmental agency and the respective ministries. EEA is governed
by a Management Board which consists of one representative of each of the
member countries, two representatives of the Commission and two scientific
experts designated by the European Parliament. The EEA covers a wide range of
topics spanning from air pollution, chemicals, noise, soil to waste and water. It is
thus a key institution for information exchange of the European Union institutions
as well as Member countries. Other agencies, such as EUROSTAT, the statistical
office of the European Union, also collect and publish information on energy and
environment.
In the case of Asian economies environmental information is often not readily
available, especially for developing countries. The collection of environmental
information is, however, crucial for managing the transformation into a low-carbon
economy. In some Asian countries information is collected, but not readily shared
with regional partners or the public. One possibility for Asia would be to create an
Asian Environmental Agency. This agency would have the role of repository for
environmental information from Asian countries. At the beginning the sharing of
information would be encouraged, but voluntary. At a later stage, sharing of a small
set of information should be made compulsory. Finally, all relevant environmental
information should be shared among members and made publicly available.

12.4.2.2 Standards and Technical Regulations to Promote the Use

of Low-Carbon Technologies

Standards and technical regulations can be effective tools to induce a reduction in

GHG emission and gains in energy efficiency. Technical requirement can come in
different forms. For example, they can be design-based or performance-based,
voluntary or mandatory. The EU has recognized the importance of technical

5
http://www.eea.europa.eu/.
348 M. Helble

standards and have published two major directives in this respect. First, the
European Eco-design Directive as well as the Eco-labelling directive.
The European Eco-design directive (EU 2009d) provides EU-wide rules for
improving the environmental performance of energy related products. It thus pre-
vents diverging national laws or administrative measures on eco-design by EU
Member States which could create barriers to trade and distort competition. It
covers two product groups. First, energy-using products, which use, generate,
transfer or measure energy (electricity, gas, fossil fuel), such as boilers, computers,
televisions, transformers, industrial fans, industrial furnaces etc. Second, energy
related products which do not use energy but can contribute to saving energy, such
as windows, insulation material, shower heads, taps etc. The eco-design works with
specific requirements, such as maximum energy consumption or minimum quan-
tities of recycled material, or with generic requirements, such as a requirement that
the product is recyclable. The Eco-design Directive allows for voluntary require-
ments proposed by the industry, as long as those achieve the same objectives as
binding legislation in a faster and more effective way. The European Commission
expects that by implementing the first Ecodesign Regulations on 13 product groups
12 % of energy can be saved in the EU by 2020 compared to 2009.
In addition to the design of products, the EU has put in place a far reaching
Energy Labelling System. The Energy Labelling Directive (EU 2010) adopted in
May 2010 extends the energy labelling system from consumer products to
energy-related products in the commercial and industrial sectors. In addition to this
mandatory system, the EU has an EU Ecolabel is place which identifies products
and services that are considered as having a reduced environmental impact through
their life cycle. Another voluntary labelling scheme is the Energy Star Program for
office equipment that the EU joined in 2003.
As mentioned above, in 2010 the EU Energy Performance of Buildings
Directive came into force. Under this directive every sale or rental of buildings must
be accompanied by an energy performance certificate (Articles 11 and 12). It further
requests EU Member States to set minimum energy performance requirements for
new buildings (Article 4) and urges that all new buildings should be nearly zero
energy buildings by 2020 (Article 9).
A wide range of technical regulations to promote climate-friendly technologies
have thus been adopted at the EU level. These measures work in conjunction with
national measures. It is therefore difficult to disentangle the precise contribution to
the “greening” the European economy. In the case of developing Asia, several
national eco-labeling initiatives exist. A more coordinated regional approach would
be vital in order to avoid unnecessary obstacles to trade and investment.
Like for the EU one could imagine that ASEAN or East Asian countries agree on
binding solutions that every party has to implement at the national level. However,
the enforcement might be difficult. In the EU, a directive is a legal act that sets out a
goal that all EU Member States must achieve. EU directives typically require a
change in national law, so-called transposition. Each directive contains deadlines
for EU Member States for national transposition measures. The EU Commission
monitors the transposition and in case of incomplete transposition it can initiate
12 Low Carbon Energy Transition in EU … 349

legal action against the EU Member State in the European Court of Justice. In case
of ASEAN or East Asia, no regional court of justice exists yet. And thus it would
remain up to each country in the region to fulfill its commitments agreed upon at the
regional level. One possibility to encourage the full implementation is by estab-
lishing a joint monitoring program. The joint program evaluates the achievement of
each country and publishes reports, which gives some transparency to the process.

12.4.2.3 EU Financial Incentives to Promote the Development

and Deployment of Low-Carbon Technologies

The EU provides considerable amount of programs and lending to support countries

and the private sector to implement energy project. The major sources of funding
for the transition towards a low-carbon economy are the following:
1. The Connecting Europe Facility which is a €33 billion plan to invest in energy,
transport, and digital infrastructure between 2014 and 2020. Under the CEF,
€5.85 billion is available for trans-European energy infrastructure projects such
as gas pipelines, transmission grids, LNG terminals, gas storage, and smart grids
(EC 2015).
2. The European Energy Programme for Recovery (EEPR) amounting to
€3.98 billion finances key energy projects (EC 2009). So far, the EEPR has
helped fund 44 gas projects (€1.36 billion) and electricity infrastructure projects
(€904 million), 9 offshore wind projects (€565 million), and 6 carbon capture
and storage projects (€1 billion). Under the EEPR, the European Commission
has also launched the European Energy Efficiency Fund (EEE-F).
3. The research and innovation program called “Horizon 2020” provides
€5.931 billion in funding towards energy projects between 2014 and 2020.
These projects support the creation and improvement of clean energy tech-
nologies such as smart energy networks, tidal power, and energy storage (EC
Press release 2013).
4. The so-called New Entrants Reserve (NER300) was put in place by the new
EU ETS Directive (2009/29/EC). The basic idea of NER300 is that 300 million
allowances of the ETS are sold on the carbon market and the funds then made
available to help finance installations of innovative renewable technology and
carbon capture storage.6 So far, 38 renewable energy projects and 1 CCS project
have received €2.2 billion of funding. The programme has also managed to
leverage its funding with €2.86 billion in private investment.7
For Asia mobilizing similar amounts for REC will probably be impossible to
achieve in the short run. A necessary prerequisite is substantive economic inte-
gration accompanied with corresponding powerful institutions.

6
http://www.erec.org/policy/eu-policies/ets-ner-300.html.
7
http://ec.europa.eu/clima/policies/lowcarbon/ner300/index_en.html.
350 M. Helble

Fig. 12.9 Household electricity prices across EU 28, 2008–2012. Source EC (2014a, b)

Recently, the European Commission ordered a report that estimated the yearly
energy support by the European Union and its Member States (Ecofys 2014). It
found that the total energy support in the EU28 was 99 billion Euros in 2012. Out
of the 99 billion Euros, the EU funded around 13 billion, while the rest was
financed by EU Member States. Germany (25 billion Euros), the UK (13 billion
Euros), Italy and Spain (both around 10 billion Euros) provided the largest support.
According to Ecofys (2014) estimations, from all renewable energy sources, solar
energy received most support (15 billion Euros), followed by wind (11 Billion
Euros) and biomass (8 billion Euros). Interestingly, 40 billion of all interventions
were financed by energy consumers in the form of levies. The largest volumes of
support were channeled through feed-in-tariff (27 billion Euros), investment grants
(13 billion Euros) and exemptions from energy taxes (12 billion Euros).
As a consequence of these support measure that differ substantially across EU
countries, the average price of electricity and gas is also very different across EU
countries. Figure 12.9 depicts the price of household electricity across European
countries showing a wide disparity. Furthermore, Fig. 12.9 illustrates how the
roll-out of new renewable energy programs from 2008 to 2012 has led to price
increases in some countries, but not in others. Traditionally, the cost for producing
energy is the largest cost element, following by network costs and then by taxes and
levies. However, levies for financing energy and climate policies are taking an
increasing share of the final energy price. The highest share is reported in Germany
(16 %) and Spain (15.5 %), which contrasts to 1 % in Ireland, Poland and Sweden
(EC 2014a, b).

12.4.2.4 Common Position in International Negotiations on Climate

Change

The smooth cooperation among EU Members in terms of energy policy can also be
observed the in international negotiations on climate change. In the run-up to the
Conference of Parties 21 (COP 21), the EU Members have submitted their intended
12 Low Carbon Energy Transition in EU … 351

nationally determined contributions (INDC) not individually, but en bloc.8 In

March 2015, Latvia and the European Commission on behalf of the European
Union and its Member States communicated EU’s INDC to the United Nations
Framework Convention on Climate Change (UNFCCC). With its INDC the EU
commits itself to reduce its domestic GHG emissions by at least 40 % by 2030,
compared to 1990.
Submitting one INDC for all EU Members has certainly facilitated the negoti-
ations among parties. If certain Asian groupings, such as ASEAN, had been able to
come up with one INDC, it would have certainly enhanced the process of achieving
a compromise. In international negotiations in which consensus building has proved
to be difficult in the past, as it is the case of the climate change negotiations, having
regionally agreed INDC prior to the start of the negotiations might become key to
achieve success.

12.5 Conclusion

In this chapter, we have analyzed how energy policy in Europe has evolved since
the Second World War. The ESCS as well as EURATOM constitute early example
of successful collaboration on energy policies. Today, other regions might study
these cases again and attempt to draw lessons for their energy collaboration. One of
the important lessons learned is that countries must be ready to give up certain
competencies and transfer the later to regional institutions. Those institutions must
be properly financed and run in an accountable and effective manner.
Another lesson learned is that REC is not a linear and smooth process. Energy is
a sensitive topic to all countries in the world and unpredictable events can trigger a
new orientation of energy policy that will also impact REC. Europe’s REC had
difficulties in advancing for many decades due to diverging national energy policy
objectives. It was only with the increased awareness that the fight against climate
change makes concerted efforts necessary that the European Member States were
able to declare energy policy as a “shared responsibility”.
Establishing the 20/20/20 targets linked energy policy and the fight against
climate change in an almost irreversible way. It should ensure that energy policy
and environmental policies enjoy certain coherence and are even reinforcing each
other. Another interesting element of the 20/20/20 targets is the realization of the
principle of common, but differentiated responsibility at the regional level. The EU
Member States were ready to sign on binding emission targets, however, the targets
differ among EU Member States. The EU as a whole has to reach the target. The
efforts to reach the targets come both from the regional and national level. If EU

8
The COP 21, which will take place in Paris in December 2015, aims to achieve a legally binding
and universal agreement on climate, with the objective to keep global warming below 2 °C.
352 M. Helble

Member States wish, they can go faster and further. The EU facilitates progress by
legislating rules in certain areas, such as labelling or energy efficiency.
For Asia, the example of REC in Europe is worthwhile studying. However, the
level of European integration is far beyond the current levels of regional integration
in Asia. REC in Asia should be undertaken step by step. More and better infor-
mation exchange might constitute a first step. Setting up an Asian environmental
agency is another step forward. Collaborating on common energy labels might
prove to be another efficient measure of REC. Overall there seems to be room to
harvest several low-hanging fruits, before aiming at complex instruments of REC,
such as regional emission trading schemes. As an old Chinese proverb goes, “It is
better to take many small steps in the right direction than to make a great leap
forward only to stumble backward.”

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 Part III
Regional Economic Integration and
Implications for Low-Carbon Green
Growth
Chapter 13
The Influence of Regional Cooperation
on Export Potential of the APEC 54 List
of RCEP Countries

Kaliappa Kalirajan

13.1 Preamble

Currently, the concept of ‘sustainable development’ is on the priority list of the

United Nations (UN) new international development agenda named as “Sustainable
Development Goals” (SDG) starting from September 2015. Though the notion of
‘development’ may be restricted mainly to economic development, the definition of
‘sustainable development’ is a comprehensive way of referring to ecologically
sustainable economic development. Ecological sustainability means the mainte-
nance of socially valuable environmental components, processes and systems. It
implies rates and intensities of environmental use that do not lead to long-run or
irreversible reductions in the environment’s capability for regeneration and waste
absorption, which are crucial to improving human welfare. An important policy
prescription to achieve the goal of ‘sustainable development’ at the national,
regional, and global levels is to formulate and implement low-carbon energy sys-
tems and green growth activities, which depend on the access and availability of
both energy-efficient (EE) and renewable energy technologies (RET). There are
many ways to improve the access and availability of such superior technologies to
developing countries that may not have sufficient human and physical infrastruc-
tures to develop those technologies. The endogenous growth theory has identified
that the transfer of knowledge and technology between countries depends on a trade
channel, which facilitates access to the outputs of foreign R&D, thereby embracing
productivity (Helpman 2004; Lucas 2009). Drawing on the ‘evidence based
research’, the East Asian growth process has unambiguously shown that trade is an
important source facilitating the transfer of superior technologies from developed
countries to developing countries in the embodied form, though the success of the

K. Kalirajan (&)
Crawford School of Public Policy, The Australian National University, Crawford Building
#132, Canberra, Australia
e-mail: [email protected]; [email protected]

© Springer Science+Business Media Singapore 2016 359

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_13
360 K. Kalirajan

developing countries in reaping the full benefits from such technologies depends on
their absorptive capacity (Cohen and Levinthal 1989). While country-specific
national policy measures can address to some extent many of these technical,
financing, and knowledge capacity constraints, it is increasingly being acknowl-
edged by policy-makers around the world that regional cooperation is crucial to
complement and augment the national action plans towards low-carbon green
growth strategies (Anbumozhi and Yao 2015).
Further, the recent energy market developments indicate the need for strength-
ening regional collaboration across Asia to sustain energy security. Specifically,
recent changes in the world energy market such as the boom in the U.S. and
Canadian production of shale gas and tight oil has led to a significant reduction in
the import of oil from the Middle East and the Persian Gulf by the U.S. Besides
these developments, the disillusionment in the U.S. concerning the costs of its
commitment to maintain peace in the Middle East is indicating that the current ‘Pax
Americana’ energy security paradigm may not work satisfactorily in near future
(Herberg 2015). This necessitates that the dynamic Asian region needs to adjust its
approach to energy security to cope up with the reality by reducing its dependency
on the U.S. and increasing more regional cooperation for Asia’s energy security
paradigm shift towards low-carbon green growth technologies. In this context,
generally, policymakers erroneously assume that low-carbon energy systems and
green growth approach can be implemented just by importing green growth tech-
nologies from developed countries. What is equally important is effectively
spreading the awareness and knowledge to apply those imported technologies.
The ‘theory of market transformation’, which is an attractive model for
achieving increased adoption of energy-efficient technologies, synthesises drawing
on the ‘diffusion of innovation theory’ (Rogers 1995) that the successful imple-
mentation of the imported low-carbon energy systems and green growth tech-
nologies depends on both the supply side of the flow of technologies and the
demand side of the awareness and effective use of the technologies with appropriate
knowledge (Nadel and Latham 1998). Again, drawing on the East Asian experi-
ence, it can be argued that one of the important regional cooperation policy mea-
sures facilitating the achievement of the above objectives of supply side and
demand side issues is to join in global value chains, which are “the most powerful
channels to accelerate technology transfers and spillovers” (Lim and Kimura 2010,
p. iii). Joining in global value chains provides market access to developing coun-
tries and thereby becomes a powerful policy instrument to reduce poverty in
developing countries. Global value chains are fast becoming the most important
aspect of any bilateral and multilateral trading arrangements.1 These are turning out
to be a prominent feature in mega-regional trade pacts such as the Trans-Pacific
Partnership (TPP), the Trans-Atlantic Trade and the Investment Partnership
(TATIP) and Regional Comprehensive Economic Partnership (RCEP). Therefore,

1
Global value chains are typically created by integrating goods and services from various countries
into one composite production network to produce a single product or service.
13 The Influence of Regional Cooperation on Export … 361

strengthening regional cooperation implies increasing global value chains, which in

turn means acceleration in technology transfer and spillovers across member
countries.
Recently, International Centre for Trade and Sustainable Development (ICTSD)
has been promoting the concept of ‘Sustainable Energy Trade Initiative’ (SETI)
with the objective of increasing access to sustainable energy by articulating
enabling governance and frameworks at the global level to facilitate trade in
renewable energy goods and services (ICTSD 2013). SETI can be established
between two to three countries at the minimum, which can take different formats,
such as voluntary guidelines for harmonisation of standards of products between
countries and legally binding trade agreements leading to Sustainable Energy Trade
Agreement (SETA) (Sugathan 2013). Thus, it is proposed that under the regional
cooperation framework, SETA can function effectively bringing benefits to all
member countries. Whether such trade initiatives and agreements in low-carbon
energy goods and services are being considered as feasible in reality by any
regional groupings? Citing the voluntary Asia Pacific Economic Cooperation
(APEC) countries’ initiative after the 2011 Honolulu Declaration to reduce
non-tariff barriers, such as local-content requirements in clean energy and tariffs to
5 % or less by 2015 on a list of environmental goods, Vossenaar (2013) has argued
that among regional trade agreements, the APEC is one that has the potential for
transforming the proposed SETI covering the APEC 54 list of environmental goods
(Table 13.1) into SETA.2 Later in 2012, through APEC’s Vladivostok Declaration,
a large number of the environmental goods that are relevant to the provision of
sustainable energy were covered.
Thus, it can be logically argued that SETI and SETA are possible even volun-
tarily within a regional cooperation framework.3 Nevertheless, an interesting
question to explore in this study is: whether the effective functioning of SETA
depends on any specific pre-requisites concerning the trade performance of coun-
tries involved to achieve a win-win outcome. Therefore, in the light of the above
arguments, the importance of strengthening regional cooperation in Asia in trade in
low-carbon energy systems and green growth technologies to achieve sustainable
development including sustainable energy security need not be overemphasised
here.

2
A detailed discussion on the APEC list of environmental goods can be seen in Reinvang (2014).
One of the important aspects of the APEC list from the sustainable development point of view is
that it includes environmental goods components that facilitates developing countries to participate
in global value chains.
3
It is worth noting that APEC has historically played a major role in the international governance
arena as an ‘incubator’ of pioneering initiatives concerning trade and trade policies (Drysdale
2009). For example, the World Trade Organisation’s (WTO) Information Technology Agreement
(ITA), which came into force in 1997 with the objective of eliminating all taxes and tariffs on
information technology products by signatories, was significantly influenced by the APEC-led
processes (Vossenaar 2013).
362 K. Kalirajan

Table 13.1 The categories of the APEC 54 list

Categories of main type of environmental protection Number of sub-categories
Renewable energy (RE) 15
Environmental monitoring, analysis and assessment equipment 17
Environmental-protection (principally SHW, WWM and APC) 21
Environmentally preferable products 1
Source Vossenaar (2013)

Table 13.2 Status of free trade agreements within RCEP countries

ASEAN Australia New Zealand China India Japan Korea
Australia S/E – S/E S N N N
China S/E S S/E – P N N
India S/E N N P – S/E S/E
Japan S/E N P N S/E – P
Korea S/E N N N S/E P –
N. Zealand S/E S/E – S/E N P N
Notes S: Signed; S/E: Signed and in Effect; N: Negotiation initiated; P: Proposed and Progressing.
Source ARIC, ADB (2015)

In this context, it is useful from the policy perspective to measure how much
benefit regional cooperation in LEG can bring to its member countries in terms of
not only increased actual exports but also potential exports, which is a focus of this
study. Of the 21 member countries of APEC, which are currently pursuing SETI, 12
Asian countries are in the recently formed RCEP, which was born out of
ASEAN + 1 FTAs with China, India, Japan, Korea, Australia and New Zealand
(Table 13.2). RCEP countries account for almost half of the world’s population,
almost 30 % of global GDP and over a quarter of world exports currently. An
interesting question emerges as to whether it is feasible to establish Sustainable

Fig. 13.1 Contribution of regional cooperation to national member countries’ resources

13 The Influence of Regional Cooperation on Export … 363

Energy Free Trade Agreement (SEFTA) across RCEP member countries. An

important pre-requisite for effective functioning of SEFTA in any regional grouping
is that each member country should achieve its trade potential at least with other
member countries within the grouping without any constraints. If significant gaps
existed between countries’ potential and actual trade achievements, this means
countries within the regional grouping are not reaping the full benefit. A country is
said to be reaping the full benefit from its trading partners, when the ratio of actual
to potential exports, namely export efficiency, is unity. Major reasons for the
emergence of export efficiency being less than one can be classified into two
categories—trade policy factors and economic structural factors. The former factors
include tariffs, and non-tariff barriers in importing countries, while the latter factors
concern institutional and infrastructure bottlenecks in both importing and exporting
countries (Kalirajan 2007). Also, it is rational to argue that institutional and
infrastructure facilities in contrast to bottlenecks would contribute to reducing the
gap between actual and potential exports. Therefore, it is assumed that trade policy
factors would widen the gap and institutional and infrastructure factors would
influence the gap in either directions.
Given the fact that the product coverage of the APEC list of 54 HS code is also
contained in the WTO 153 list of environmental goods, and 12 of the 21 members
of APEC are in the newly formed RCEP, the objectives of this study are (i) to
examine whether RCEP member countries are able to achieve their export potential
of the APEC 54 list including the 15 renewable energy goods with their trading
partners within RCEP, which is a pre-requisite to make SETA in RCEP a win-win
case; (ii) to measure export efficiencies of RCEP member countries with respect to
their RCEP and non-RCEP trading partners, and (iii) to gauge the impact of SEFTA
within RCEP with respect to the APEC 54 list.
The following section discusses theoretical models that are used to arrive at an
empirical model to highlight the contribution of regional cooperation in achieving
export potentials of the APEC 54 list including 15 renewable energy goods of the
major RCEP member countries. Data sources are explained in the next section
along with the selection of the low-carbon green growth products for empirical
analysis in the study. Empirical model is described and the estimated results are
interpreted in the following section. A final section brings out the overall summary
of the study and highlights the suggested policy prescriptions to work towards
achieving the ‘sustainable development’ paradigm.

13.2 Theoretical Framework

First, drawing on the Rybczynski’s theorem, the theoretical framework that can be
used to highlight the contribution of regional cooperation to national member
countries’ resources including technology and R&D and to the price of low-carbon
energy products is discussed using the following diagram.
364 K. Kalirajan

In Fig. 13.1, S refers to LEG produced using regional resources such as R&D
obtained through regional cooperation4 and T refers to low-carbon energy systems
output produced by the national member country’s resources including its technical
knowhow. With the initial existing national resources and resources obtained
through regional cooperation, the national economy produces at X0, which is the
point of tangency of the production possibility frontier and the price line for LEG.
On strengthening the regional cooperation, resources obtained through regional
cooperation are increased with the increased flow of technology transfer either
directly or through increased regional trade. When the country gets an increase in
resources through the regional cooperation with almost no change in its own
national resources, the country would move towards a new production possibility
frontier with regional resources-biased growth of low-carbon energy systems out-
put. What are the effects of this movement on LEG prices, and output levels using
national and regional resources? Initially relative output prices are fixed and
therefore, factor prices are fixed too. The new production point is X1, which is the
point of tangency of the new production possibility frontier and the price line drawn
parallel to the earlier prices line to show that there are no changes in prices. This
without doubt indicates that the output using regional resources, S should increase
and output using national resources, T should decrease.
Now, to examine the impact of the growth in S on LEG output prices, with the
shift in the production possibility frontier, it is rational to argue that national income
would increase. This means demand for low-carbon energy systems goods pro-
duced through both national resources and regional resources must increase. That
is, the new equilibrium on the new production possibility frontier will not be at X1,
but should lie in between the area on the new production possibility frontier created
by the right angle triangle drawn at the point X0 of the initial endowment pro-
duction possibility frontier. The slope of this segment on the new production
possibility frontier is not as steep as the slope of the price line at X0. This implies
that the relative price of LEG produced through national resources will be higher in
the new equilibrium situation. Thus, theoretically one would expect that the
strengthening of regional cooperation that leads to the growth of foreign R&D
embedded LEG and that national consumers would enjoy cheaper prices for LEG
produced using regional resources.
Secondly, drawing on the theory of market transformation, which has become
popular with several energy efficiency programs supported by private sectors and
government agencies in the United States (US) and other countries in recent times,
this study examines key leverage points within trade relationships to achieve
maximum benefits of regional cooperation in disseminating the usage of
low-carbon energy technologies in the region. Market transformation, for which no
single definition exists, is considered in this study as the process by which

4
An example of such technologically superior energy-efficiency relevant product is light emitting
diodes (LEDs). The International Energy Agency (IEA) confirms that lighting accounts for about
19 % of global electricity production. If LED is used wordwide, then it would save electricity
consumption by about 40 %.
13 The Influence of Regional Cooperation on Export … 365

collective (regional cooperation) action and policies influence a positive and lasting
change in the market for low-carbon energy technologies, such that these tech-
nologies are produced and consumed without barriers in the market (Suozzo and
Nadel 1996). It is established that the theory of market transformation draws on the
diffusion of innovation theory (Rogers 1995).
Theories of diffusion of innovation assume that firms have already started using
the new technology, but have not yet used the ‘best practice techniques’ fully to
achieve the full potential of the technology. These theories then rationalise, using
psychological or economic principles, the time taken by firms to reach the full
potential of the technology. Following Stoneman (1983), these theories can be
classified into the following three categories based on their unit of analysis:
intra-firm diffusion, inter-firm diffusion, and economy-wide diffusion. Analogously,
these theories can be grouped into intra-country diffusion, inter-country regional
diffusion, and global-wide diffusion. To put it in simple terms, the theories of
intra-firm (intra-country) diffusion, which is relevant for the present study, can be
explained as follows: with the assumption that a firm within a country has adopted
the new technology to produce output (Y1) with a particular mix of techniques of
the technology that is not the best practices mix in time t. But, if the firm uses all the
best practice techniques of the technology, then it should be producing the full
potential of the technology achieving output (Y*) which is greater than (Y1). The
intra-firm (intra-country) theory of diffusion discusses why then the firm (country)
is not using the best practice techniques of the technology in the first place and how
much time it takes to obtain (Y*). Thus, theories of intra-firm (intra-country) dif-
fusion provides a suitable modelling framework for this study to examine the main
question of examining whether RCEP member countries are able to achieve their
export potential of the APEC 54 list.
The Bayesian model of diffusion through learning discussed by Lindner et al.
(1979) and Stoneman (1981) is based on rational maximising behaviour with the
assumption that the choice of the mix of techniques is determined endogenously.
Analogously, the choice of a mix of trade policy factors and institutional and
infrastructure factors and their convergence to the best practice mix of factors over
time in the context of exports can be represented empirically by the ratio of actually
realised exports (Y1) at a particular point in time to the maximum possible potential
exports (Y*) that is feasible with the best practice mix of trade policy and insti-
tutional and infrastructural factors. The ratio of actual to maximum possible exports
is called export efficiency in the literature (Kalirajan 2008).
Drawing on the above discussions, the following theoretical model in a gravity
equation framework is formulated by considering both the supply side and demand
side factors influencing exports of LEG from a selected country within the RCEP
grouping. From the supply side, following the Rybczynski’s theorem, the exporting
country’s per capita gross domestic product (PGDPi) is proxied for national
resources along with its population to denote the human resource component and a
dummy variable (D 1) to represent resources emanating from regional cooperation
to the exporting country. This dummy variable will take the value 1 when the
partner importing country is in the RCEP regional grouping and 0 otherwise. From
366 K. Kalirajan

Table 13.3 APEC 54 list: Tariff structure, 2011

Source de Melo and Vijil (2014). Last column from Vossenaar (2013)

the demand side, the importing country’s GDP and its population are combined as
per capita GDP (PGDPj) and used as an independent variable.
Drawing on the above discussion on the theory of market transformation and
thereby on the diffusion theory of innovation, the factors constraining the exporting
country from achieving its potential exports can be classified into two categories of
de facto and de jure factors. The de facto factors can be proxied by the geographical
distance between the exporting and importing countries (DIST), common language
(D2), and common border (D3), which are also named as ‘natural determinants’.
The de jure factors can be named as ‘trade policy measures’. These trade policy
measures are further classified into two groups, namely, market-based measures and
non-market based measures. While the former measures are proxied by tariffs
imposed by the importing country (TARIFF) (Table 13.3) and the exchange rate
between exporting and importing countries (EXCH), the latter are proxied by
non-tariff barriers, which are the major constraints currently in the international
trade arena, imposed by the importing country (u) (Table 13.4) (Hammeren 2014);
and the institutional and infrastructural characteristics existing in the exporting
country and in the importing country (v). As it is very difficult to obtain full
information on the latter two variables of (u) and (v), they are included in the
gravity equation as random variables with different but known distribution
13 The Influence of Regional Cooperation on Export … 367

Table 13.4 Effectiveness of non-tariff barriers

Source de Melo and Vijil (2014)

functions with mean and variances to reflect the fact that the random variable
(u) has a negative effect on exports. The influence of (v) on exports can be either
positive, negative, or nil. It is rational to examine whether exports of LEG have
been increasing over time significantly. This can be examined by introducing a time
trend (D4) in the gravity model by defining 1 for 2011, 2 for 2012, 3 for 2013, and 4
for 2014. Hence, the following stochastic frontier gravity equation can be formu-
lated for examining the objectives of this chapter:

ln Xijt ¼ b1 þ b2 ln PGDPit þ b3 ln PGDPjt þ b4 ln DISTij þ b5 Tariffijt þ b6 EXCHijt

þ b7 D1jt þ b8 D2j þ b9 D3j þ b10 D4jt  uijt þ vijt
ð1Þ

13.3 Data and Sample Size

Though there is no universal consensus on the definition of environmental goods

(EG), the WTO’s 153 list, the OECD list, the APEC’s 54 list, which all evolved
with different objectives, generally have been considered for implementing trade
liberalization in EG.5 It is worth noting here that APEC was the first regional
grouping that initiated trade liberalization in EG in 1997. The APEC 54 list 6-digit
HS code covers products that are shown in Appendix Table 13.9. These products
are in some forms either directly or indirectly used in low-carbon green growth,
particularly waste-water management, pollution monitoring and control, and energy
efficiency (Reinvang 2014). The main data sources are COMTRADE, WITS, and
UNCTAD’s World Investment Reports covering the periods 2011–2014.6
Consistent and uniform country-wise data on foreign direct investment (FDI) in

5
Sugathan (2013) has provided a brief, but comprehensive comparison of the WTO 153 list, the
OECD list, and the APEC 54 list of environmental goods.
6
During the 19th ASEAN Summit in November 2011, the Regional Comprehensive Economic
Partnership (RCEP) was introduced.
368 K. Kalirajan

low-carbon energy and green growth technologies per se is very difficult to obtain.
Further, “Most importantly, particularly for FDI, green economic activity is often
not associated so much with a particular good or service, but rather with a process
or technology, which is very difficult to apprehend statistically” (Golub et al. 2011,
p. 16). Hence, FDI was not included in the analysis in the present study. Based on
the availability of uniform data, the following RCEP member countries are used for
empirical analysis in this study: Australia, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, Philippines, China, and Viet Nam. Each of the above country’s top
40 trading partners in LEG in a panel data framework were considered for exam-
ining the objectives of this study. The estimation was carried out using data from
2011 to 2014 to examine the impact of regional cooperation efforts that started in
2011 on exports of LEG within member countries and to examine whether there has
been a trend over time in terms of increasing export efficiency. The software,
FRONTIER 4.1 was used to estimate the empirical model discussed below for the
APEC 54 list for each of the above cited RCEP member countries (Table 13.5).

13.4 Empirical Results and Discussion

With respect to total trade figures concerning the APEC 54 list, the three largest
trading countries in 2011 within RCEP are, in descending order, China, Japan, and
Korea. These economies are also the top three exporters and importers (see
Tables 13.10, 13.11, 13.12, 13.13, 13.14, 13.15, 13.16, 13.17, 13.18, 13.19 and
13.20).
The empirical model is the following stochastic frontier gravity model7:

ln Xijt ¼ b1 þ b2 ln PGDPit þ b3 ln PGDPjt þ b4 ln DISTij þ b5 Tariffijt

ð2Þ
þ b6 EXCHijt þ b7 D1jt þ b8 D4jt  uijt þ vijt

where Xijt is tth period exports of LEG from country i to country j; PGDPit and
PGDPjt are, respectively, exporting country’s per capita GDP and importing
country’s per capita GDP; DISTij is the distance between exporting and importing
countries; Tariffijt is average applied tariff in the tth period by the importing country;
EXCHijt is the average exchange rate between the domestic currency and the US
dollar in the tth period; D1 is the dummy variable that is equal to 1 if the importing
country is a member country of RCEP and 0 otherwise; D4 is a time trend taking
values 1 for year 2011, 2 for 2012, 3 for 2013, and 4 for 2014. vijt is the ‘statistical
error’ term that is a ‘catch all’ term following normal distribution with N(0, r2)
including institutional and infrastructure characteristics existing in importing and

7
A preliminary estimation revealed that the coefficients of the variables of ‘common language’ and
‘common borders’ were not statistically significant. Hence, these variables were dropped from the
final estimation.
 13

Table 13.5 Estimates of determinants of exports of renewable energy products across countries, 2011–2014
Coeffts. of China India Indonesia Malay Philippines Japan New Zealand Vietnam Korea Australia
Constant 11.452 9.873 7.608 8.986 7.323 10.632 8.482 7.882 9.754 9.566
PCGDPe 0.731 0.621 0.543 0.524 0.422 0.756 0.622 0.453 0.727 0.654
PCGDPm 0.785 0.689 0.633 0.718 0.548 0.832 0.702 0.533 0.703 0.753
Dist −0.418 −0.58 −0.592 −0.566 −0.592 −0.520 −0.62 −0.562 −0.531 −0.598
Tariff (%) −0.352 −0.548 −0.515 −0.382 −0.487 −0.233 −0.288 −0.412 −0.262 −0.331
EXCH 0.793 0.534 0.667 0.655 0.627 0.831 0.533 0.487 0.628 0.663
D1(RC) 1.125 0.635 0.756 0.785 0.684 0.942 0.712 0.792 0.791 0.812
D4 (Years) 0.552 0.634 0.455 0.501 0.223 0.632 0.602 0.594 0.541 0.488
Gamma 0.866 0.883 0.822 0.786 0.822 0.711 0.780 0.832 0.746 0.781
Notes All coefficients are statistically significant at least at the 5 % level
The Influence of Regional Cooperation on Export …

ln EXi;j;t ¼ B1;t þ B2;t ln PCGDPi;t þ B3;t ln PCGDPj;t þ B4;t ln DISTi;j þ B5;t ln Tj;i;t
The estimated model is as follows:

þ B6;t ln EXCHj;t þ B7;t D1 þ B8;t D4 uij;t þ vij;t
All the variables are defined in the text. The coefficients of the variables of ‘common language’ and ‘common borders’ were not significant. Hence, those
r2
variables were dropped from the estimation without loss of generality. Gamma—c is the ratio of country-specific variation (r2u ) to total variation (r2 þu r2 ), which
u v
indicates whether ‘non-tariff barriers’ are one of the determinants of total exports of EG. When c is significant, which is the case in this study, it implies that
‘non-tariff barriers’ are important determinants of LEG exports
Source Author’s estimation
369
370 K. Kalirajan

Table 13.6 Increase in potential exports of LEG (%) under regional cooperation
RCEP countries 2011 2012 2013 2014
Australia 12 13 14 14
India 8 10 10 12
Indonesia 11 12 12 12
Japan 14 15 16 17
Korea 12 13 15 16
Malaysia 13 15 16 17
New Zealand 12 14 14 15
Philippines 11 12 13 13
China 15 16 18 18
Vietnam 10 11 11 11
Source Author’s estimation

Table 13.7 Mean export efficiency of RCEP countries in the exports of LEG (%)
RCEP countries 2011 2012 2013 2014
Australia 78 79 80 80
India 66 67 68 69
Indonesia 60 62 62 62
Japan 83 84 85 86
Korea 80 81 82 83
Malaysia 67 68 70 71
New Zealand 74 75 76 77
Philippines 62 63 63 63
China 80 82 83 83
Vietnam 58 60 60 60
Source Author’s estimation

Table 13.8 Increase in potential exports of LEG (%) under regional cooperation and free trade
RCEP countries 2011 2012 2013 2014
Australia 18 20 21 22
India 12 13.5 14 16
Indonesia 13 14 15 16
Japan 18 18.5 20 22
Korea 20 21 22 23
Malaysia 16 18 19 20
New Zealand 17 19 20 21
Philippines 15 16 17 18
China 18 20 22 23
Vietnam 14 15.5 16 19
Source Author’s estimation
Table 13.9 Environmental commodities classification and definition
13

Commodity Commodity code Commodity description

classification (3-digit (6-digit levels)
levels)
441 441872 Assembled flooring panels, multilayer
840 840290 Parts of the boilers
840410 Auxiliary plant for use with boilers (e.g., economizers, super-heaters, soot removers, gas recoverers)
840420 Condensers for steam/other vapour power units
840490 Parts of the auxiliary plant
840690 Parts of the steam turbines and other vapour turbines
841 841182 Gas turbines other than turbo-jets/turbo-propellers, of a power >5000 kW
841199 Parts of the other gas turbines
841290 Parts of the engines and motors
841780 Industrial/laboratory furnaces and ovens (excl. of 8147.10 and 8417.20), incl. incinerators,
non-electric
841790 Parts of the industrial/laboratory furnaces and ovens
The Influence of Regional Cooperation on Export …

841919 Instantaneous/storage water heaters, non-electric (excl. of 8419.11)

841939 Dryers for use as machinery/plant/laboratory equip., whether/not electrically heated (excl. of 8419.31,
8419.32, 84.36–84.38 and 84.51)
841960 Machinery for liquefying air/other gases, whether/not electrically heated
841989 Machinery, plant and equip., n.e.s. in Ch.84, other than for making hot drinks/for cooking/heating
food, whether/not electrically heated
841990 Parts of machinery, plant/laboratory equipment, whether/not electrically heated (excl. furnaces, ovens
and other equipment of heading 85.14), for the treatment of materials by a process involving a change
of temperature such as heating, cooking, and roasting
842 842121 Filtering/purifying machinery and apparatus for filtering/purifying water
842129 Filtering/purifying machinery and apparatus for liquids (excl. of 8421.21–8421.23)
842139 Filtering/purifying machinery and apparatus for gases, other than intake air filters for internal
371

combustion engines
842199 Parts of the filtering/purifying machinery and apparatus (excl. of centrifuges, incl. centrifugal dryers)
(continued)
Table 13.9 (continued)
372

Commodity Commodity code Commodity description

classification (3-digit (6-digit levels)
levels)
847 847420 Crushing/grinding machines for earth/stone/ores/other mineral substance, in solid (incl. powder/paste)
form
847982 Mixing/kneading/crushing/grinding/screening/sifting/homogenising/emulsifying/stirring machines, n.
e.s. in Ch.84
847989 Other machines and mechanical appliances, other than Machines and mechanical appliances for
treating metal, incl. electric wire
coil-winders/Mixing/kneading/crushing/grinding/screening/sifting/homogenising/emulsifying/stirring
machines
847990 Parts of Machines and mechanical appliances having individual functions, not specified/incl
850 850164 AC generators (alternators), of an output >750 kVA
850231 Wind-powered electric generating sets
850239 Electric generating sets n.e.s. in 85.02
Electric generating sets n.e.s. in 85.02
850300 Parts suit. for use solely/principally with the machines
850490 Parts of the machines
851 851410 Resistance heated furnaces and ovens
851420 Furnaces and ovens functioning by induction/dielectric loss
851430 Other furnaces and ovens other than Resistance heated furnaces and ovens/Furnaces and ovens
functioning by induction/dielectric loss
851490 Parts of Industrial/laboratory electric furnaces and ovens (incl. those functioning by
induction/dielectric loss); other industrial/laboratory equipment for the heat treatment of materials by
induction/dielectric loss
854 854140 Photosensitive semiconductor devices, incl. photovoltaic cells whether/not assembled in
modules/made up into panels; light emitting diodes
854390 Parts of electrical machines and apparatus, having individual functions, not specified/incl
K. Kalirajan

(continued)
Table 13.9 (continued)
13

Commodity Commodity code Commodity description

classification (3-digit (6-digit levels)
levels)
901 901380 Liquid crystal devices not constituting articles provided for more specifically in other headings; other
optical appliances and instruments
901390 Parts and accessories of the articles of 90.13
901580 Surveying/hydrographic/oceanographic/hydrological/meteorological/geophysical instr. and appliances
(excl. compasses)
902 902610 Instruments and apparatus for measuring/checking the flow/level of liquids
902620 Instruments and apparatus for measuring/checking pressure
902680 Instruments and apparatus for measuring/checking the flow/level/pressure/other variables of
liquids/gases (e.g., flow meters, level gauges, manometers, heat meter), excl. instr./apparatus of
heading 90.14 and 90.15, 90.28
902690 Parts and accessories of the instr. and appliances of 90.26
902710 Gas/smoke analysis apparatus
902720 Chromatographs and electrophoresis instr.
The Influence of Regional Cooperation on Export …

902730 Spectrometers, spectrophotometers and spectrographs using optical radiations (UV, visible, IR)
902750 Instruments and apparatus for physical/chemical analysis, using optical radiations (UV, visible, IR)
902780 Instruments and apparatus for physical/chemical analysis
902790 Microtomes; parts and accessories of instr. and apparatus of 90.27
903 903149 Other optical instruments and appliances, other than 9031.41
903180 Measuring/checking instr., apparatus and machines
903190 Parts and accessories of the instr., apparatus and machines of 90.31
903289 Automatic regulating/controlling instr. and apparatus
903290 Parts and accessories of the instr. and apparatus of 90.32
903300 Parts and accessories in Ch.90. for machines/appliances/instr./apparatus of Ch.90
Source Author’s compilation
373
 374

Table 13.10 Export value of environmental commodities of Australia (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 83.4 75.4 43.3 29.4 129.7 13.9 82.6 44.5
840 5,198.1 3,154.6 8,778.2 5,979.9 20,195.2 15,232.4 9,823.9 4,540.6
841 186,276.9 55,629.2 173,761.0 41,967.4 181,144.3 43,579.3 214,281.1 59,018.4
842 133,283.2 52,791.4 117,488.6 49,238.4 118,664.7 47,282.9 129,836.1 57,467.3
847 424,166.9 248,255.9 315,650.4 151,698.3 323,792.6 129,671.5 351,729.7 187,447.4
850 95,815.1 44,934.6 65,314.3 23,272.0 47,251.6 17,513.8 50,965.2 19,748.3
851 22,336.9 6,969.5 19,460.0 5,213.2 12,970.6 6,519.7 9,759.3 3,047.6
854 86,952.7 15,409.5 66,212.3 24,470.3 49,369.7 16,095.6 65,341.1 16,422.1
901 85,657.8 27,463.9 67,124.3 22,975.9 68,277.7 26,376.2 98,338.3 36,894.6
902 337,429.8 75,245.7 299,792.5 83,698.7 248,965.8 91,420.5 231,633.7 90,827.0
903 362,702.5 149,386.2 303,220.9 132,488.6 215,865.5 82,143.6 218,701.7 94,493.8
Source Author’s compilation
K. Kalirajan
 13

Table 13.11 Export value of environmental commodities of China (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 90,969.9 2,784.1 91,520.9 4,489.8 122,084.1 7,437.3 139,478.6 10,699.2
840 4,715,607 3,898,170 3,335,405 2,231,523 3,206,632 1,930,697 2,853,073 1,364,670
841 3491,722 1,130,640 3,877,245 1,251,996 3,886,687 1,251,951 4,411,620 1,475,800
842 2,726,890 1,087,913 3,003,659 1,183,105 3,565,274 1,395,268 4,166,307 1,533,382
847 2,763,264 968,402 2,972,464 991,805 3,231,620 991,641 3,931,753 1,331,338
850 5,839,993 2,081,639 6,684,492 1,880,134 8,290,168 1,844,589 7,247,377 2,107,030
851 385,880.7 144,871.6 445,073.9 173,117.8 424,024.6 161,240.6 570,156.4 252,243.9
The Influence of Regional Cooperation on Export …

854 2,872,967 3,166,665 1,808,751 3,486,129 1,660,906 5,952,188 8,074,936 9,422,179

901 3,180,678 8,946,110 3,879,344 9,922,599 3,858,955 9,449,993 9,851,299 9,912,951
902 2,143,344 568,751 2,511,738 683,823 2,796,714 7,154,819 3,182,000 834,458
903 4,070,515 1,214,427 4,464,433 1,497,845 4,682,293 1,562,846 5,682,107 1,651,719
Source Author’s compilation
375
 376

Table 13.12 Export value of environmental commodities of India (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 Default Default Default Default Default Default Default Default
840 146,422.3 46,756.1 204,407.7 56,366.0 226,115.0 68,262.3 243,690.5 60,965.7
841 577,341.0 117,152.9 428,546.5 66,133.1 426,229.3 86,646.8 433,940.9 86,327.5
842 207,977.1 38,625.6 280,171.2 69,941.9 320,672.2 100,889.5 327,324.7 92,399.2
847 464,079.0 61,684.3 423,033.9 78,506.4 471,863.5 82,166.6 575,322.5 122,332
850 604,625.9 81,325.3 538,390.5 81,908.1 618,275.3 97,200.0 576,050.9 76,848.3
851 63,268.2 6,581.6 82,592.4 13,368.5 75,568.3 6,780.8 92,374.1 12,007.2
854 413,517.3 24,165.4 196,616.5 26,929.6 255,383.0 31,344.9 274,881.3 20,364.9
901 45,443.7 15,134.0 32,765.4 15,160.7 33,520.2 16,211.8 31,597.6 9,989.8
902 152,702.8 40,230.8 161,336.5 42,320.5 197,914.4 60,921.0 207,635.1 52,779.9
903 305,812.5 135,473.7 419,520.8 222,266.5 375,396.7 127,303.9 407,794.6 156,342.8
Source Author’s compilation
K. Kalirajan
 13

Table 13.13 Export value of environmental commodities of Indonesia (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 81,666.3 24,812.3 88,362.6 19,025.8 88,051.5 22,817.7 88,140.7 24,390.6
840 128,862.9 18,215.3 130,214.8 64,434.2 66,839.9 16,314.4 58,458.5 26,568.0
841 63,557.7 31,706.7 77,949.8 38,965.2 144,208.0 88,650.8 380,033.5 345,026.2
842 23,314.7 16,124.8 26,190.1 20,168.5 23,889.9 17,380.2 72,102.5 66,005.8
847 100,386.3 73,118.5 114,183.3 58,098.4 79,250.5 36,282.7 63,757.3 32,684.8
850 116,379.6 74,780.4 61,664.4 40,780.8 90,632.9 76,671.6 104,276 75,948.6
851 959.5 187.9 363.2 272.2 998.6 882.3 1,134.8 503.9
The Influence of Regional Cooperation on Export …

854 78,155.1 68,796.8 74,220.5 62,412.9 97,137.7 83,858.4 112,361.8 92,702.0

901 12,101.4 6,986.7 9,824.0 6,148.7 4,862.1 4,093.2 29,297.4 25,580.0
902 16,921.1 8,362.6 33,440.0 27,712.7 45,994.7 36,554.8 52,071.1 41,097.6
903 55,680.1 35,246.0 115,275.8 28,552.9 75,397.3 31,312.0 99,553.4 58,181.6
Source Author’s compilation
377
 378

Table 13.14 Export value of environmental commodities of Japan (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 739.3 583.5 896.0 684.4 1,151.1 727.4 1,150.3 1,030.2
840 1,578,773 935,519.8 1,352,378 684,669 1,429,855 728,507 1,876,715 861,189
841 3,431,162 1,679,899 3,647,202 2,078,120 3,206,168 2,166,555 2,500,048 1,492,232
842 2,562,225 1,119,467 2,379,165 1,005,741 2,108,726 805,019 2,016,029 769,454
847 8,716,362 5,656,589 8,561,102 5,759,153 6,105,460 3,780,509 6,395,301 3,832,165
850 2,635,814 1,702,926 2,873,269 1,680,284 2,376,565 1,474,131 2,607,728 1,568,812
851 5,647,578 422,706 483,075 374,344 502,945 353,892 530,021 379,043
854 7,384,910 3,853,433 6,465,744 3,893,722 5,521,595 3,459,583 5,291,977 3,163,784
901 8,411,262 5,046,708 7,587,585 4,859,161 6,442,080 4,823,695 7,231,150 5,607,710
902 5,109,687 1,569,381 5,164,702 1,837,984 4,534,032 1,632,025 4,813,219 1,735,158
903 8,381,387 4,601,557 9,111,682 4,994,995 8,275,673 4,320,220 7,877,992 3,847,784
Source Author’s compilation
K. Kalirajan
13 The Influence of Regional Cooperation on Export … 379

Table 13.15 Export value of environmental commodities of Korea (U.S. dollar, thousand)
Product 2011 2012 2013
code World RCEP World RCEP World RCEP
441 100.5 100.5 62.0 62.0 4.9 4.9
840 1,138,689 260,845 1,381,735 376,262 897,509 340,659
841 1,279,820 500,242 1,915,383 538,964 1,478,852 594,180
842 1,016,595 367,941 885,730 392,127 1,134,669 585,809
847 4,334,021 2,459,999 4,598,189 2,638,158 4,760,924 3,089,129
850 1,000,853 608,107 944,590 601,050 862,337 551,858
851 99,939.6 65,725.0 121,625.6 81,247.5 161,338.1 133,226.3
854 4,219,613 2,577,673 4,120,369 2,881,302 4,195,212 3,283,745
901 2,756,553 2,072,864 2,745,273 2,032,073 2,522,270 1,856,587
902 581,683.5 167,422.3 652,837.9 312,560.0 735,301.7 371,293.3
903 1,408,810 691,637 1,809,712 952,980 2,147,413 1,340,181
Source Author’s compilation

exporting countries; and uijt measures the negative influence of the combined
non-tariff barriers existing in the concerned importing country, on which complete
information is not known. It is assumed that uij,t takes the value zero if there is no
significant negative influence of non-tariff barriers and takes a positive value and
thereby reduces the level of exports when there is significant negative influence of
non-tariff barriers in the importing country. The parameter Gamma—c, is the ratio
r2
of country-specific variation (r2u ) to total variation (r2 þu r2 ), which indicates whether
u v
non-tariff barriers are one of the determinants of total exports of LEG. When c is
significant, it implies that non-tariff barriers are important determinants of LEG
exports (Fig. 13.2).
In panel data estimation context, tit and uit represent the idiosyncratic error and
time-varying panel-level effect, respectively. As discussed above, one of our
objectives is to get an estimate for the impact of ‘non-tariff barriers’ on exports
represented by uit . There are two ways to estimate uit . In the first method assuming
that uit is time invariant, which results in uit ¼ ui , indicating it’s a truncated (at 0)
and is (half) normally distributed random variable given that ui can take values
between 0 and 1. When ui ¼ 0, it indicates that there are no non-tariff constraints
and actual export flows match the potential export flows.
On the other hand, the second method of estimating uit is by assuming that it is
time variant. In this case, the time varying decay specification of uit is dictated by a
decaying parameter, g. Thus, the later method is modelled as:

uit ¼ expfgðt  Ti Þgui :

In this case if ui takes any other value other than 0, in the range of 0–1, it
highlights the presence and significance of non-tariff barriers. Furthermore, if
estimated value of the decaying parameter g is very close to or equal to zero, than it
 380

Table 13.16 Export value of environmental commodities of Malaysia (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 4,734.7 2,046.1 1,885.3 1,626.5 2,758.7 535.3 16,863.5 12,069.2
840 27,593.4 21,347.9 29,522.2 23,171.7 14,264.7 10,857.9 15,701.8 10,828.6
841 241,740.0 140,563.1 339,300.7 159,936.6 248,340.9 144,821.6 268,544.9 162,013.5
842 221,277.5 130,961.1 238,128.4 139,191.7 273,965.9 150,599.5 298,021.2 168,925.4
847 518,294.3 341,377.9 620,817.1 439,148.4 718,241.5 479,569.9 828,882.3 446,454.6
850 113,148.9 77,660.9 138,076.1 96,450.3 162,088.5 98,028.2 136,605.0 78,544.6
851 20,381.8 11,403.5 23,092.9 13,811.5 38,645.3 24,060.5 63,119.6 39,273.2
854 2,904,353 837,719 2,724,706 843,061 3,492,054 1,275,181 3,539,056 1,295,075
901 168,332.9 134,329.2 230,090.8 85,041.6 419,184.4 270,614.9 494,093.8 392,267.3
902 404,287.8 148,508.5 439,766.4 160,553.4 504,566.1 202,822.3 611,175.9 308,781.7
903 985,202.4 753,914.2 1,186,235 966,598.7 1,087,498 852,836.5 1,013,342 789,048.5
Source Author’s compilation
K. Kalirajan
 13

Table 13.17 Export value of environmental commodities of New Zealand (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 20.5 2.0 51.0 Default 110.1 110.1 46.6 44.0
840 3,399.4 887.3 14,748.1 14,320.1 8,998.9 1,744.2 4,020.2 2,107.7
841 36,626.4 16,685.9 34,285.4 17,392.0 46,452.7 19,597.0 40,228.2 15,033.9
842 16,883.4 10,036.5 16,932.2 10,753.5 11,889.3 5,376.7 14,352.0 6,708.2
847 51,870.5 29,648.5 56,078.5 28,311.2 38,008.4 25,669.5 33,821.0 19,704.2
850 5,972.1 2,772.5 7,891.2 5,429.0 5,767.0 2,998.6 15,905.1 5,288.6
851 984.8 206.6 508.3 412.2 169.6 136.0 570.0 450.5
The Influence of Regional Cooperation on Export …

854 23,341.4 12,283.1 25,447.7 15,765.8 28,539.4 8,528.3 22,210.8 8,834.5

901 10,061.2 7,123.7 16,076.5 5,842.9 8,494.5 4,812.6 9,997.1 5,421.60
902 25,904.8 7824.8 37,825.5 11,058.0 42,336.8 13,817.8 45,431.0 15,373.2
903 43,668.2 19,795.6 51,911.5 22,290.7 53,200.8 19,032.7 48,765.9 21,029.5
Source Author’s compilation
381
 382

Table 13.18 Export value of environmental commodities of the Philippines (U.S. dollar, thousand)
Product code 2011 2012 2013 2014
World RCEP World RCEP World RCEP World RCEP
441 Default Default Default Default Default Default Default Default
840 919.7 919.3 1,979.2 776.1 2,091.7 2,074.5 19,699.5 19,698.0
841 16,572.6 15,945.3 22,944.1 18,529.0 36,215.2 28,069.5 32,350.8 22,768.1
842 4,763.3 4,492.0 19,554.9 13,348.6 37,812.0 29,209.6 140,268.6 101,267.0
847 44,479.6 26,115.9 1,117,568 912,221 688,739 449,124 267,523 143,858
850 131,531.2 25,082.0 143,035.3 40,041.4 181,226.3 70,017.7 131,452.7 64,854.6
851 558.3 242.2 516.3 408.1 61.7 35.1 196.1 16.1
854 840,102.3 277,697.6 814,275.3 489,096.9 1,032,694 742,521.2 1,373,090 1,080,696
901 11,649.0 3,470.9 5,262.9 1,041.1 2,537.7 948.7 3,204.7 1,857.0
902 17,833.4 14,913.9 32,493.7 4,084.5 29,822.3 8,770.4 26,453.3 12,067.8
903 65,141.8 52,079.5 365,776.1 144,757.8 282,346.2 133,880.1 466,932.2 160,148.8
Source Author’s compilation
K. Kalirajan
13 The Influence of Regional Cooperation on Export … 383

Table 13.19 Export value of environmental commodities of Vietnam (U.S. dollar, thousand)
Product 2011 2012 2013
code World RCEP World RCEP World RCEP
441 Default Default 25.9 14.0 48.9 Default
840 114,900.5 95,033.5 73,483.3 27,702.7 83,640.2 60,426.8
841 12,294.7 4,003.7 112,154.6 5785.5 76,228.6 7,901.3
842 16,899.6 2,602.5 17,056.5 4,494.4 20,389.3 8,431.0
847 28,029.3 17,329.2 50,578.5 38,503.5 56,035.2 35,160.9
850 479,002.1 282,984.4 607,150.6 332,717.2 343,585.5 233,663.2
851 569.4 89.9 1,484.7 145.7 550.5 144.5
854 36,031.5 28,930.6 136,458.2 125,052.5 159,775.9 141,694.9
901 40,284.2 19,726.0 48,018.7 42,892.1 9,187.4 7,849.6
902 44,598.6 39,870.3 74,923.5 64,375.6 105,850.6 91,872.1
903 50,908.0 43,259.4 81,448.5 73,190.0 54,364.6 48,387
Source Author’s compilation

indicates that we have to estimate a time invariant model with the same set of
variables. On the contrary, if g [ 0 the influence of non-tariff barriers decrease over
time and when g\0 the impact of non-tariff barriers increase with time. However,
in both methods tit and uit are distributed independently of each other and covariate
in the model. Hence, it is rational to estimate the more general model with the
assumption that uit is time variant that is followed in this study.
Drawing on the framework used in the stochastic frontier production function
models (Kalirajan 2007), uij,t was assumed to follow a truncated normal distribution
N (l; r2u ), truncated at zero with the assumption that uit ¼ expfgðt  Ti Þgui . The
estimated results are given in Table 13.4.
Now, to answer the question of what will be the potential magnitude of exports
flows in LEG of the selected RCEP member countries to their partner RCEP
member countries under a regional cooperation scenario, the following simulations
was made using the estimated results from Eq. (13.2):
(i) The increase in potential exports of the exporting country to the relevant partner
RCEP member countries when there are no significant non-tariff barriers and
there is regional cooperation, is calculated as the percentage increase in potential
exports due to being a member of RCEP by using the magnitude of the coef-
ficient b7 associated with the variable, D1 showing regional cooperation from the
estimates of Eq. (13.2) with the assumption that uij,t = 0. These results for LEG
for the selected RCEP member countries are given in Table 13.6.
A corollary interesting question is what will be the impact of non-tariff barriers
on export efficiency of LEG of RCEP member countries with respect to their
trading partners, with the assumption that all trading partners are non-RCEP
members. This is calculated as the ratio of actual exports to potential exports
estimated from Eq. (13.2) with the assumption of uij,t = 0 and the coefficient
of D1 is zero over the sample periods, which is named as ‘export efficiency’.
Table 13.20 Global trends in renewable energy investment (US$ billion)
384
K. Kalirajan
13 The Influence of Regional Cooperation on Export … 385
386 K. Kalirajan

GDP per capita, PPP (current international Thousount $) 2012 Energy use (100 Kg of oil equivalent per capita) 2011
GDP per unit of energy use (PPP $ per 100 g of oil equivalent) 2011

94 94 95 94
77 77
63 60 61 6165
55 52 54 53 52 57 50 51
45 41 41
36
35 31 32
26
20 17 18
9 10
2 4 4 6 5 9 4 4 4 7
lia

ei

ia

ia

re

nd

am
ne
di

in

di

pa

re

an
un

es

po
ra

ila
ay
bo

Ch

In

tn
Ko

pi
al
Ja
on
st

Br

e
al

ilip
Ze
m

ng

Th
Au

Vi
d

M
Ca

In

Ph

Si
ew
N
Fig. 13.2 Energy use in RCEP countries. Source Author’s compilation from the World Bank Data

These results for LEG for the selected RCEP member countries are given in
Table 13.7.
(ii) The increase in potential exports of the exporting country to the relevant
partner RCEP member countries when there are no significant tariff and
non-tariff barriers and thereby there is free trade (SEFTA) agreement in LEG
within member countries are calculated by using the magnitude of the coef-
ficient b7 associated with the variable, D1 showing regional cooperation from
the estimates of Eq. (13.2) with the assumption that uij,t = 0 along with
b5 = 0. This is calculated as the percentage increase in potential exports due to
the imposition of free trade in LEG among RCEP member countries and the
results are given in Table 13.8.

13.4.1 Potential Exports of LEG Under Different Scenarios

Table 13.5 shows the results of the estimation of Eq. (13.2) for exports of LEG for
the periods, from 2011 to 2014. All the coefficients for individual countries are
statistically significant at least at the 5 % level, which indicates the selected
specification of Eq. (13.2) has well explained the variations in exports flows in LEG
through the selected determining variables for the present data set. The statistical
significance of c implies that ‘non-tariff barriers’ are important determinants of
export flows in LEG from the selected RCEP member countries. One interesting
result is that of the magnitude and significance of the coefficient of the variable D1,
which shows the impact of regional cooperation on exports of the concerned RCEP
member country. The results indicate that regional cooperation has contributed
positively to the exports of LEG among member countries. Though these coeffi-
cients are all positive for all the RCEP countries, they vary in magnitudes across
member countries.
The impact of regional cooperation on the exports of LEG is the largest for
China (1.13) and the lowest for India (0.64). This means that China is able to make
use of the regional cooperation more effectively to increase its LEG exports among
13 The Influence of Regional Cooperation on Export … 387

RCEP member countries. This clearly supports the view that the production and use
of low-carbon energy systems and green technologies can be promoted significantly
in RCEP member countries through regional cooperation. In terms of increase in
potential exports of LEG across member countries due to their membership in
RCEP, the figures shown in Table 13.5 indicate that China’s increase is the largest
varying between 15 and 18 %, while India’s is the lowest varying between 8 and
10 %. Nevertheless, an increasing trend can be observed over the periods of
analysis for RCEP countries. This result corroborates the recent findings of
International Energy Agency (2015) that the use of low-carbon energy sources is
expanding rapidly. It is also worth noting here that the investment in renewable
energy sources has been increasing over the years as shown in Table 13.20.
It is interesting to know whether the RCEP member countries were able to
achieve their potential in LEG exports with their trading partners under the existing
trading environment with the given levels of tariff and non-tariff barriers. The
answer to this question will highlight how important is to eliminate non-tariff
barriers to trade in LEG. The mean export efficiency of RCEP member countries are
given in Table 13.7. The results of Table 13.7 indicate that there are significant
opportunities to increase actual exports of LEG by RCEP countries, as the gap
between their actual and potential exports is substantial. It is interesting to note that
mean export efficiency exhibits an increasing trend over time. These results indicate
that Japan, Korea, and China were able to achieve slightly more than 80 % of their
export potential with their trading partners globally. India, Indonesia, and the
Philippines were able to achieve only about two-thirds of their export potential with
their global trading partners over the periods of analysis.
Vietnam’s export potentials with its global trading partners during the period of
analysis showed the lowest level among the RCEP member countries. This means
that the impact of non-tariff barriers on Vietnam’s LEG exports seem to be the
strongest among the RCEP member countries. It will be interesting to examine why
it is so. Due to lack of sufficient data, this question could not be answered.
Nevertheless, some conjectures can be made. Most of the non-tariff barriers concern
Technical Barriers to Trade (TBT) and Sanitary and phytosanitary (SPS) measures
and hence means that Vietnam’s LEG exports are not meeting these standards
implying that Vietnam need to improve its technology and technical know-how.8
Regional cooperation has the potential to improve such technical knowledge
through the regional capacity building programs. It is worth noting here that the
APEC framework helps in the capacity building initiatives only in the case of tariff
reduction activities and non-tariff barriers reduction activities are not yet included
effectively. It is, therefore, an opportunity for RCEP to implement not only tariff
reduction, but also elimination of non-tariff barriers that are acknowledged as a
major hurdle for increasing market access to developing countries that has

8
WTO’s TBT Agreement (Article 6.3) encourages members to reach agreements on mutual
recognition of results of each other’s conformity assessment procedures.
388 K. Kalirajan

implication for speeding up poverty reduction. Further, Vietnam being a member in

the newly formed TPP can also facilitate Vietnam to acquire better technology and
technical know-how with respect to LEG.
Another important result that conveys the significance of regional cooperation
leading to free trade in LEG (SEFTA) among RCEP countries concerns the mag-
nitude of increase in exports of LEG due to the removal of tariff and non-tariff
barriers among RCEP member countries. The figures in Table 13.8 indicate that the
increases were more or less similar for RCEP member countries. When these
increases are compared with the increases shown in Table 13.6, the implication is
that tariff still had significant impact on intra-RCEP LEG exports. On the other
hand, it is free trade in LEG without any tariffs and non-tariffs barriers that
increased the potential exports of LEG the most among RCEP member countries.

13.5 Conclusions

While Anbumozhi and Yao (2015) have discussed about the scope for regional
cooperation in a qualitative analytical framework, this study shows quantitatively
how much benefit each member countries within the RCEP grouping will gain in
terms of increased not only actual but also potential exports in LEG. The empirical
results using data on LEG trade by RCEP member countries from 2011 to 2014
indicate that regional cooperation along with free trade in LEG would increase both
actual and potential exports of LEG of all RCEP member countries. The policy
implication is that RCEP countries within the regional framework should work
seriously and consistently to eliminate not only tariffs, but more importantly
non-tariff barriers with the grouping, which would exert influencing demonstration
effect on all other countries to eliminate all trade barriers.
A specific question about regional cooperation in LEG is that what the need for
such cooperation particularly in LEG is. While regional cooperation in all goods
and services is recommended, given the fact that it is becoming difficult to achieve
such a cooperation effectively, a ‘one-step-at a time’ approach to overall cooper-
ation is a logical feasible solution. Further, as net importers of hydrocarbons, and
given the current energy market situation, the RCEP countries are very keen to
address the question of energy security. This characteristic of the RCEP countries
provides huge potential for regional cooperation particularly. Further, if the
objective of promoting trade in LEG is to contribute to sustainable development to
include developing countries in global value chains for LEG by facilitating tech-
nology transfer and to increase the number of LEG, which have export relevance
13 The Influence of Regional Cooperation on Export … 389

for developing countries, then RCEP free trade agreement in LEG is worth
pursuing.
Finally, how effective the regional cooperation initiatives in LEG within RCEP
will depend on the special characteristics of the RCEP economies. In this context, it
is worth quoting Das et al. (2011), “The primary reasons for the success or failure of
some initiatives further, over others include economic dynamism, too large mem-
berships, diverse interests, conflicts and political differences, geopolitical factors
such as competition toward dominance, lack of leadership and vision, weak insti-
tutional arrangements and resource constraints”. Nevertheless, a feasible source of
funding to tackle resource constraints in promoting LEG production and con-
sumption is in eliminating environmentally perverse subsidies in petroleum,
chemical fertilizers, and irrigation water. Some of the RCEP member countries are
gradually moving in this direction. For example, the Economic Survey 2014–15
claims that India has moved from a carbon subsidization regime to one of signif-
icant carbon taxation regime. The actions since 2014 have an implicit carbon tax of
nearly US$ 60 per ton of CO2 in the case of petrol and nearly US$ 42 per ton in the
case of diesel.
Also, the private investors on LEG face regulatory uncertainty in dealing with
currency depreciation in many developing countries, increase in prices of imported
inputs, and also populist pressures to prevent price increases. A transparent policy
with contingency clauses to overcome the barriers and time-bound solutions to
problems faced by the investors would attract private investment in LEG domes-
tically and regionally. Currently, in many countries pension and insurance funds are
not tapped for long term investments due to regulations, and with the relaxation of
such regulations opens up another avenue for encouraging investment in LEG.

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Reinvang, R. (2014). The APEC list of environmental goods: An analysis of content and precision
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Chapter 14
Barriers and Options for Carbon Market
Integration

Lingshui Mo and Xuedu Lu

14.1 Introduction

Climate change has become a key challenge to the world and carbon market
mechanism such as emission trading is recognized as one of the policy tools
available to control emissions cost-effectively and facilitate economic transforma-
tion to a low carbon development path. However, carbon markets have been in
crisis because of low demand of allowances and credits resulting in carbon price
crash. Despite of this, carbon market remains central to the global efforts to tackle
climate change.
A growing number of countries are integrating emission trading systems (ETSs)
into their national climate change policies. This trend is particularly significant in
Asia and the Pacific. There are 17 regional, national or sub-national emission
trading schemes that have been operating around the world, of which 11 schemes
are based in Asia and the Pacific. In addition, Five Asia developing countries are

The views expressed in this chapter are those of the authors and do not necessarily reflect the
views of the institutions they belong.

L. Mo (&)
X. Lu
Asian Development Bank, Manila, Philippines
e-mail: [email protected]; [email protected]
X. Lu
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 391

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_14
392 L. Mo and X. Lu

developing or considering carbon trading systems.1 Compared to independent ETS,

linking of ETSs where one system’s trading units can be indirectly or directly used
in another system for compliance (Sterk et al. 2006; Mehling and Haites 2009), can
enlarge carbon market, increase market liquidity, reduce overall mitigation costs
more cost effectively. Linking of emission trading systems reduce the risks in
competitiveness distortions and carbon leakage (Jaffe and Stavins 2007).
A creation of large carbon market at either regional or global level is deemed as
the cost-effective and flexible means to meet mitigation targets. Given that the
vibrant ETS development in the Asia Pacific region, carbon market integration
through linking of ETSs can reduce regional emissions more cost effectively and
facilitate regional cooperation on addressing climate change.
Significant emission of the region also means that carbon market integration
would shift the centre of the international carbon market from Europe to the Asia
Pacific region. It would catalyze the development of a global carbon market and
support global climate change mitigation efforts.
This chapter identifies key issues of current carbon market facing and lessons
learnt; assesses the prospect and barriers to carbon market integration through
linking of ETSs in Asia and the Pacific; discusses road-map and options to facilitate
carbon market integration.
The chapter is organized by 6 sections. Section 14.2 analyzes key issues and
lessons learnt from existing carbon markets; Sect. 14.3 introduces the development
of carbon market in Asia and the Pacific; Sect. 14.4 assesses the prospect and
barriers to carbon market integration; Sect. 14.5 recommend options and roadmap
to facilitate linking of carbon markets; and Sect. 14.6 draws conclusions.

14.2 Carbon Market in Practice

The carbon market mechanism refers to that emitters have to bear their cost of
carbon emissions and thus drive the carbon emission reduction through pricing
carbon. The carbon market mechanism provides flexibility to emitters either to
reduce their emissions or to pay for their emissions. The carbon market mechanism
also gives the incentives to those emitters who reduce emissions beyond their
targets by selling surplus of emission allowances. Carbon market mechanism has
been proven an effective and flexible tool to battle climate change and carbon
trading has been growing around the world. Since the first carbon market-EU ETS
was established in 2005, carbon trading value of the global carbon markets is fast
increasing to EUR 45 billion in 2014 (Reuters 2015) (Fig. 14.1).

1
Carbon trading include trading emissions allowances (under emission trading scheme) and trading
offset credits (in particular under offset credit scheme), carbon trading related systems indicate
those systems whose trading products have mitigation potential such as energy certificate trading
and renewable energy trading etc. This chapter only discusses barriers and options to carbon
market integration through direct linking emission trading systems (ETSs).
14 Barriers and Options for Carbon Market Integration 393

Fig. 14.1 Traded volume and value of global carbon markets in 2014 (2015–2017 show forecast).
Source Reuters (2015) Commodities Research and Forecasts (2015)

14.2.1 Evidence on Success of Carbon Market

14.2.1.1 Cut Emissions Cost-Effectively

Empirical evidences demonstrate that carbon market mechanism is helping cut

greenhouse gas (GHG) emissions cost-effectively and supporting low carbon
transformation of economy. The EU GHG economic growth is successfully
decoupled from GHG emissions as showed in Fig. 14.2.
Similar case is also shown in the participating states of Region Greenhouse Gas
Initiative (RGGI). The trend of emissions was in the opposite direction of GDP
growth (Fig. 14.3).
Through implementing carbon market mechanism, the EU’s cost for meeting
GHG mitigation target was just 0.01 % of EU GDP compared to the originally
estimated cost of 0.1 % of EU GDP (Ellerman et al. 2010). If auctioning revenues
are used to fund low-carbon investments, the impact of carbon cost on the economy
could be eliminated. Clean Development Mechanism help annex I countries save
mitigation cost of USD 3.6 billion from 2008 to 2012 through purchase of Certified
Emission Reductions (CERs) (UNFCCC 2012).
394 L. Mo and X. Lu

Fig. 14.2 Evolution of GDP (in real terms), GHG emissions and emissions intensity: index
(1990 = 100). Source Closing the pre-2020 ‘ambition gap’: the EU contribution, progress made in
cutting emissions

Fig. 14.3 RGGI: emissions and economic growth. Source RGGI (2015)

14.2.1.2 Promote Low Carbon Transformation of Economy

By capping overall GHG emissions from major sectors, EU ETS drives the low
carbon transformation in key sectors. Most abatement was taking place in the power
sector by fuel switching from coal or oil to gas and energy efficiency improvements,
(Ellerman et al. 2010). In phase III, revenue from auctioning 300 million allow-
ances is being used to co-finance large scale demonstration projects in low-carbon
technologies: carbon capture and storage, and innovative renewable energy tech-
nologies (European Commissions 2013a, b).
14 Barriers and Options for Carbon Market Integration 395

14.2.1.3 Financing Climate Change Actions

Carbon market can also play an important role in financing climate actions,
In RGGI, by 2013, with a total cumulated auctioning revenue of 1.39 billion USD,
which is about 62 % of total auctioning proceeds was invested in energy efficiency,
renewable energy and other GHG abatement and climate change adaptation pro-
grams (RGGI 2015).
In EU ETS, 2013 total auctioning revenues for the EU were €3.6 billion. Of
which on average, 87 % of auctioning revenue were used or being planned to use in
climate and energy related purpose (European Commission 2014). EU ETS has
channelled substantial investment into clean energy and low carbon technologies in
developing countries, achieving a reduction in CO2 emissions over 1 billion tonnes
during phase II (European Commissions 2013a, b).
Clean Development Mechanism triggered about US$215 billion investment in GHG
emission reduction activities (by 2011) in developing countries, additional carbon
finance from sales of CERs by 2011 amounted to US$13.5 billion (UNFCCC 2012).

14.2.2 Learning from Practices

14.2.2.1 Carbon Market is Facing Big Challenges

Over-supply has been seen in key carbon markets. In EU ETS, the economic
recession, interaction between ETS policy and renewable energy and energy effi-
ciency policies led to significant decrease in emissions (European Commission
2013a, b). European Environment Agency (EEA) (2014) estimates that economic
crisis contributed to less than half of the reduction observed during the 2008–2012
period. These unexpected changes reduced the demand on emission allowances.
Since phase II, accumulated surplus of allowances reaches more than 2 billions. The
surplus of allowances may continue until phase IV (Fig. 14.4).

Fig. 14.4 Estimated over-supply of allowances in EU ETS. Source Reuters (2015)

396 L. Mo and X. Lu

1,600
1,400 Base case supply
1,200 Max supply
1,000 Total supply
800 Demand
600
400
200
0
S
-200 nts ET
S ET
-400 me EU NZ
ern
G ov Eu Emission New Zealand Emission
Trading System Trading Scheme

Fig. 14.5 Balance of supply and demand in key demand centre until end-2020. Source
Bloomberg new energy finance, May 1, 2015

In RGGI, over supply was derived from comprehensive factors. The modest
target, economic recession, fuel-switching from petroleum and coal to natural gas
due to cheap gas price, all of these factors brought emissions of power sector down
(NYSERDA 2010). Furthermore, reinvestment of auctioning proceeds in energy
efficiency and renewable energy programs further reduced CO2 emissions. These
changes were not anticipated in baseline and setting emissions cap. NYSERDA
(2010) calculated that 2009 emissions in the RGGI region declined 33 % from 2005
emissions level. Decrease of emissions led to cumulated unsold allowances
increasing to 200 million from 2010 to 2012 (RGGI Inc. 2013). This reflects that
the supply is more than demand.
Kyoto markets (JI&CDM markets) are affected by the decreasing demand of
EU ETS and New Zealand ETS. Due to the over-supply in key emission trading
markets, there will not be demand on CERs to 2020. Figure 14.5 shows that the
supply has largely exceeded estimated base case and demand on Kyoto markets will
be negative. However, by May 2015, supply of international credits (issued CERS
and EURs) reached 2,427 million. It is estimated the issued CERs and EUR will
amount to 8 billion by 2020.
Carbon price dropped to lower level. Over-supply, plus lack of long-term
price signal, prices have been declining since economic crisis. In EU ETS, EUA
prices peaked at €30/t in 2008 but tumbled to around €4.52/t (average price) in
2013 (Reuters 2014) before implementing back-loading policy. In RGGI, over
supply has led to carbon prices down to floor price at less than $2/ton before the cap
was cut by 45 %. In New Zealand ETS, unlimited use of international offset credits
brought about steady inflow of international offsets and placed pressure on the
domestic carbon market. The over-supply of CERs and consistently low CERs price
has affected in low New Zealand Units (NZU) prices, which has fallen from above
NZ$20 in 2011 to average price of NZ$2.64/NZU in 2013. In Kyoto market,
average CER price crashed to €0.40 for the year of 2013 from peaking price around
€30 in 2008 (Reuters 2014).
Falling prices lead to less participation of investors and traders in the carbon
market. Decreasing allowance prices has also made it harder for
participants/investors to recoup the early purchase of high-priced allowances, and
reduced the funding available for public investment through the auction revenues.
14 Barriers and Options for Carbon Market Integration 397

14.2.2.2 Experience and Lessons Learnt

The challenges facing by existing carbon markets reflect that there are many issues
in design of emission trading system. Some key issues are analyzed as follows:
Cap cannot deliver long-term demand on emission reduction and long-term
price signal. Most trading schemes set short-term caps against long-term mitigation
targets and compliance periods are also quite short. The compliance period of
existing schemes run from 1 to 5 years, with the exception of the EU ETS which is
now operating a 7 year period from 2013 to 2020. The caps of EU ETS were set for
three compliance periods against the 2020 target, but there is no caps arrangement
for the period from 2020 to 2050. The absence of a long-term cap arrangement
would not only run the risk in achieving long-term mitigation targets beyond 2020,
but also cannot deliver a clear signal for long-term demand on emission allowance
and hence no long-term price signal. This would not provide incentives to emitters
making long-term investment in low carbon technology, given that mitigation
investment may take many years to generate emission reduction benefits and
financial returns, for instance in the power sector may mean 20–30 years. Instead, a
short-term cap may just promotes short term compliance behaviour whereby the
easiest way to comply is to purchase allowances or credits. Without a long-term
cap, short-term over-supply may easily cause volatility of carbon prices as this has
seen in EU ETS from phase I and phase II. RGGI and the New Zealand ETS also
have similar challenges.
System lacks measures to adjust supply and demand. The unique of emission
trading market is fixed supply of emission allowances and flexible demand (see
Fig. 14.6). The cap (total emission allowances) is set in lines with a given target.
The demand on allowances is estimated based on ante assumption. However the
assumptions may not come true due to unexpected factors. As opposed to emission
trading market, credit market (e.g. JI&CDM) is featured by limited demand and
unlimited supply. The demand on credits is fixed by certain portion of cap in an
ETS. For example, demand of on international credits in EU ETS is about 1.65
billion CERs/EURs from 2008 to 2020 while supply of credit (issuance of credits)

Long term mitigation target

Long-term target
Long-term target

Short-term credit
Short-term caps

ETS market Limited Demand Credit market

(Fixed supply vs flexible) Unlimited supply vs limited
demand Unlimited supply demand

Fig. 14.6 Flowchart of mitigation target, allowance and carbon credit

398 L. Mo and X. Lu

is unlimited during their crediting period once a project is registered as eligible

offset project. But no adjusting mechanism is considered in design of the carbon
trading system to deal with the imbalance between supply and demand.
This is the reasons why over-allocation has not been corrected in the phase I and
phase II of EU ETS and RGGI until following phases. In phase III of EU ETS, a
short-term measure-back-loading 900 millions of allowance were adopted in order
to temporally to release part of over-supply pressure. However this over-supply will
not fully corrected until the strategic reserve measure is adopted to adjust supply of
allowances in phase IV. RGGI also adjusted the cap by reducing the total emission
allowances by 45 % in the third compliance period. And also banked allowances as
strategic reserve will be gradually released to the market.
Validity of credits affects long-term demand. Carbon market should have
performed better on pooling capital into low carbon investment than it has been.
However in existing carbon market mechanism, there is no explicit rule to define
validity of credits. Without a clear rule to define the long-term validity of credits
would hinder emitters to take early mitigation actions and could not motivate
various investments in low carbon technology. Meanwhile market players are not
willing to buy credits for future trading, which limits market liquidity. In absence of
long-term certainty in use of credits, temporary mismatches of demand and supply
of allowances and credits may cause carbon price volatility which would also
reduce participation in the market. As such carbon market cannot play a key role in
financing low carbon technology and mitigation activities.
Existing banking rule also enables bank “hot air”. One of the lessons from
EU ETS is that existing banking rule has enabled surpluses derived from
over-allocation and without any abatement to be carried forward. This is deemed as
banking “hot air” that enables future emissions growth and defers domestic
abatement.
Abuse of offset rule provides participants with opportunities to offset
arbitrage and enable future emissions increase. Offsets under the EU ETS were
supposed to be supplementary to domestic abatement, acting as a cost containment
measure in the event that a scarcity of domestic allowances made EUAs too
expensive. Thus 1.65 billion of international offset credits are allowed into the
scheme from 2008 to 2020. Given that phase II had already a huge surplus of
EUAs, the use of offset credits was essentially unnecessary. Even so, as of
December 2012 about 1 billion international offset credits were still surrendered as
a cheaper option for compliance and banked high value of EUAs for future use or
selling for profits (EEA 2013). This was deemed as delaying domestic abatement
and enabling future emissions growth.
Windfall profits. EU ETS has been criticized for providing opportunities for
emitters to make huge windfall profits. Emitters in both power sector and industrial
received free allowances but passed through their carbon price to downstream users
to make windfall profits. In addition, Member states were permitted to determine
their National Allocation Plans. Such allocation approach allows the large emitters
to earn even more windfall profits as they had strong capacity to lobby their
governments to claim more impact of carbon price. As an unintended consequence,
14 Barriers and Options for Carbon Market Integration 399

banking “hot air” enables emitters to sell their over-allocated allowances making
further profits. The abuse of offset rule led to offset arbitrage and enable emitters
earning windfall profits. This case was also reported in New Zealand ETS.

14.2.3 Implication for Future Development of Carbon

Market

The problems associated with over-allocation, low carbon prices and price volatility
in the existing systems demonstrates that they lack the flexibility to respond to
unexpected changes and events, and fail to provide long-term consistent incentives
for low carbon investment. This concludes with key direction for future develop-
ment of emissions trading market as following:
• The need for a long term ambitious cap to create constant demand on emission
reduction;
• The need for more flexible measures and frameworks to response to unexpected
changes;
• A commitment to the long-term value in use of emission reduction credits.

14.3 Emerging Emission Trading Markets in Asia

and the Pacific

14.3.1 Fast Increasing Emission Trading Market in Asia

and the Pacific

Despite carbon markets are facing big challenges; there are a number of leading
countries introducing their own carbon trading systems. These systems are in
varying stages of development. Figure 14.7 shows that there are 17 operational
national, sub-national and regional emissions trading systems around the world.
Jurisdictions currently operating an ETS represent about 40 % of global GDP
(Haug et al. 2015).
Asia and the Pacific have seen fast increasing in emission trading market,
especially in developing Asia countries. Among 17 operation ETSs, 11 are based in
Asia and the Pacific, whist five other Asia developing countries is developing their
national carbon trading systems. The 2011 carbon emissions of jurisdictions with
ETS operation and ETS consideration account for about 41 % of global carbon
emissions (World Bank 2015a, b). Given that dynamic development and the scale
of emissions, one of the important implications is the Asia and the pacific has the
potential being a centre of global carbon market if linking these markets.
400 L. Mo and X. Lu

EU ETS Swiss ETS Kazakhstan ETS Korea ETS Tokyo ETS

Alberta ETS Operation: 2005 Operation (mandatory Operation: August Operation: January 2015 Operation: 2010
Operation: 2009 Cap: 1888Mt phase): 2013 2013 Cap (2015-2017): 562 Cap (2010): 13Mt
Cap (2010): 116Mt Emissions covered Cap: 3.42Mt Cap: 147Mt Mt/year Emissions covered by
Emissions covered by ETS: 41% Emissions covered by Emissions covered by Emissions covered by ETS: 20%
by ETS: 50% ETS: 7% ETS: 55% ETS: 60%
RGGI 0° Arctic China 7spilot ETSs
Operation: 2009 Ocean Operation: 2013
Cap: 188Mst Cap (2013): 1200Mt
Emiissions covered Emissions covered by
by ETS: 25% North Europe Asia ETS: 20%. National ETS
45°N
North 45°N start in 2016
Atlantic
America North
WCI Ocean
Operation: 2013
Middle East Pacific Thailand ETS: under
Ocean consideration
Cap: California & Caribbean
India energy efficiency
Quebec187Mt, in
trading (PAT): Operation in
Africa
Which CA163Mt Central 2010. And carbon trading Vietnam ETS: under
Emissions covered America EQUATOR consideration
by ETS: 85% (by 0° system may be considered 0°
South Indian
2015) South

PRIME MERIDIAN
America Ocean
OceaniaIndonesia: offset credit
Pacific
Ocean 90°W 90°E mechanism
South Australia
Atlantic
Ocean
45°S 45°S
Australia ETS
Repealed
Cap: TB New Zealand ETS
Southern
0° Emissions covered by Operation: 2008
Ocean ETS: 60%
Antarctica Cap (2008) 35Mt:
Emissions covered by
ETS: 50%
Mk(2012)∈30

Fig. 14.7 Existing and emerging emissions trading systems in Asia and Pacific

14.3.2 Overview of Emission Trading Markets

Emerging emission trading markets in Asia and the Pacific are at different stages of
implementation and with specific designs. Diversified market design and devel-
opment path reflects respective politic and economic context, and development
stage. Each scheme presents its unique, strengths and weakness.

14.3.2.1 New Zealand ETS

New Zealand ETS started in 2008 and is the first operational ETS in Asia and the
Pacific. It stepwise includes all sectors of the economy into the system. It is also the
first emissions trading scheme in the world to cover forestry and land use sector.
However this also makes it difficult to link with other scheme. The system applies
national mitigation commitment as the cap of the system, in which its Kyoto target
was used as the cap during the first commitment period. It does not limit the use of
offset credits, which led to large amount of international credits inflow into
domestic market even there is over-supply in domestic market.

14.3.2.2 Japan: Tokyo ETS

Japan does not have intention to implement a national emission trading system.
Tokyo ETS was launched in 2010. It is the first city based system and covers
14 Barriers and Options for Carbon Market Integration 401

emissions mainly from commercial buildings which account for 80 % of all cov-
ered facilities. The system does not allow to trade allowances before participants
meeting their targets. Instead, tradable credits are only given after an individual
facility over-achieves its target. It allowed participants to use renewable energy
certificates, domestic offset credits from energy efficiency projects in small and
medium businesses to offset their emissions.
Tokyo ETS shows the success in cutting emissions, achieving about 23 %
emission reduction in first four years (Tokyo Metropolitan Government 2015). The
success of the Tokyo ETS in the first four years operation provides a model of
establishing city-based emissions trading markets and creating a low-carbon society
for not only major cities in developed countries, but also for those in developing
countries.

14.3.2.3 Korea ETS

Korea ETS is the latest one starting operation among all operational national-wide
systems. The system began from 1 January 2015. The system covers six types of
Kyoto GHG from 23 sectors. 525 business entities are included, accounting for
66 % of the nation’s GHG emissions. International offset credit is not permitted
before 2020. Linking the system with other international systems was considered in
its design. The government has been in discussions about linking with New Zealand
and formerly with Australia, and also expressed interest in building an integrated
East Asian carbon market through linking its ETS with the China ETS and the
Japan ETS.
Korea provides an important insight into how to develop a small ETS. Linking
with other system is particularly important to small market, which will help increase
market liquidity and reduce participants’ mitigation cost. The linking consideration
needs to be included in early design stage.

14.3.2.4 Kazakhstan

Kazakhstan is one of the countries with the largest GHG emissions per unit of GDP
(World Bank 2015a, b). The scheme is the first operational nationwide ETS in the
developing Asia. Although the Kazakhstan ETS has already begun operation, its
MRV and registry systems are still under development.
Kazakhstan is interested in linking with other large ETSs such as the EU ETS
and the Japanese system in order to improve its domestic ETS stability and is
currently assessing options (Kruppa 2012).
402 L. Mo and X. Lu

14.3.2.5 India Performance, Achieve, and Trade (PAT)

In 2012, India implemented the Performance, Achieve, and Trade (PAT) program.
Meanwhile India intended to expand the use of market based mechanism to more
sectors and regions to reduce GHG emissions, as well as initiate new market based
mechanisms for wastewater treatment in the Ganga river basin to avoid methane
emissions from waste water.
The PAT is a carbon trading related system which was created for improving the
energy efficiency of energy intensive industries by trading energy savings certifi-
cates. The system covers 478 large energy intensive industrial entities and facilities
in 8 energy intensive sectors, with consumption of 165 million tonnes of oil
equivalent (toe) of energy, accounting for 60 % of India’s 2007 GHG emissions.
With the support of World Bank’s Partnership for Market Readiness (PMR), India
is expanding coverage to new sectors.
Politically, India is reluctant to build a domestic emissions trading system due to fear
that an ETS could hinder economic development (Upadhyaya 2010). Given that PAT is
already in place, any development of emissions trading market would be likely to
overlap with PAT. Since PAT is not directly fungible with other carbon markets, India
may have more challenges to participate in a global carbon market in post-2020 regime.

14.3.2.6 Vietnam: Carbon Trading Market

With PMR support, Vietnam developed Market Readiness Proposal (MRP) which
sets out a road map towards an emission trading market in steel sector beyond 2020
as following:
• 2015–2018: Implementation of a pilot credited NAMA in the iron and steel and
solid waste sectors and preparation for the next Stage of cap-and-trade system
• 2019–2020: Implementation of credited NAMA
• Beyond 2020: Cap-and-trade system in the steel sector
Vietnam is also looking to establish a regional knowledge platform for learning
and sharing experience on market based mechanisms in the ASEAN region.
Vietnam MRP also highlights that the country may face a number of key challenges
in development of market based instruments in particular weak enforcement
mechanisms, inadequate institutional capacity for implementation of policies, dif-
ficulties in access to finance to implement mitigation activities, and a lack of
capacity and awareness so on.

14.3.2.7 Thailand Carbon Trading Market

Thailand launched the Thailand Carbon Offsetting Program (T-COP) in 2013,

which aims to use contributions from participants to support domestic GHG
14 Barriers and Options for Carbon Market Integration 403

emission reduction activities, especially for projects under the Thailand Voluntary
Emission Reduction Program (T-VER). T-VER is a domestic GHG project based
crediting mechanism to supply credits to voluntary buyers under T-COP.
With the support of Word Bank’s PMR, Thailand set out a roadmap to prepare
for building a mandatory emissions trading market beyond 2020. From 2014 to
2019, Thailand intended to establish domestic market mechanisms in pilot sectors
and pilot cities in order to build capacity and establish infrastructure, legal and
institutional frameworks for an ETS (TGO 2014):
(i) To establish and implement a Energy Performance Certificate
Scheme (EPC) in pilot sectors
Initially Thailand intended to implement an EPC for reducing energy con-
sumption and GHG emissions in energy intensive sectors, with a view to transform
to ETS beyond 2020. The EPC is developed and implemented through two phases:
• Phase I (2014–2016): Design EPC and prepare the infrastructure including
database, MRV system and study on legal framework for the ETS.
• Phase II (2017–2019): Demonstrate the EPC scheme.

(ii) To develop and implement Low Carbon City Program (LCC)

From 2014 to 2017, the LCC will be developed to assist local municipalities and
communities in implementing GHG mitigation actions for achieving sustainable

Fig. 14.8 Timeline for development of emission trading market in Thailand. Source Thailand’s
Market Readiness Proposal (MRP), Thailand Greenhouse Gas Management Organization (2014)
404 L. Mo and X. Lu

development and low carbon society goals, with aiming to build offset credit
mechanism for future ETS (Fig. 14.8).
EPC allows participants to use CERs and credits from LCC for compliance.
Given that there are not penalties for non-compliance under EPC, demand on offset
credits would be limited and role of offset crediting would be limited as well.
Thailand MRP highlights the key barriers to build domestic market based
mechanism such as no historical GHG emissions data, lack of legislation, and lack
of initial capital for investment and limited access to technology etc.

14.3.2.8 Indonesia Carbon Trading Market

Indonesia is developing an offset scheme—Nusantara Carbon Scheme (NCS) and

Joint Crediting Mechanism (JCM) with Japan which is a bilateral mechanism
In addition, through PMR support, Indonesia developed a market readiness
proposal for establish domestic carbon market. As a first step (before 2018),
Indonesia will focus on building market readiness and strengthening the funda-
mental infrastructure for carbon markets as well as participating in shaping a global
carbon market. In the second step, a pilot market-based instrument in selected
sectors (priority sectors could be electricity generation and energy-intensive
industries) will be fully implemented from 2019 (NCCCC 2014).
Indonesia carbon market systems that are being planned did not consider future
links domestically and internationally which may lead to higher development costs
and fragmented domestic markets in the longer term.

14.3.2.9 China ETS

China initiated 7 pilot ETSs and now is making rapid strides to shift from its 7
regional ETS pilots to a nation-wide ETS.
(i) Comparisons of Pilot ETSs
7 pilot ETSs including Shenzhen, Beijing, Shanghai, Tianjin, Chongqing,
Guangdong and Hubei ETSs started to operate since 2013. The 7 pilot regions
represent three different economic development zones that are categorized into the
Eastern, Mid and Western zones with different levels of economic development.
The cap of the 7 pilots is about 1.24 billion tCO2 in 2013, which is ranking second
large carbon market in the world. The 7 pilot regions were given flexibility to
design their systems and test different approaches in order to gain experience ahead
of rolling out a nationwide ETS in the 13th Five Year Period. There exists big
difference in key design feature among pilot systems while some design features are
similar. Table 14.1 illustrates the similarity and difference on key design features
Table 14.1 Comparison of design features of 7 pilot ETSs
14

Beijing Shanghai Shenzhen Tianjin Chongqing Guangdong Hubei

Targets Reducing carbon Reducing carbon Reducing carbon Reducing carbon Reducing carbon Reducing Reducing carbon
intensity by 18 % intensity by intensity by intensity by 19 % intensity by carbon intensity intensity by
below 2010 levels 19 % below 21 % below below 2010 levels 17 % below by 19.5 % 17 % below
by 2015 2010 levels by 2010 levels by by 2015 2010 levels by below 2010 2010 levels by
2015 2015 2015 levels by 2015 2015
Cap Absolute. 50 Mt Absolute. 160 Mt Absolute. Absolute. 160 Mt Absolute. Absolute. Absolute. 324 Mt
for 2013 each year from 132 Mt from for 2013, adjusted 125 Mt in 2013, 388 Mt in 2013 in 2014
2013 to 2015 2013 to 2015 in 2014 and 2016 decreasing and 408 Mt in
(2013 cap is 4.13 % per year 2014
33 Mt) to 2015
Coverage CO2; Power CO2; Power, iron CO2; Power CO2; Iron and CO2, CH4, N2O, CO2; Power, CO2; Power, iron
sector, heating and steel, generation, steel, chemicals, HFCs, PFCs, cement, iron and steel,
sector, non-ferrous manufacture, petrochemicals, SF6; Iron and and steel, non-ferrous
manufacturing and metals, water supply, oil and gas steel, aluminum, petrochemicals; metals, cement,
major public chemicals, and large scale mining, electricity ferroalloys, Annual paper, chemicals,
buildings; Annual petrochemicals, buildings. and heating, calcium carbide, emissions other
Barriers and Options for Carbon Market Integration

emissions manufacturing, Transportation is residential cement, caustic >20,000 tCO2e manufacturing;

>10,000 tCO2e airlines, harbors, brought into the buildings; Annual Annual or energy Annual energy
airports, railways scheme from emissions >20,000 emissions consumption consumption
and commercial 2014; Annual tCO2e >20,000 tCO2e >10,000 tce >60,000 tce
sectors; Annual emissions >3000 or energy
emissions tCO2e consumption
>20,000 tCO2e >10,000 tce
Allocation Free allocation to Free allocation Free allocation Free allocation Free allocations 97 % free Free allocation
manufacturing, based on 2009– based on based on 2009– for most allocation based according to
service and other 2011 emissions. previous year 2012 emissions allowances. on historic compounding
industries is based Benchmark for industrial and benchmarks Allow ex-post emissions of factors including
on 2009–2012 electricity, value-added and for new entrants. adjustment No 2010–2012, historic
average emissions aviation, airports, carbon intensity Ex-post auctioning benchmarks for emissions from
and benchmarks and harbors. target. Ex-post adjustments based new entrants. 2009–2011,
405

(continued)
Table 14.1 (continued)
406

for new entrants. Ex-post adjustments on actual 3 % auctioning emissions of best

Heating and adjustments based on actual emissions. No rising to 10 % performance of
electricity are based on actual emissions. 3 % auctioning in 2015 sector, energy
based on average emissions. No of allowances for saving, and
carbon intensity of auctioning auctioning phasing out the
2009–2012. backward
Ex-post capacities etc.
adjustments based Government
on actual reserve of 30 %
emissions. No for auctioning
auctioning
MRV MRV in MRV in MRV in MRV in MRV in MRV in MRV in
accordance with accordance with accordance with accordance with accordance with accordance with accordance with
Beijing Guideline the Guideline on Shenzhen Tianjin Guidelines Chongqing Implementing Guidelines on
on Accounting Accounting and Guideline on on Guideline on Rules for Monitoring,
and Reporting Reporting Approaches of Accounting GHG Accounting and Reporting and Quantifying and
Approaches for Shanghai GHG Accounting and emissions for Reporting Verifying Reporting GHG
CO2 emissions at Emissions Reporting GHG various sectors Approach for Carbon Emissions
Entity/Installation Emissions (Trial): and Industrial Emissions of (Trial);
Level Guideline on Entities and Guangdong Verification of
Tianjin Entities Chongqing (Trial). GHG Emissions
Reporting GHG Implementing (Trial)
Emissions (Trial) Rules of
Measurement,
Reporting and
Verification
Compliance Penalty imposed Penalty is Penalty is three No Penalty for No Penalty for Deduction of 2 Penalty of 1–3
and case by case up to 50,000–100,000 times average non-compliance non-compliance shortfall from times average
enforcement 5 times average RMB plus market price plus subsequent price to a
market price plus years maximum of
(continued)
L. Mo and X. Lu
Table 14.1 (continued)
14

surrendering the surrendering the surrendering the allowances plus 150,000 RMB,
shortfall shortfall shortfall maximum plus deduction of
penalty of 2 times the
50,000 RMB shortfall from
subsequent years
Banking Banking is Banking is Banking is Banking is Banking is Banking is Prohibited
allowed between allowed between allowed between allowed between allowed between allowed
years during the years during the years during the years during the years during the between years
pilot period pilot period pilot period pilot period pilot period during the pilot
period
Borrowing Prohibited Prohibited Prohibited Prohibited Prohibited Prohibited Prohibited
Offsets China certified China certified China certified China certified China certified China certified China certified
emission emission emission emission emission emission emission
reduction reduction reduction reduction reduction reduction reduction
(CCERs) units up (CCERs) units (CCERs) units (CCERs) units up (CCERs) units (CCERs) units (CCERs) units
to 5 % of up to 5 % of up to 10 % of to 10 % of up to 8 % of up to 10 % of up to 10 % of
emissions and at emissions. No emissions. No emissions. No emissions under emissions and at emissions. No
Barriers and Options for Carbon Market Integration

least 50 % from international international international the voluntary least 70 % from international
local projects. No offsets offsets offsets emission local projects. offsets
international reduction No international
offsets scheme and offsets
forestry projects.
No international
offsets
Linking No No No No No No No
Cost No price cap, but A price reserve is No price cap, but No price cap, but No 5 % of total No price cap, but
containment auctioning when intended 2 % of total auctioning when allowances a 10 %
the price is high allowances the price is high reserved for Government
and buy back reserved for price and buy back price control Reserve of which
when the price control when the price 70 % is for price
drops drops control
407
408 L. Mo and X. Lu

such as baseline and determination of the free allocations, accounting methodology,

offset rules, enforcement frameworks, and price management measures.
The similarities in design features will build the foundation for linkage among
the pilot systems while differences could create difficulties for linking, particularly
in the setting of the cap and allocation of allowances which are related to fairness
and transparency.
(ii) Emerging Experience and Lessons from China Pilot ETSs
The pilot ETSs in China have already provided the Chinese market with
experience in emissions trading after two years of operation and lessons are sum-
marized as below:
• System Design
Small geographical scope and no transaction across pilot regions limit market
size and liquidity. During first two compliance years, the trading volume accounting
for only about 1.41 % of the caps (from 1 July 2013 to 30 June 2015) (China
Emission Exchange (CEEX) 2015).
A large number of participants create challenges for MRV, administration and
compliance. The number of participants in the pilot ETSs ranges from 114 (Tianjin)
to 850 (Shenzhen), while the EU ETS, has an average number of participants for
each Member State of just over 400. Operation shows that because of no experience
on running and administering an ETS, a lack of local capacity and capability for
verification in China (foreign verification teams are not allowed to participate at this
time), a large number of participants created an enormous challenge for the pilots.
Lack of co-ordination between pilots poses barriers for future integration of pilot
systems and transition to a national system. 7 pilot regions developed their
respective approaches independently, which brings diversity amongst the systems
in terms of key design features. Such diversity potentially poses the barriers for
future linking among pilot systems.
• Lack of a Legal Foundation Undermines Function of Pilot ETSs
All pilot ETSs are facing a common issue, i.e. lack of a legal and regulatory basis
for the establishment and operation of an ETS. Among the seven pilots, only
Shenzhen, as a special economic zone, has the legislative authority to develop such
an ETS regulation. The remaining six jurisdictions have to adopt administrative
measures as a basis of establishing the pilots instead. Lack of ETS regulation means
no compulsory cap and no obligation for compliance and then no trading. This
affects market confidence which is a main reason why 7 pilot markets have not been
so active since its start.
Experience in the first year has demonstrated that because of lack of legally
binding force, local governments have had to take additional actions to support
participants to comply with ETS rules. In the Beijing pilot, half of the participants
failed to comply in the deadline as they did not believe that they would or could be
punished by government for non-compliance (People’s Daily 2014).
14 Barriers and Options for Carbon Market Integration 409

• Uncertainty in Future Development Reduces the Involvement of Market

Players
The pilot phase operates for three years to 2015. Emissions allowances of most pilot
ETSs are only valid until 30 June 2016. So far, there has not been any official
clarification on validity of allowances/credits and how pilot ETSs will be integrated
into the forthcoming nationwide ETS. The uncertainty impacts on the market
participants’ perception and active involvement. The small trading volumes as far
reflect investors’ concerns about the future uncertainty.
• Inadequate Stakeholder Consultation Brings Reluctance of Stakeholders
The pilot ETS preparation was carried out as a consolidated process. There was
inadequate stakeholder consultation in the design stage and capacity building was
not sufficient for participants. Participants complained that they were not informed
about how allowances were allocated and how many allowances they would receive
(Ecofys 2014). The covered industries have little knowledge in emissions trading,
but rather a lot of doubts about the potential for any further energy-saving
(Guangdong Academy of Social Science 2014). This is another reason that par-
ticipants and investors have not actively participated in trading.
• Weak Implementing Capacity Affects Effectiveness of an ETS
In general, there is a weak capacity on the ground to implement the ETS policy.
Data from China Emission Exchange (CEEX) shows that 70 % of trading volume
was transacted in the last month for compliance (CEEX 2014), which illustrates that
entities lack the ability to plan and manage carbon assets over time and to imple-
ment a strategy for compliance at least cost.
Local governments lack capacity and effective tools to manage the compliance
and enforcement mechanism and so instead offered favourable supports to partic-
ipants for compliance in the first two years, i.e. extending deadline of compliance.
All of above lessons from pilots are not only useful for developing a nationwide
ETS in China but also bring valuable experience for development of new schemes
in other Asia developing countries.
(iii) Progress in National-Wide ETS
China is accelerating in transitioning from its seven regional ETS pilots to a
nation-wide ETS, which would be the world’s largest carbon market with emissions
cap of 3–4 billion tons, surpassing the EU. The National Development and Reform
Commission (NDRC) set a clear roadmap and milestones for establishing a
nationwide ETS. The fully operational nationwide emissions trading system will be
achieved in distinct phases (Zhaoli 2014).
• Preparatory stage (2014–2015): Developing ETS regulation, technical standards
and building the ETS infrastructure;
• Phase I (2016–2020): Operation and further improvement of the system in key
emission sources. President Xi announced to start national ETS in 2017;
410 L. Mo and X. Lu

• Phase II (Beyond 2020): Expanding coverage and developing new trading

products, exploring the possibility of linking the China ETS with international
carbon markets.
In parallel to develop national ETS regulation and establish national ETS
infrastructure, the capacity buildings have been carried out for local governments
and enterprises. Major notable progress has been made in MRV guideline, registry
and China Certified Emission Reduction (CCER).

14.4 Carbon Market Integration: Prospect and Barriers

14.4.1 Implication of Carbon Market Integration in Asia

and the Pacific

14.4.1.1 Economic and Environment Benefits

Primary motivation of integrated carbon markets is that it would create economic

and environment benefits. The integration of carbon market in Asia and the Pacific
would bring attractive benefits:
Reduce the cost of meeting collective mitigation target due to the price
convergence in the linked systems. For example, according to the study conducted
by Tsinghua University and Institute of Global Environment Strategy (IGES)
(2014), for meeting 2020 mitigation targets of reducing carbon intensity by 40–
45 %, China carbon price was estimated at 17US$/tCO2e. And for meeting its 2020
mitigation target of cut its emissions 30 % below BAU level, Korea carbon price
was estimated at 100,000 KW/tCO2e, about 92US$/tCO2e. If two carbon markets
are integrated, entities under Korea ETS would be able to buy emissions
allowances/credits from China ETS for compliance. The of Korea carbon price
would decrease whereas China carbon price would rise. Thus the entities under
Korea ETS would reduce the mitigation at lower cost while China would receive
capital inflow to offset rising carbon prices.
Create greater potential economic benefit gains. The degree of economic
efficiency gain from linking of carbon markets is related to difference on marginal
abatement costs between systems. The greater potential economic efficiency gains
by linking and the greater difference on marginal abatement among systems.
Table 14.2 indicates there are significant differences on economic development,
industrial profile, emissions profile among countries that are implementing or plan
to implement an ETS, which would means significant difference on marginal
abatement costs among systems and offers a unique opportunity to maximise the
economic benefit by linking of the systems.
Markets integration would also create larger, more liquid markets and hence
could reduce price volatility. This is particularly important for a small market like
New Zealand and Korea.
14 Barriers and Options for Carbon Market Integration 411

Table 14.2 Comparison of economic indicators and carbon emissions indicators in the Asia and
Pacific Region in 2011
GDP per Service, Industry, Agriculture, Total Emissions per
capita (US value added value added value added emissions capita (Mt
$/capita) (% of GDP) (% of GDP) (% of GDP) (Mt CO2) CO2/capita)
New 37,867 70 23 7 31 7
Zealand
Japan 46,204 73 26 1 1,188 9
Korea 24,156 59 38 3 589 12
Kazakhstan 11,358 54 41 6 262 16
China 5,574 44 46 10 9,019 7
India 1,472 49 33 18 2,074 2
Indonesia 3,648 41 45 14 564 2
Vietnam 1,543 42 39 20 173 3
Thailand 5,167 44 43 13 303 5
Total 14,203
Global 34,650
Source Data, World Bank,

Improve integrity of environment. As an additional benefit, linking different

ETSs would also lead to similar level of carbon prices and hence eliminates
competitive distortion concerns and reduces the risks in carbon leakage that might
arise from different allowances price levels across before linking.

14.4.1.2 Political Significance

Catalyze the Creation of a Global Carbon Market. Carbon emissions of Asia

Pacific countries with carbon trading or carbon trading potentials, account for
almost 41 % in 2011 (Table 14.1) Asia and the Pacific region alone will account for
nearly 50 % of global energy related carbon dioxide emissions by 2035 (ADB
2013). Given the significance of emissions and the ETS development, an
inter-linked Asia-Pacific regional trading market could have potential to become the
largest carbon market and hence form the beginnings of a global carbon market.
Development of climate change negotiation implies such a global carbon market is
likely to be built through a bottom-up linking.
Build a market-based model for regional cooperation on addressing climate
change. Integration of carbon market is not only an important theme of regional
cooperation and integration but also serve to achieve goals of both inclusive eco-
nomic growth and environment integrity. And it also facilitates opportunities for
technology transfer and financial flows in the region, which in turn enhances the
capacity of the Asia Pacific for addressing climate change.
412 L. Mo and X. Lu

14.4.1.3 Challenges

However linking would face considerable challenges with regard to distributional

effects and regulatory control.
Distributional Effects: Linking would cause redistribution of mitigation costs
between systems due to convergence of carbon prices. Carbon price would rise in
one system and decrease in the other. The economic benefits would be distributed
between systems however leaving total mitigation cost unchanged.
Concerns on Regulatory Control: Link may weaken a country’s ability to control
its domestic emissions trading system (Jaffe and Stavins 2007). To link to another
system, firstly a country may need to amend or harmonize its system with other
markets. Secondly, the system may be also affected by decisions made by other
system (for example increasing or decreasing carbon prices). Therefore linking
could weaken a country’s control over its emission trading system.
Given the distributional impacts on domestic ETS policy, governments need to
consider their integration strategy and look at their ability to adjust its system
design in response to the potential implications of ETS linkage.

14.4.2 Prospect of Carbon Market Integration

14.4.2.1 Mutually Recognized National Mitigation Ambition Beyond

2020

A global climate agreement with legally binding force is expected to be adopted at

COP21 in December 2015, will come into effect and be implemented beyond 2020.
The included countries in the global climate agreement, will commit intended
nationally determined contribution to reduce GHG emissions. This means that the
emission reduction efforts and targets of included countries will be recognized by
each other under the same legally binding framework. This international legal
agreement will establish mutually recognized national mitigation targets for spec-
ified periods beyond 2020.
Such mutually accepted national mitigation targets will constitute the most
important foundation for setting comparable stringency of caps between systems,
which is a prerequisite of linking. This is a critical step for the linking of emission
trading markets possible in Asia and the Pacific.

14.4.2.2 Close Trading Relationships

The existing trading relationships between countries in the region will be an

important consideration in building linking of carbon markets at a regional level.
Countries that are already close trading partners and that have undergone some
14 Barriers and Options for Carbon Market Integration 413

Table 14.3 Trading relationships between countries in Asia and the Pacific

Source WTO Country Trade Profiles, World Trade Organization (2014)

degree of trade integration are more likely to become carbon trading partners. The
main trading partners in the region can be seen in Table 14.3.
Table 14.3 shows significant inter-dependencies on trade of all countries in the
region and therefore it might be expected that linking of ETSs could emerge more
readily than with systems outside this region. For example, Australia, China, Japan
and Korea have the strongest trading links in the region. The EU is the biggest
trading partner of Australia. Australia had been working with the EU to link with
the EU ETS and discussing with China and Korea cooperation on the development
of carbon markets, but this cooperation has stalled since the repeal of the Australian
Carbon Pricing Mechanism in July 2014.

14.4.2.3 Positive Government Attitudes to Linking the Markets

For long-term prospective, governments are generally positive to the ETS linkage in
the region. The New Zealand Government expressed a strong interest linking with
other domestic carbon markets, especially to develop a linked carbon market in the
Asia-Pacific region (New Zealand Government 2014).
In Korea, the Act on Allocation and Trade of the GHG Emission Allowances
and Enforcement Decree specifies that the ETS will link to the other country’s
systems. China shows its interest in exploring possibility for linking with
414 L. Mo and X. Lu

international carbon market (Zhaoli 2014). Kazakhstan has also expressed a strong
interest in future linking (Kazakhstan Government 2013) while Vietnam set a
schedule to link with international markets beyond 2020 (Vietnam Government
2014).

14.4.3 Barriers to Carbon Market Integration

There are certain essential building blocks for carbon market linkage that requires
harmonization before linking of different systems. Differences of key design fea-
tures will present barriers for the future linking of systems and hence should be
considered very early in the design phase as set out in Fig. 14.9.

14.4.3.1 Different Design Features Between Systems

The design features of ETSs are quite diversified among countries, such as the
stringency of caps, enforcement provisions, and the eligibility of offset credits and
cost containment measures, which can make linking quite difficult.
• Different Stringency of national ambitions and emission cap of ETS before
2020
Different levels of national mitigation ambition will bring different stringency of
the caps. Systems with different stringency of caps will most likely have different

Fig. 14.9 Key elements for ETS design and ETS linkage. Source Authors
14 Barriers and Options for Carbon Market Integration 415

carbon price. A system with a more stringent cap would have fewer allowances
available and hence a higher carbon price than a system with less ambitious
cap. Linking systems with different stringency of caps would result in emissions
allowances being sold from the system with less stringency of cap to the system
with higher stringency of cap, thus linking would cause issues of competitiveness
and carbon leakage (Flachsland et al. 2009; Sterk et al. 2006). It is therefore a
political precondition for linking that all systems have comparable caps, which
requires countries to demonstrate comparable levels of effort to reduce emissions or
at least mutually accepted emission reduction efforts.
Table 14.4 shows the 2020 targets are quite diverse from country to country. In
general these targets are intensity based targets or reductions on “business as usual”
for the developing countries and absolute targets for the rest. Targets of the
developed countries show more variation, but this also needs to be assessed in terms
of the base year taken and the actions already taken to reduce emissions. Such
diverse stringency of caps will create barriers to linking of ETSs before 2020.
However the systems may be linked beyond 2020 as levels of national ambitions
would be recognized by countries each other through a global climate change
agreement.
• Different capacity for Implementation of MRV
MRV is the core of an ETS, which determines the actual number of allowances
to be traded by an installation and the performance of the system, thereby underpin
the value of the traded units. If MRV mechanism is not strictly applied in practice, it
could also result in misreporting of emissions and distortion of trading value.
Different capacity for implementation of MR may lead to different trading value of
emission allowances/credits between systems.
It is possible for countries to design comparable MRV mechanism; however the
capacity gap of implementing MRV mechanism between countries may be a big
challenge for linking of the systems. Developed countries such as New Zealand do
have experience under both the UNFCCC process and their ETSs, while developing
countries generally lack operational experience to date in MRV, where experience
is limited to the CDM with most of this experience in China and India. Lessons
from the CDM have shown it to be very common that project entities failed to
follow the Monitoring and Verification Protocol, resulting in that CERs could not
be claimed. This fact illustrates the weak MRV capacity in developing countries.
• Diverse Stringency of Cap Enforcement
Cap enforcement is critical to ensure that the emissions target is achieved and
provide confidence to the market with a strong price signal. Enforcement is typi-
cally managed through penalties for non-compliance. A robust enforcement
framework is generally set at a multiple of the allowance price or in addition to
surrendering allowances.
Linking systems with diverse enforcement frameworks would result in lowest
penalties prevailing in both linked systems. This would have negative implications
416 L. Mo and X. Lu

Table 14.4 Summary of reduction targets and trading system implementation by country
Country Scheme Economy wide Type of Status of trading Trading
reduction target reduction scheme scheme entry
target into force
China National Reduce carbon GDP Schedule to start 2016
intensity of its intensity in 2016
GDP 40–45 %
below 2005 by
2020, and 60–
65 % by level;
achieve the
peaking of CO2
emissions around
2030
China Beijing pilot 18 % below 2010 GDP Operational 2013
by 2015 intensity
target
China Chongqing 17 % below 2010 GDP Operational 2014
pilot by 2015 intensity
China Guangdong 19.5 % below GDP Operational 2013
pilot 2010 by 2015 intensity
target
China Hubei pilot 17 % below 2010 GDP Operational 2014
by 2015 intensity
China Shanghai pilot 19 % below 2010 GDP Operational 2013
by 2015 intensity
target
China Shenzhen 21 % below 2010 GDP Operational 2013
pilot by 2015 intensity
target
China Tianjin pilot 19 % below 2010 GDP Operational 2013
by 2015 intensity
India Perform, Reduce emission GDP Operational 2012
achieve and intensity of its intensity
trade GDP 20–25 %
below 2005 by
2020 and 33–
35 % by 2030
Indonesia Indonesia Reduce GHG Absolute Plan to start pilot 2018
emissions 26 % carbon trading
below BAU by system in 2018
2020 and 29 % by
2030
Japan Tokyo 25 % below 2000 Absolute Operational 2010
by 2020
Kazakhstan National ETS Reduce GHG Absolute Operational 2013
emissions 7 %
below 1990 by
202 and 15 % by
2030
(continued)
14 Barriers and Options for Carbon Market Integration 417

Table 14.4 (continued)

Country Scheme Economy wide Type of Status of trading Trading
reduction target reduction scheme scheme entry
target into force
New National 5 % unconditional Absolute Operational 2008
Zealand emission
reduction below
1990 level by
2020, reducing
GHG emissions to
30 % below 2005
level by 2030
Korea National Reduce its Absolute Operational 2015
greenhouse gas
30 % below BAU
by 2020 and 37 %
below BAU by
2030
Thailand Energy 7–20 % GHG Absolute Plan to start pilot 2020
performance emission energy
certificate reduction by 2020 performance
(EPC) scheme below certificates trading
business-as-usual program in 2017
(BAU) in the and national ETS
energy and and plan to start a
transport sectors. national ETS in
Reduce GHG 2020
emissions by
20 % from the
projected BAU
level by 2030
Vietnam National Reduce GHG GDP Plan to start Pilot 2020
emission intensity Intensity carbon crediting
of GDP by 8– mechanism in
10 % relative to 2018 and plan to
2010 by 2020 and start a national
20 % by 2030 ETS after 2020
Source Authors

for competitiveness and environmental effectiveness. A system with strict com-

pliance provisions would be reluctant to link to a system with less stringency of cap
enforcement (Victor 2007). Thus linking requires systems have comparable com-
pliance and enforcement provisions.
Table 14.5 shows the rules of cap enforcement; particularly penalties are
extremely varied across the different schemes. This will be an extremely important
issue for linking. The New Zealand ETS has non-compliance rules that require
participants to surrender or cancel allowances in addition to a penalty of $30 per
tonne. Korea ETS will impose a penalty at three times the allowance price with a
maximum penalty of KRW 100,000 (approximately US$90/tCO2e) per ton of CO2e
if a participant fails to meet their target.
Table 14.5 Key design features of emission trading systems
418

Key ETS design features

Country Scheme Allocation methodology Banking Borrowing Price cap Enforcement Offsets
Australia National Free allocation Yes in Yes (5 % of $15 floor in 1st Penalty of double the Australian carbon credit
dependent on energy flexible allocation) period average price of units (ACCUs),
intensity and price (increasing 4 % permits for the international offsets up
competitiveness. period pa). 2015–16: shortfall that year to 50 % (37.5 % EUAs
Declines 1.3 % annually $20 above and 12.5 % Kyoto
international units)
prices
(increasing 5 %
pa)
China National Considering free Unclear Unclear May use price Unclear China CCER
allocation in initial stage management
mechanism but
the rule has not
known
China Beijing pilot Free allocation to Banking is Prohibited No cap, but Penalty imposed China Certified
manufacturing, service allowed auctioning when case by case up to 5 Emission Reduction
and other industries between the price is high times average market (CCERs) Units up to
based on 2009–2012 years and buy back price plus 5 % of emissions and at
average emissions, during the when the price surrendering the least 50 % from local
benchmarks for new pilot drops shortfall projects. No
entrants. Heat and power period international offsets
are based on average
carbon intensity for
2009–2012. Ex-post
adjustments based on
actual emissions
(continued)
L. Mo and X. Lu
Table 14.5 (continued)
14

Key ETS design features

Country Scheme Allocation methodology Banking Borrowing Price cap Enforcement Offsets
China Chongqing Free allocations for most Banking is Prohibited No price cap, No penalty for China certified
pilot allowances. Ex-post allowed but a 10 % non-compliance emission reduction
adjustment based on between Government (CCERs) Units up to
actual emissions is years Reserve of 8 % of emissions under
allowed during the which 70 % is the voluntary emission
pilot for price control reduction scheme and
period forestry projects. No
international offsets
China Guangdong 97 % free allocation Banking is Prohibited 5 % of total Deduction of 2 times China certified
pilot based on 2010–2012, allowed allowances of its shortfall from emission reduction
benchmarks for new between reserved for subsequent years (CCERs) Units up to
entrants years price control allowances plus 10 % of emissions and
during the maximum penalty of at least 70 % from local
pilot 50,000 RMB projects. No
period international offsets
Barriers and Options for Carbon Market Integration

China Hubei pilot Free allocation Prohibited Prohibited No price cap, Penalty of 1–3 times China Certified
according to but a 10 % average price to a Emission Reduction
compounding factors Government maximum of (CCERs) Units up to
including historic Reserve of 150,000 RMB, plus 10 % of emissions. No
emissions from 2009 to which 70 % is deduction of 2 times international offsets
2011, best performance for price control the shortfall from
of the sector, energy subsequent years
savings, and phasing out
old technology
(continued)
419
Table 14.5 (continued)
420

Key ETS design features

Country Scheme Allocation methodology Banking Borrowing Price cap Enforcement Offsets
China Shanghai pilot Free allocation based on Banking is Prohibited A price reserve Penalty is 50,000– China certified
2009–2011 emissions. allowed is intended 100,000 RMB plus emission reduction
Benchmark for between surrendering the (CCERs) Units up to
electricity, aviation, years shortfall 5 % of emissions. No
airports, and harbors. during the international offsets
Ex-post adjustments pilot
based on actual period
emissions
China Shenzhen Approximately 90 % Banking is Prohibited No price cap, Penalty is 3 times of China certified
pilot free allocation and 10 % allowed but 2 % of total average market price emission reduction
auctioning. Free between allowances of allowances plus (CCERs) Units up to
allocation based on years reserved for surrendering missing 10 % of emissions. No
previous year industrial during the price control allowances international offsets
value-added and carbon pilot
intensity target. Ex-post period
adjustments based on
actual emissions
China Tianjin pilot Free allocation based on Banking is Prohibited No price cap, No penalty for China certified
2009–2012 emissions allowed but auctioning non-compliance emission reduction
and benchmarks for new between when the price (CCERs) Units up to
entrants. Ex-post years is high and buy 10 % of emissions. No
adjustments based on during the back when the international offsets
actual emissions pilot price drops
period
(continued)
L. Mo and X. Lu
Table 14.5 (continued)
14

Key ETS design features

Country Scheme Allocation methodology Banking Borrowing Price cap Enforcement Offsets
India Perform, N/A Yes No N/A Purchase ESCerts or No
achieve and pay penalty of 10
trade Lakhs (US$20,000)
in addition to the
cost of compliance
Japan Tokyo Free allocation based on Yes No No cap, but Penalty of 1.3 times Domestic only
historical data subsidies and the shortfall, up to
increased use of ¥500,000
offsets
considered
Kazakhstan National ETS Phase I and Phase II: Not from No No No penalty for No limits to
free allocation based on Phase I non-compliance international credits
historical data, Phase III: (CERs, ERUs) and
auctioning and free domestic credits outside
allocation based on the scope of the ETS
Barriers and Options for Carbon Market Integration

benchmarks
New National Free allocation to Yes No NZ$25 per NZU Penalty of $30 per Unlimited New Zealand
Zealand agriculture and energy from 2013 tonne plus offset AAUs,
intensive industries. (fixed price to surrendering international credits and
Declines 3 % pa from purchase from allowances for the greened AAUs
2013 to 2025. (certain government) shortfall
sectors need only 1 NZU
for 2 tCO2)
(continued)
421
Table 14.5 (continued)
422

Key ETS design features

Country Scheme Allocation methodology Banking Borrowing Price cap Enforcement Offsets
Korea National Free allocation Phase I: Yes Up to 10 % Reserve Penalties 3 times Domestic offset up to
100 % within the maximum of market price with a 10 % before 2020 and
Phase II: 97 % compliance 2.5–3 % of total maximum penalty of international offsets
Phase III: 90 % period allowances for KRW 100,000 5 % after 2021
market (approximately EUR
stabilization 69) per ton of CO2e
under
pre-defined
scenarios
Thailand Energy The EPC will be only Banking No No No penalty for Allow purchase of
performance based on the EPCs is non-compliance EPCs, CERs and
certificate over-achievement or permissible TVERs or LCC (low
(EPC) scheme under-achievement in carbon city fund) Units
meeting SEC targets up to 50 % of its energy
reduction target
Source Authors
L. Mo and X. Lu
14 Barriers and Options for Carbon Market Integration 423

The penalty is very low in India PAT system with maximum of 10 Indian Lakhs
(equivalent to USD 20,000) plus the value of non-compliance. The China pilot
ETSs have generally set low penalties for non-compliance, given that there is no
ETS legislation in place (with an exception of Shenzhen ETS), the financial penalty
for non-compliance cannot be higher than administrative penalties set by National
Administration Law. And rules of pilots for non-compliance are diverse from each
other. Also lessons from Chinese Pilots reveal that the governments lack effective
policy tools and ability to manage compliance and enforcement.
Such diverse enforcement frameworks and ability gap to enforce the compliance
would be a key concern with regard to linking different markets.
• Different Offset Eligibility
Different eligibility of offset could create the barrier to the linking of ETSs.
When ETSs are linked, then the systems would share the same pool of offset credits.
If offset credits are eligible in one system but not in another system, linking would
increase the overall supply of emissions allowances/credits and affects carbon prices
in the linked systems (Carbon trust 2009). The participants in the system where
offset credits are eligible would surrender offset credits for domestic compliance
and sell domestic emission allowances to the system where the offset credits are not
accepted.
All current emissions trading systems intend to use offsets within the system but
set different provisions on the use of offset credits. The New Zealand ETS allows an
unlimited supply of international credits. Kazakhstan sets very generous rules in use
of offset credits. Eligible offset projects cover all non-ETS sectors and all non-ETS
enterprises. There is no limit on use of domestic offset credits, international carbon
units.
Korea allows participants within the ETS to use international offsets up to 5 % of
their annual liabilities after 2021. The Tokyo ETS and Chinese pilots only allow use
of domestic credits.
The diverse offset eligibilities will be a key issue to link different ETSs in the
region as the different eligibilities and limits applied to the use of offsets.
• Diversified Price Control Measures
Linking a system with price containment measures with other systems without
such measures would pose barriers for building linkage between market systems. If
a price cap is adopted in one of the linked systems, it would be made available to
participants in the other system regardless of whether the other system has the same
provision (Victor 2007). As long as the cost of mitigation is higher than the price
cap, participants from the system without a price cap would buy allowances from
the partner system where a price cap is in place. This would cause capital resources
flowing into the system with price cap or with lower price cap. This may lead to
competitiveness issues and carbon leakage. And if a price cap is set too low, it
would reduce the incentive to invest in low-carbon technologies.
424 L. Mo and X. Lu

The schemes appear to implement different cost control measures. New Zealand
ETS’s cost containment measures include price ceiling of NZ$25. Korea ETS sets
strategic reserve with maximum of 2.5–3 % of total allowances for stabilization of
market under pre-defined price scenarios. Most of China pilot systems adopt the
strategic reserves as price control measures. China ETS proposal states that price
containment measure will be part of the design in a national ETS (NDRC 2013). No
any further information available yet on how or whether price containment mea-
sures will be designed in other proposed ETSs. However different offset rules of
existing systems already show the barriers for linking of systems.

14.4.3.2 Different Political Priority

The most important consideration for linking is political willingness and the ability
to reach political agreement.
Design of and ETS is tailored to achieve certain domestic or regional policy
objectives and reflects domestic political and economic context. Linking implies
that the country may need to adjust its system in order to harmonize with another
system. Decisions on linking are therefore largely dependent on how governments
assess the relative benefits and cost of linking for achieving long term climate
mitigation goals, versus meeting domestic policy objectives in short-term through a
tailored ETS design. Political willingness is therefore the key to successful linking.
Different political priorities are the key barriers to linking of ETSs in short-term.
As many carbon trading systems in the region are still under development or need
to be improved over time (such as Korea and China). The priorities of these
countries are building market readiness or developing domestic carbon trading
systems; or testing the systems; or adjusting and improving the systems before
2020. The linking of carbon markets will be in line with evolvement of domestic
ETSs and timetable of an international agreement on climate change. Thus the
desire to link will be limited initially. Thus, it is not anticipated any major market
linkage before 2020.

14.4.3.3 Domestic Legal Issues

Emission trading markets are entirely created by a legal architecture composed of

rules, principles and procedures by formal legislation (Anttonen et al. 2007) and
any changes to emissions trading legislation has to pass through normal domestic
legislative procedures.
Among existing systems in Asia, some of them are sub-national systems. Legal
barrier will hinder sub-national system linking with other sub-regional systems
outside the countries or link with other national systems unless the sub-region is
authorized a legislative power. For example, the legal barrier will arise if Tokyo
government likes to make an linking agreement with other countries or states
without the consent of the national government since the Japanese Constitution
14 Barriers and Options for Carbon Market Integration 425

limits the sub-region’s power to make a diplomatic treaty to the national govern-
ment. Similarly, legal issues will be a big obstacle for China pilot ETSs to link with
other national systems without passing through a national legislation process.

14.5 Options for Carbon Market Integration

For a long-term perspective, carbon market integration in Asia and the Pacific is
positive, but faces great challenges in short-term. It is not likely to see carbon
market integration in short-term. Carbon market integration is expected to be in
progressive development process along with market systems being mature. To
facilitate carbon market integration in long-term, the early consideration and
strategic actions should be desired.

14.5.1 Build a Foundation for Linking in the Early

Research and Design Process

At early design stage, it is not realistic to implement a high degree of harmonization

between systems through a common framework or module rule because of extre-
mely difference on economic development and ETS development stage. It is nec-
essary for countries to lay the necessary foundations very early on and this can be
achieved during the research phase. Policy-makers and experts are advised to
consider the implications of domestic design choices for linking. Importantly, the
countries need applying exiting lessons to design and improve systems. Adopting
international standards and best practice in critical features could help to eliminate
the risk of incompatibility later on. Also the systems should be flexible to com-
patible with other systems when linking is desirable.

14.5.1.1 Address Key Issues of Current Carbon Market

If a market system was not functioning well, linking of markets would not be
possible as linking would make market in even worse situation. In any case, for
emerging market systems and exiting systems, they must address the issues of
current carbon market are facing when designing or adjusting their systems by
following approaches:
Setting long-term Ambitious Caps Ability to create long-term demand on
emission reduction should be taken into account in the cap-setting.
Set a long-term ambitious cap against long-term mitigation target It is one of
solutions to tackle with underlying problem of carbon market. Setting a long-term
426 L. Mo and X. Lu

ambitious cap not only can help plan mitigation actions towards achieving
long-term mitigation targets, but also can establish long-term demand on emission
reduction and deliver long-term price signal to drive low carbon investment.
Adopting a hybrid approach between absolute and relative caps is more
suitable for developing economy An absolute cap can provide certainty for
achieving environmental targets while a relative cap can be more flexible to allow
an increase in emissions along with economic growth. A hybrid approach between
absolute and relative caps is appropriate for developing countries. This hybrid
approach would establish an absolute cap under a national intensity target/or
absolute target and deal with future uncertainty in economic growth by adjusting
absolute cap according to a stricter relative target based on performance bench-
marks. Such an approach could ensure that environment effectiveness would not be
compromised while would not limit economic growth.
Periodically review cap with timely adjustment to the cap to ensure stringency
of the long-term cap This means to regularly review stringency of long-term cap
and make necessary ex-post adjustment to the cap in the case that actual emissions
would depart from the emissions projection. Such mechanism can maintain strin-
gency of cap and ensure scarcity of allowances can be established through adjusting
supply of allowances.
Define Long-Term Value-in-Use of Credits Define the long-term value in use of
emissions allowances/credits means that the emission allowances and credits could be
used to cover emissions at any time during a long commitment period. In the nature of
climate change, long term using value of allowances/credits would account for carbon
dioxide natural absorption, e.g. a carbon dioxide permit allowing 1 tonne in 2050
would allow 1.8 t in 2015. And in financial theory, emissions allowances are deemed
as financial assets under an emission trading scheme and as such they should have
long-term value in use.
Defining long-term value-in-use of credits by law is a long-term solution to create
long-term demand on emission reduction and deliver a stable price signal to and
address short-term price volatility. Meanwhile, a commitment to emission allowances
and credits to be use in longer compliance periods could incentivize participants to take
early mitigation actions and to invest in low carbon technology. In turn, emissions
trading could drive low carbon investment and an emissions trading market could
provide a consistent source of finance for low carbon investment.

14.5.1.2 Apply International Standards to MRV and Building

Capacity for MRV Implementation

A robust MRV mechanism with strict rules and transparent processes is the core of
an emission trading market. And it is also the key to link with different carbon
trading markets.
14 Barriers and Options for Carbon Market Integration 427

In ETS development stage, adoption of international standards and best common

practice for the design of MRV guidelines can help minimize incompatibility
between systems. For example, IPCC guidelines and other internationally recog-
nized guidance such as ISO, CDM, and VCS protocols and standards can provide a
common basis for development of national MRV guidelines and process as well as
institution at installation level.
Experience from Chinese pilot ETSs demonstrate capacity building may take
longer time and need more efforts. Building capacity and enabling environment for
execution of MRV is a long-term task in developing countries, which requires not
only countries’ consistent efforts, but also needs cooperation between countries for
the sharing of knowledge and experience.

14.5.1.3 Implement Progressive Offset Rule

There are three elements including eligibility of offsets, quantitative limits on the
use of offsets and criteria for the generation of credits related to the use of offsets in
an ETS. And difference in these three elements can pose barriers to linking. To deal
with this concern in the design of the scheme, one possible approach is to introduce
progressive offset rule.
Offset rule needs to evolve over time to reflect the needs for domestic abatement
in key emissions sources. Offset rule shall ensure the principal of “supplementar-
ity”, which means that mitigation through the use of offsets is supplemental to
actions taken by ETS sectors and not substitute abatement action in ETS sectors. In
the short term, the flexibility to meet commitments through use of offset credits is
useful to minimize the economic cost of GHG mitigation. However in long-term,
reliance on use of offset credits may lead to ETS sectors being locked-into
high-carbon technologies and to make emissions cuts more expensive in future.
Offset rule shall balance between short-term and long-term cost-effectiveness to
support the low carbon transformation of ETS sectors. Eligibility of offset projects
may change over time along with technologies progress. Therefore, in the design of
an ETS, offset rule should change to reflect such changes in need of abatement and
technology progress in ETS sectors.
In the design of an ETS, the strategic approach is to adopt a flexible and
progressive offsets rules i.e. eligibility of offset, limit on use of offset credits, criteria
for generation of offset credit that are able to reflect the needs of domestic abate-
ment, adapt to changes in technology, as well as potential future linking, whilst at
the same time providing certainty to investors regarding the longevity of credit
revenues.
It is desirable for countries to set a plan including time tables for the phase-in or
out of specific sectors, changes to limits on the use of offset credits (domestic and
international) as well as linking to other schemes. The merits of such a plan is to
provide clarity and certainty to ETS participants as well as developers of offset
projects and other market participants in order to maximise the opportunities for
emissions abatement.
428 L. Mo and X. Lu

14.5.1.4 Design Flexible and Dynamic Cost Containment Measures

Concerning on impact of high carbon prices on industry, cost containment measures

such as price caps and strategic reserve are often used to reduce compliance costs
and prevent carbon prices rising above politically acceptable level. However, such
cost containment measures create barriers for future linking. To avoid barriers for
future linking, a possible solution is to implement flexible and dynamic cost con-
tainment measures that can be modified to reflect changes in the economy and ETS
development stage, whilst still serving to reduce emissions cost effectively. For
example, price caps may be used initially, but can be phased out when the market is
mature and participants have ability to handle with their carbon assets and manage
the changes of carbon prices, and linking becomes an option.

14.5.1.5 Implement Strict Compliance and Enforcement Provisions

An emissions trading system can only function effectively with a strict compliance
framework. If compliance frameworks are not robust enough, then the environ-
mental effectiveness would be questioned and create barriers for linking. Therefore,
a strict compliance and enforcement framework must be established in the design of
system and needs to be maintained all the time. The ultimate purpose of emissions
trading is to cap emissions and therefore a penalty should not replace a participant’s
obligation to cut emissions. The optimal compliance framework would require that
participants surrender emission permits to make up the shortfalls while pay a
penalty for their non-compliance.

14.5.1.6 Establish Robust Legal Framework

Emission trading is established based on a political commitment to reduce GHG

emissions. It is implemented through a number of rules, principles and standards,
with compliance required by law and supervision by corresponding institution.
Only when an emission trading system is properly functioning, then only the system
can be linked to other system and this requires a robust legal framework.
A robust legislative and regulatory framework includes three levels of legislation
including overall ETS legislation, detailed technical guidance, detailed guidance on
management and oversight of an ETS. The most important is an overall ETS
legislation that establishes the system and provides a basis for its operation. This
will include the design features, policy options and management structure for
operation. The overall ETS legislation needs defining the emission allowances;
principles for setting the cap and sectoral coverage; allocation methods; transfer,
surrender and cancellation of allowances; data collection, MRV; compliance and
enforcement framework; links to other systems and offset mechanisms; price
control measures; details of the registry and trading platforms and so on.
14 Barriers and Options for Carbon Market Integration 429

14.5.2 Progressive Development and Integration of Carbon

Market

Carbon market development in Asia and the Pacific is a progressive evolvement

process while linking of carbon markets is a long term objective. These features
imply that carbon market integration will take time and move ahead step by step,
first by implementing pilot systems, moving on to national wide system and then
linking at a regional or global level (Fig. 14.10).

14.5.2.1 Short-Term (Before 2020): Linkage of Carbon Trading

Markets Within a Country

In short-term, the countries may work on establishing and improving domestic ETS
or other carbon trading systems and preparing for linking with other systems
beyond 2020.
ETS development in Asia and the Pacific is a gradual and complicated process
which will be evolved and improved over time. Many countries have chosen to
implement pilots in certain sectors or regions to obtain experience on establishing a
nationwide system. For example China implemented 7 pilot ETSs in 5 cities and 2
provinces. India is operating two market based instruments i.e. Renewable Energy
Certificate (REC) and Performance, Achievement, Trade (PAT). Thailand also
plans to establish a domestic voluntary mitigation mechanism in pilot sectors and
cities followed by domestic trading of Energy Efficiency Certificates in building
and industrial sectors as well as the implementation of the Low Carbon City
Program (LCC).
Linking could focus on developing domestic linkages between pilot systems and
between current market mechanisms. Beginning with domestic pilot systems that
link up at a national level could be an effective way to reduce the development cost
of establishing a national carbon trading market while help countries accumulate
experience for linking and mitigate short term concerns of carbon prices on the
economic impacts.

14.5.2.2 Linkage of Carbon Markets in Regional Level

In the long-term (beyond 2020), establishing linkage between national carbon

trading systems in Asia and the Pacific would become a trend.

Fig. 14.10 Path to linking of carbon markets. Source Authors

430 L. Mo and X. Lu

Given that the complexity and particularity of carbon markets’ development in

Asia and the Pacific, linking of carbon markets in the region is expected to be a
progressive evolvement process. A realistic roadmap for linking could be starting
with a bilateral link between two national systems and then gradually developing
multilateral links among national systems through more new systems joining in.
Marginal cost of migration is the first economic factor for countries to making
decision on linking. Great difference on marginal cost, more benefits from linking.
It will be easier to negotiate between countries where the political will is already
there. Linking carbon trading markets in the same region, such as Asia and the
Pacific, could be more straightforward. The countries that are bound by the same
legal trade framework could be potential linking partners as a legal trade framework
can help reduce the difficulties in negotiation of linking agreement. For example,
the ASEAN Free Trade Area (AFTA), of which Thailand, Vietnam, Indonesia, and
China are members; the emission trading between the countries may be included or
added into the scope of free trade products.
The systems that are in the same development stage would be linked up easily as
the mature degree of markets is similar and linking is possible to be considered. The
systems with a high degree of similarity and potential for harmonization are good
linking candidates.
For example, linking China national ETS with Korea ETS could be the first
option of piloting carbon market linkage in near future as Korea ETS already started
to operate and China ETS was scheduled to be put into operation in 2017. Both
countries have close trade ties and interests in joint development of carbon market.
Along with the ETSs development, other new systems such as Thailand and Vietnam
etc. may join in the linked systems to gradually form regional linked market.

14.5.3 Facilitate Harmonization of National Carbon

Markets

14.5.3.1 Enhance Coordination of National Carbon Market

Regulations

In early stage, establishing coordinating institution among countries will help

facilitate an agreement on linking late on. For example, establishing knowledge
sharing mechanism among countries for regularly sharing information and expe-
rience on design and implementation of carbon trading system, developing common
standards and model rule, defining key terms such as accounting and trading units,
exploring the best approach to design market system; all of these could help pro-
mote a common framework for linking of markets.
Through this mechanism, it will also facilitate policy and technical dialogues
among countries and enhance long-term cooperation on a developing carbon market
in Asia and the Pacific. This will help achieve harmonization of different carbon
trading systems and facilitate carbon market integration.
14 Barriers and Options for Carbon Market Integration 431

14.5.3.2 Establish a Legal Framework for Linking of Market

As linking of carbon markets will reduce the control of regulators over a market,
some coordination of market regulation will be necessary for linked markets.
Therefore, a legal framework is needed to establish and maintain such harmo-
nization and oversee the linked market. The legal framework could be a formal
agreement such as a binding international treaty or through an informal agreement,
which may take the form of reciprocal domestic legislation accompanied by an
informal memorandum of understanding or other negotiated expression of intention
(Mehling 2007; Mace et al. 2008).
Linking agreement will establish a common framework on mutual recognition of
trading units; harmonization of the key deigns features of linked systems; rules and
procedure for future changes, termination of the agreement, developing new linking
partners and withdrawal of linked partners; trading rule and market oversight;
institutional arrangements and operational management etc.
Linking of carbon markets can be implemented through international trade
agreement which defines eligibility of trading emission allowances and require-
ments for trading associated emission intensity products. For example, the estab-
lishing a link between China ETS with Korea ETS can be incorporated into the
negotiation of East Asia Free Trade Agreement (EAFTA). The eligibility should
reflect the requirements for harmonization of key design features of linked systems
in the trade agreement.

14.6 Conclusion

Carbon markets integration through linking of ETSs could reduce regional miti-
gation more cost effectively and improve regional environmental effectiveness,
enhance regional cooperation on addressing climate change and ultimately support
the bottom up development of a global carbon market beyond 2020.
Given the fact that the region is looking to collaborate closely on addressing
climate change and that government attitudes are positive towards linking, and
close trade relationships already exist in the region, carbon market integration is a
positive.
Carbon market integration however will face great challenges in short-term.
Many emission trading systems are only at the conceptualisation stage, whilst
others are operational either through pilots or full national systems. There are
fundamental differences in the economic development levels between countries in
the region. Systems have been designed or may be designed to fit to national
circumstances and priorities, which has led to diverse design features in existing
systems or new systems. These differences present a challenge to linking of these
systems, but given that the systems are still relatively new and are still expected to
develop over time, now is the perfect time to look towards future harmonization.
432 L. Mo and X. Lu

The chapter suggests that linking of ETSs will be a progressive process. That
means linking consideration needs to start early in the design of systems. Once the
domestic emission trading market is deemed to be mature, it will be the time to
assess linking opportunity and proceed with linking implementation.
To avoid linking barriers, linking is recommended to consider in the research
and design stage. From the outset in the design of an ETS, the countries need to
address the key issues of existing carbon market, the application of international
standards and international best practice will help minimize the degree of incom-
patibility and improve the performance of an ETS. Flexible and dynamic rules for
offsets and price containment measures could allow the systems to meet national
priorities, whilst also accommodate the needs of linking partners in future.
Carbon market integration through linking ETSs across countries in Asia and the
Pacific is a long-term objective which needs to be approached gradually. The
chapter recommends that in the short-term (before 2020) the first step is to
implement domestic pilot systems that can be linked up to a national system.
Beyond 2020, countries should look to build ETS linkages with other countries and
then finally establish a linked regional carbon market or global Carbon. Given that
ETSs are at different development stage, starting with a bilateral link between two
national systems and then gradually developing multilateral links would be a
realistic option for regional carbon market integration in Asia and the Pacific.
To facilitate the linking of carbon markets, it needs establishing coordination
mechanism and a linking framework. This includes reaching a linking agreement to
harmonize the markets and maintain the harmonization of the linked markets,
oversee operation of linked markets etc. Establish a coordination mechanism will
help facilitate reaching linking agreement.

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Chapter 15
Domestic and International Finance
in a Regional Perspective

Tomonori Sudo

15.1 Introduction

Nowadays, Asian region have become a key player of global economic dynamism.
IMF (2014) reported that the economic growth in Asia is projected to remain
steady, thus the Asia and the Pacific region may keep rapid growth of its economy
(Table 15.1).
While Asia and the Pacific region enjoy rapid economic growth, energy demand in
the region is growing. ADB (2013) reported that Asia and the Pacific’s primary
energy demand is projected to increase at 2.1 % per year from 2010 to 2035 and it is
faster than the projected world average growth rate of 1.5 % per year during the same
period. With this growth, primary energy demand of Asia and the Pacific will reach
8,358.3 million tons of oil equivalent (Mtoe) by 2035, up from 4,985.2 Mtoe in 2010.
The CO2 emissions of Asia and the Pacific accounted for about 42.8 % of world
CO2 emissions in 2010. However, through 2,035, CO2 emissions in Asia and the
Pacific will increase rapidly at an annual rate of 2.0 %, compared with the world
average growth rate of 1.3 % per year through 2035. Thus, the share of Asia and the
Pacific is projected to reach more than half of world CO2 emissions in 2035.
ADB (2013) analyzed the factors affecting CO2 reduction from the BAU case to
the alternative case. It shows that energy intensity will account for 52.6 % and CO2
intensity for 47.4 % of the total reduction in CO2 emissions from BAU case to the
alternative case. This implies that Asian and the Pacific region needs further energy
conservation and fuel shift to less-carbon-intensive energy for further reduction of
CO2 emissions (Fig. 15.1).
In addition to these facts, there are several important conferences were held in 2015
where important decisions have been made to show the direction of future develop-
ment, such as the Third Conference on Finance for Development in July, United

T. Sudo (&)
Ritsumeikan Asia Pacific University, Oita, Japan
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 435

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_15
436 T. Sudo

Table 15.1 Real GDP in Asia

Actual data and latest projections Difference from 2013
Oct update
2011 2012 2013 2014 2015 2013 2014 2015
Australia 2.6 3.6 2.4 2.6 2.7 0.0 −0.2 −0.2
Japan −0.5 1.4 1.5 1.4 1.0 −0.4 0.1 −0.2
New Zealand 1.9 2.6 2.4 3.3 3.0 −0.2 0.3 0.6
East Asia 8.2 6.5 6.7 6.8 6.7 0.0 0.2 0.2
China 9.3 7.7 7.7 7.5 7.3 0.1 0.3 0.3
Hong Kong SAR 4.8 1.5 2.9 3.7 3.8 0.0 −0.6 −0.6
Korea 3.7 2.0 2.8 3.7 3.8 −0.1 0.0 −0.2
Taiwan Province of 4.2 1.5 2.1 3.1 3.9 −0.1 −0.6 0.0
China
South Asia 6.7 4.9 4.5 5.5 6.4 0.5 0.3 0.1
Bangladesh 6.5 6.1 5.8 6.0 6.5 0.0 0.0 0.0
India 6.6 4.7 4.4 5.4 6.4 0.6 0.3 0.1
Sri Lanka 8.2 6.3 7.3 7.0 6.5 1.1 0.3 0.0
ASEAN 4.7 5.8 5.1 5.0 5.3 0.2 −0.4 −0.1
Brunei Darussalam 3.4 0.9 −1.2 5.4 3.0 −2.7 −0.8 −4.4
Cambodia 7.1 7.3 7.0 7.2 7.3 0.0 0.0 0.0
Indonesia 6.5 6.3 5.8 5.4 5.8 0.5 −0.1 −0.2
Lao P.D.R. 8.0 7.9 8.2 7.5 7.8 −0.1 −0.3 0.2
Malaysia 5.1 5.6 4.7 5.2 5.0 0.0 0.3 −0.2
Myanmar 5.9 7.3 7.5 7.8 7.8 0.7 0.9 0.9
Philippines 3.6 6.8 7.2 6.5 6.5 0.4 0.4 1.0
Singapore 6.0 1.9 4.1 3.6 3.6 0.5 0.2 0.0
Thailand 0.1 6.5 2.9 2.5 3.8 −0.2 −2.8 −1.2
Vietnam 6.2 5.2 5.4 5.6 5.7 0.1 0.2 0.3
Pacific Island 5.4 3.5 2.6 3.5 4.6 −0.6 −0.1 0.1
countries and other
small states
Emerging Asia 7.9 6.7 6.5 6.7 6.8 0.2 0.2 0.1
Asia 5.9 5.3 5.2 5.4 5.5 0.1 0.1 0.1
Source IMF (2014)
Bold values show average Annual GDP growth among countries in respective region
‘Pacific Island countries and other small states’ refers to Bhutan, Fiji, Kiribati, Maldives, Marshall
Islands, Micronesia, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga,
Tuvalu, and Vanuatu
‘Emerging Asia’ refers to China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam

Nations General Assembly on Post 2015 Development Agenda/Sustainable

Development Goals in September, and the 21st Conference of the Parties to the UN
Framework Convention on Climate Change (COP21) in December. In the process of
preparation on Post 2015 Development Agenda and Sustainable Development Goals,
the importance of “Sustainable energy for all” has been highlighted and energy issues
15 Domestic and International Finance in a Regional Perspective 437

25,000

Energy Efficiency
20,000 3,181.0 Mt CO2

Fuel Shift
2,923.3 Mt CO2
CO2 emission

15,000 CO2 Emissions

22,112.6 Mt CO2

10,000 CO2 Emissions

16,008.3 Mt CO2

5,000

0
Alternative case BAU case

Fig. 15.1 Decomposition components of carbon dioxide emission reduction from

business-as-usual (2035) to the alternative case (2035) in Asia and the Pacific. Source ADB (2013)

were proposed as one of new sustainable development goals, for adoption at the UN
General Assembly. The goal and its targets on energy show as follows:
Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all
7:1 By 2030, ensure universal access to affordable, reliable and modern energy services
7:2 By 2030, increase substantially the share of renewable energy in the global energy mix
7:3 By 2030, double the global rate of improvement in energy efficiency
7:a By 2030, enhance international cooperation to facilitate access to clean energy research
and technology, including renewable energy, energy efficiency and advanced and
cleaner fossil-fuel technology, and promote investment in energy infrastructure and
clean energy technology
7:b By 2030, expand infrastructure and upgrade technology for supplying modern and
sustainable energy services for all in developing countries, in particular least developed
countries and small island developing States and land-locked developing countries, in
accordance with their respective programmes of support
(United Nations 2015a)
This goal and targets deems appropriate in the context of Asia and the Pacific
Region.
Recently, costs of renewable power generation technologies are declining.
IRENA (2015) reported that the large-scale deployment of wind and solar PV since
2000 has seen their installed costs driven down by learning investments at the same
time that technology improvements have improved yields, resulting in levelized
cost of electricity (LCOE)1 declines. IRENA (2015) noted that regional, weighted

1
The LCOE of a given technology is the ratio of lifetime costs to lifetime electricity generation,
both of which are discounted back to a common year using a discount rate that reflects the average
cost of capital (IRENA 2015).
438 T. Sudo

Fig. 15.2 Weighted average cost of electricity by region for utility-scale renewable technologies,
compared with fossil fuel power generation costs, 2013/2014. Source IRENA (2015)

average costs of electricity from biomass for power, geothermal, hydropower and
onshore wind are all now in the range, or even span a lower range, than estimated
fossil fuel-fired electricity generation costs. Because of striking LCOE reductions,
solar PV costs also increasingly fall within that range. Thus, renewable energy
technologies become enough competitive to the traditional fossil fuel power gen-
eration and those may be realistic options for Asian countries (Fig. 15.2).
Even though the cost of renewable energy technology declines, mobilization of
investment and finance in low carbon development is still one of the key issues for Asian
developing countries since there are several barriers to low carbon project. International
Development Finance Club (IDFC) (2014) identify following barriers, such as:
• High upstream costs for project development. Public support may be essential to
realize the initial phases of project identification and development that may
seem unattractive to private investors.
• High capital costs requiring adequate financial instruments.
• High perceived risks, requiring specific risk mitigation measures—financial or
institutional—since standard risk mitigation tools are often unsuitable or
unavailable for RE projects. When perceived risk is higher than real risk, public
action may be needed to convince value chain actors to change their perception.
• Need to adapt rules and institutional frameworks for RE projects. Operational
integration of RE into power grids or other energy systems often requires
changes in institutional frameworks, notably to guarantee long term access to
resources.
• Smaller size and return that offer lower economies of scale.
• High fossil fuel subsidies prevent RE deployment.
15 Domestic and International Finance in a Regional Perspective 439

In July 2015, the Third International Conference on Financing for Development

at Addis Ababa reaffirmed “strong political commitment to address the challenge of
financing and creating an enabling environment at all levels for sustainable
development in the spirit of global partnership and solidarity” (United Nations
2015b). Finance for Sustainable Development is considered as one of critical means
of implementation and, therefore, aspect of finance is crucial to promote and
achieve low carbon development. There are several key questions arisen for
addressing this issue, e.g. what sort of finances are available, what are the chal-
lenges for mobilizing those finances, what sort of policy measures and approaches
will be effective.
Backdrop of these facts, this chapter discusses on the issues on finance in
promotion of low carbon energy system in Asia and the Pacific region. After this
Section, finance needs and current finance flow are identified in the Sect. 15.2. In
Sect. 15.3, the opportunity and the challenges for mobilizing finance from variety
of sources will be discussed. Section 15.4 will touch upon the policy measures,
institutions and innovative approach for enabling finance mobilization, followed by
the policy recommendations as conclusion of this chapter.

15.2 Finance Needs and Current Finance Flows

In this section, we will identify the financial requirement for the low carbon energy
system development and current finance flows in Asia and the Pacific region.
Recognition on the volume of finance needs for low carbon development and actual
inflow of finance may be helpful to understand the importance of financial aspect
towards low carbon development.

15.2.1 Finance Needs Towards Low Carbon Development

in Asia

There are several efforts to estimate investment and finance needs for development.
Among others, the World Economic Forum (2013) summarized estimates of necessary
infrastructure investment calculated by several institutions, i.e. International Energy
Agency (IEA) (2012), Food and Agriculture Organization (FAO) (2009), Organisation
for Economic Cooperation and Development (OECD) (2006) and OECD (2012), and
United Nations Environment Programme (2011a) (see Table 15.2). The WEF (2013)
arrived at an investment gap under a business-as-usual scenario (that is, without taking
into account climate change) of $100 trillion to accommodate climate change.
Responding to an anticipated 2 °C temperature rise will add only $14 trillion, or 14 %
to the total gap. The biggest investment challenges, therefore, appear to exist inde-
pendent of climate change.
Table 15.2 Annual estimated investments needed under a business-as-usual and low-carbon scenario (US$ billions per year between 2010 and 2030)
440

Sector Business-as-usual scenario 2 °C scenario investment needs Incremental investment required Sources
investment needs
Cumulative Annual Cumulative Annual Cumulative Annual
2010–2030 average 2010–2030 average 2010–2030 average
Power generation 6,933 347 10,136 507 3,203 160 IEA
Power transmission and 5,450 272 5,021 251 −429 −21 IEA
development
Energy total 12,383 619 15,157 758 2774 139
Buildings 7,162 358 13,076 654 5,914 296 IEA
Industry 5,100 255 580 290 700 35 IEA
Building and industry 12,262 613 18,876 944 6614 331
total
Road 8,000 400 8,000 400 – – OECD
Rail 5,000 250 5,000 250 – – OECD
Airports 2,300 115 2,300 115 – – OECD
Ports 800 40 800 40 – – OECD
Transport vehicles 16,908 845 20,640 1,032 3,732 187 IEA
Transport total 33,008 1650 36,740 1837 3732 187
Water 26,400 1320 26,400 1,320 – – OECD
Agriculture 2,500 125 2,500 125 – – FAO
Telecommunications 12,000 600 12,000 600 – – OECD
Forestry 1,280 64 2,080 104 800 40 UNEP
Other sectors Unknown Unknown Unknown Unknown Unknown Unknown
Total investment 99,833 4991 113,753 5689 13,934 698
*$100 tr *$5 tr ^$114 tr *$5.7 tr *$14 tr *$0.7 tr
Source Extracted from World Economic Forum (2013)
T. Sudo
15 Domestic and International Finance in a Regional Perspective 441

Table 15.3 Asia’s total infrastructure investment needs by sector, 2010–2020 (in 2008 US$
million)
Sector/subsector New capacity Replacement Total
Energy (electricity) 3,176,437 912,202 4,088,639
Telecommunications 325,353 730,304 1,055,657
Mobile phones 181,763 509,151 690,914
Landlines 143,590 221,153 364,743
Transport 1,761,666 704,457 2,466,123
Airports 6,533 4,728 11,260
Ports 50,275 25,416 75,691
Railways 2,692 35,947 38,639
Roads 1,702,166 638,366 2,340,532
Water and sanitation 155,493 225,797 381,290
Sanitation 107,925 119,573 227,498
Water and sanitation 47,568 106,224 153,792
Total 5,418,949 2,572,760 7,991,709
Source Extracted from ADB and ADBI (2009)

In context of Asia, ADB and ADBI 2009 reported that Asia’s overall investment
requirement for infrastructure between 2010 and 2020 is approximately $8 trillion.
While about half the total infrastructure needed is for providing electricity, trans-
portation (mostly roads) covers about 30 % of the total, telecommunications 13 %,
with the rest needed for water and sanitation (Table 15.3).
However, these figures show the “Business-as Usual” investment needs and do
not account for the “Low Carbon” Scenario. Therefore, we should estimate the
amount of incremental investment required. Here, we simply assume it applying
coefficient based on the estimation by the WEF (2013). According to the WEF
(2013), incremental investment required in Energy sector is 2,774 billion US dollar,
which is 22.4 % of investment needs at Business-as-usual scenario. In case of
transport sector, incremental cost is 11.3 % of Business-as-usual investment needs.
If those coefficients are applied in the figures shown in ADB and ADBI 2009,
incremental investment needs in energy sector and transport sector are 915,855
million US Dollar and 246,612 million US Dollars, respectively. That is, 58 billion
US dollars are incrementally required annually for low carbon development.

15.2.2 Current Finance Flows and Investment

in Renewable Energy in Asia

15.2.2.1 Current Finance Flow in Asia

The Asia-Pacific Region will require billions of dollars to transition to low-carbon

growth paths and to adapt to the unavoidable impacts of climate change.
442 T. Sudo

Fig. 15.3 Trends in finance to developing countries ($ billion, 2011 prices), 2002–2011. Source
European Report on Development (2015)

Nevertheless, Asian developing countries are in a good position as finance for

climate change action is already available from a variety of sources.
European Report on Development (2015) shows the trends in finance to
developing countries (Fig. 15.3). It shows finance to developing countries is dra-
matically increasing. Particularly, domestic resources (both public and private)
contribute largely in increase of volume of finance. In contrast, contributions of
international resources in increase of volume of finance are stable but relatively
limited, even though those international finance resources still play an important
role in development in developing countries.
Figure 15.4 shows the share of foreign direct investment (FDI) inflows in
developing Asian countries in 2013. According to data from United Nations
Conference on Trade and Development (UNCTAD) (UNCTAD 2014), $381 bil-
lion has been invested in Asian developing countries. Of this, the majority went to
China (including Hong Kong, China)—$203 billion. Among developing Asian
countries, the top 10 recipient countries were: China ($203 billion), Singapore
($64 billion), India ($28 billion), Indonesia ($18 billion), Thailand ($13 billion),
Malaysia ($12 billion), Kazakhstan ($10 billion), Viet Nam ($9 billion), The
Philippines ($4 billion) and Turkmenistan ($3 billion). These countries share 95 %
of the FDI inflow in Asia. Sudo (2015) argues that the private sector tends to invest
in profitable and low-risk projects, which is why FDI flows into countries where the
economic scale is large and the investment environment is well established.
ODA is also an important financial source of finance. Figure 15.5 shows the
climate change bilateral ODA finance flow in Asia and Pacific countries. According
to data from the Organisation for Economic Co-operation and Development (OECD
2015), Asian countries received approximately $11 billion for climate change
activities through bilateral ODA in 2013. India, Indonesia, Viet Nam were ranked
as the largest recipients of both FDI and climate change-related ODA. However,
Uzbekistan, Bangladesh, and Sri Lanka were the leading recipients of climate
change ODA (these countries received limited FDI). The volume of ODA is
15 Domestic and International Finance in a Regional Perspective 443

Fig. 15.4 Share of foreign direct investment flows into Asian developing countries (2013, $
million). Source UNCTAD (2015)

Others, 3,158, 30% India, 3,522, 33%

%

, 2%
243 , 4%
11

,
anka 42
3,

Sri L , 4
6%

tan
8%

1,2

is
7,

bek
6%
61

h,

Uz
02,

es
,
ia

d
es, 9

Vietnam, 634,
s

gla
ne
do

n
Ba
ippin
In

Phil

Fig. 15.5 Share of climate change official development assistance flow into Asian developing
countries (2013, $ million). Source OECD (2015)
444 T. Sudo

significantly smaller than that of FDI, but it is important for low-income and least
developed countries.

15.2.2.2 Investment in Renewable Energy in Asia

Investment in renewable energy is dramatically increasing during this decade. The

investment volume in renewable energy in 2014 marks 7 folds larger than that in
2004. Among others, Asian region become the largest destination of investment in
renewable energy and its volume is constantly increasing. Frankfurt School-UNEP
Centre and Bloomberg New Energy Finance (BNEF) (2015) reported that this trend
is mainly led by China. Figure 15.6 shows the global trend in renewable energy
investment. This shows that investment in renewable energy hit the peak in 2011
and decline during 2012 and 2013 due to decline of renewable energy investment in
Europe. During this period, renewable energy investment in Asian region is con-
stantly increased, and it shares half of the global total of renewable energy
investment.
Figure 15.7 shows the share of global new investment in renewable energy by
region in 2014. This clearly shows that most of the half of renewable investment
was directed to Asian region. Among others, China shares almost 30 % of global
investment.
Existing funds, however, have often had limited tolerance for risk. There has
been a dearth of funding for innovation; and too often individual project or program
transactions have not been linked to efforts to strengthen the underlying policy,
regulatory or enabling environment. Considering growing demand of energy in
Asia, investment needs in renewable energy may continuously be increased. Thus,
mobilization of finance in renewable energy is indispensable to meet the needs of
investment and demand on the energy in Asia.

Fig. 15.6 Global trends in renewable energy investment (2014, $ billion). Source Frankfurt
School-UNEP Centre and Bloomberg New Energy Finance (BNEF) (2015)
15 Domestic and International Finance in a Regional Perspective 445

Fig. 15.7 Global new investment in renewable energy by region (2014, $ billion). Source
Frankfurt School-UNEP Centre and Bloomberg New Energy Finance (BNEF) (2015)

15.3 Opportunities and Challenges for Mobilizing Finance

As shown in the previous section, there are several type of finance resources are
currently available. However, each country relies on different financial sources
depending on its economic scale and level of income. Figure 15.8 shows the dif-
ference of the composition of finance of countries by level of income.
Even though Fig. 15.3 shows that domestic resources are dominant of finance
resource and that volume is dramatically increasing, according to the data shown in
Fig. 15.8, the poorest countries rely on ODA rather than domestic resources. This
may be one of the reasons why LDCs request donors to increase allocation of ODA
to LDCs. Having said that, too much dependence on external funding including
ODA could be a risk for those countries since external funding is uncontrollable by
them. Thus, each finance resources has own characteristics, potential and risks
depending on its nature.
Table 15.4 summarizes the comparison of characteristics, potential and risks of
each finance resources. In the following subsection, we will see further details of
those of each finance resource.
446 T. Sudo

1,036 4,086 12,615

Fig. 15.8 The composition of finance varies by level of income (% GDP). Source ERD (2015)

Table 15.4 Characteristics, potentials and risks of finance

Characteristics Potential Risk
Domestic • Most stable and low • Improved governance • Political difficulty
public finance risk finance source and financial system in increase of tax
• National • Good for finance in lead to increase of revenue
budget low profit public domestic finance • Lack of capacity of
(National projects flows and FDI appropriate public
tax) • Contribute to fiscal management
• Municipality leveraging domestic • Risk to crowd-out
budget private finance private finance
• Bonds
• Domestic
DFIs
International • Stable and low risk • Leveraging private • Risk of
public finance finance but low finance crowding-out
• ODA predictability private finance
• OOF • Limited volume of • Need an
• Multilaterals finance appropriate foreign
• Need to use reserve and forex
efficiently and management
effectively
Private • Largest finance • Increase of private • Unstable due to
finance source finance flow into economic situation
• Contribute to SD by developing countries and sensitive to
investing in the • Increase of finance risks
project where social flows between • Hard to capture the
benefit will be developing countries total flow of private
increased while finance
(continued)
15 Domestic and International Finance in a Regional Perspective 447

Table 15.4 (continued)

Characteristics Potential Risk
private benefit will • Hard to make sure
be maximized the transparency
• Generate and accountability
employment due to business
opportunity and confidentiality
sustainable
development impact
by expansion of
business
Blended • Sharing risks and • Increase of private • Risk of market
finance cost by public, sector participation distortion
• PPP private finance will • Risk of dependency
• EU blending be mobilized and to public
mechanism contribute to
establish better
business
environment and
market
Source Author

15.3.1 Domestic Public Finance

Among others, domestic public finance is the most promising, stable and low risk
finance source. In general, domestic public finance will be collected through tax-
ation, issuing bond and/or fundraising from domestic market through other public
entities such as national development bank. The domestic public finance is, in
general, managed by finance ministry and spent through public expenditure system.
Thus, domestic public finance will be useful for public services where profit is
limited but it provides large benefit for public. In addition, public expenditure may
play a catalytic role to mobilize private finance flows by sharing (or taking) risks
associate with private funded public projects or subsidizing in low profit but
publicly benefitted projects. Therefore, good governance and financial system
management along with catalytic role of public finance will have a potential to lead
to increase of domestic finance flows and FDI.
On the other hand, there are some risks on domestic public finance. First,
increase of tax revenue may face political difficulty. Although tax revenue may be
increased naturally if the county’s economy grows, increase of tax revenue by tax
rate change needs political acceptance. The change of tax rate is one of difficult
challenges for politicians to receive public acceptance. Second, inappropriate
management of public finance may send a wrong message to the market (i.e.
investors) and lead a loss of opportunity to increase private finance. Third, there is a
risk of crowding-out the private finance since public finance is more favorable than
private finance.
448 T. Sudo

15.3.2 International Public Finance

International public finance, such as bilateral Official Development Assistance,

Other official flows (OOF) and multilateral development finance provide stable and
low risk finance. However, as discussed in the previous section, the volume of
international development finance covers very limited part of finance flows, even
though the poorest countries still largely rely their revenue on ODA and multilateral
development finance. In addition, main source of international public finance is
spent from donor countries’ fiscal budget, so both donor and recipient country need
to responsible for their accountability to their respective taxpayers. In addition to
the pros and cons of domestic public finance, recipients need to manage foreign
exchange risk and foreign reserves so as to keep stability of the value of their own
currency and financial market.
In addition to the traditional donors, emerging donors and funds play an
important role recently. For example, Green Climate Fund has been established to
assist Non Annex I countries to tackle to Climate Change and it is expected to play
a central role to facilitate climate change finance. Recently, the Government of
China calls for an establishment of Asian Infrastructure Investment Bank to facil-
itate infrastructure investment in Asia and the Pacific region. Thus, such
non-traditional international public finance providers are expected to play an
important role to provide an opportunity for Asian countries to access international
finance.

15.3.3 Private Finance

Private finance shares a large part of finance flows in Asia and the Pacific Region.
As shown in the previous section, the volume of FDI flows in Asia is more than 30
folds of that of ODA. Since private finance is directly linked with business, increase
of private finance may lead several public benefit such as employment opportunity,
expansion of market. On the other hand, due to its nature of profit focus and
sensitivity to the risks, private finance is not necessarily considered as stable source
of finance. And, due to its business confidentiality, it deems difficult to make sure
those transparency and accountability.
In addition, scale of private finance depends on the depth of financial market.
Accessibility to the bank and/or level of financial inclusion is important factor to
increase private finance. The level of development of financial market in Asia is
different country by country. ADBI (2014) suggested an importance of financial
integration and cooperation in ASEAN towards economic integration of ASEAN.
15 Domestic and International Finance in a Regional Perspective 449

15.3.4 Blended Finance

Mustapha et al. (2014) defined Blended finance as “the complementary use of

grants (or grant-equivalent instruments) and non-grant financing from private
and/or public sources to provide financing on terms that would make projects
financially viable and/or financially sustainable”. Blended finance may work for
sharing risks and cost by public sector so as to facilitate private finance in infras-
tructure development.
However, grants or grant-equivalent instruments by public sector may provide
favorable financial condition for private sector, and that may distort the competitive
environment. Thus, it would be worthwhile to note that blended finance should be
used in case where the competitive environment is secured.

15.4 Role of Policy Measures, Institutions and Innovative

Approaches

As discussed in the previous section, there are several types of financial resources,
and each finance resources have their own characteristics, potential and risks.
Therefore, appropriate choice and/or mixture of finance would be a key to promote
low carbon development. Particularly, in case of Asian region, scale of economy,
level of governance capacity, and depth of financial market are diverse, so the
choice of the finance resources and instrument depend on the country’s
circumstances.
Having said that, Asia may be able to stands a good position to find win-win
solutions towards low carbon development, when each of Asian countries works
together towards common goal. Adoption of Sustainable Development Goals and
those targets, and ASEAN’s economic integration will be a good foundation to
create better environment for Asian countries to kick start towards low-carbon
development.
To facilitate this, there are some key policy measures, institutions and approa-
ches. In following subsections, we discussed some elements of those tools.

15.4.1 Common Policy Approach

Although there are commonalities and differences are observed among the Asian
countries, creation of common vision and goals will be helpful and beneficial for
Asian countries. And common policy approach toward common goals will min-
imise the losses due to difference of policy approach, since each of Asian countries
is easily affected by other countries policy as externality. Avoiding an influence of
450 T. Sudo

such externality can minimize the loss of political benefit for each country and, in
turn, regional benefit.
Particularly, common approach on tax and customs policy and financial regu-
lation will avoid erosion of tax base and capital flight from Asian region and create
competitive market in this region. This environment is one of key factor to mobilize
finance in domestic and regional market.
In addition, donors and development partners are also need to adopt common
approach. Many of studies on development cooperation pointed out that frag-
mentation of development cooperation leads to inefficiency and loss of effectiveness
and, in turn the limit of development impact of the activities (e.g. Kalirajan et al.
2011).
Sudo (2015) proposes a multilateral facility to channel low carbon development
finance based on the experiences by existing development financial institutions
(Fig. 15.9). The main objective would be to share information and knowledge on
low carbon development finance among donors and recipients. Emerging donors
such as China, Thailand and Asian Infrastructure Investment Bank (AIIB) could
make an important contribution as donors. Since Asian Development Bank
(ADB) is already working as the executing agency for the Global Environment
Facility and the Climate Investment Fund, and accredited as implementing entity of
the Green Climate Fund, it may be appropriate as secretariat of the facility. In this

Fig. 15.9 Potential framework of a low carbon development finance facility in Asia. Source
Extracted and modified from Sudo (2015)
15 Domestic and International Finance in a Regional Perspective 451

role it would develop a financial information platform by gathering information on

financial terms and conditions and other information from each donor and on the
financial demands of recipients, acting as a match maker between donors and
recipients. In addition, it could work as a financial arranger and lead and/or par-
ticipate in co-financing.
In addition, regional institutions such as the Association of Southeast Asian
Nations (ASEAN) secretariat and the United Nations Economic and Social
Commission for Asia and the Pacific (UNESCAP) could be facilitators and
knowledge providers. In particular, the ASEAN secretariat could be a key institu-
tion since it is working as a center of regional integration among ASEAN countries.
Its experience will be useful in facilitating regional collaboration in the Asia and
Pacific region. UNESCAP covers a wider range of countries in Asia and the Pacific
region, and it provides best practices and knowledge. It can help to establish col-
laboration with other UN institutions, including the United Nations Environment
Programme, which has established Green Economy Advisory services under its
Green Economy Initiative (UNEP 2011b), and the United Nations Development
Program (UNDP), which, in collaboration with OECD, is helping to build the
Climate Change Finance Building Block under the Global Partnership for
Development Effectiveness endorsed at the High Level Forum on Development
Effectiveness at Busan. Work related to climate change is fragmented among UN
Agencies and UNESCAP can play an important coordinating role.

15.4.2 Institutions

15.4.2.1 Green Climate Fund

The Green Climate Fund (GCF) is an operating entity of the financial mechanism of
the UN Framework Convention on Climate Change (UNFCCC). GCF was estab-
lished based on the decision at the 16th Conference of the Parties to UNFCCC
(COP16) at Cancun in 2011 and is expected to channel a significant part of climate
change finance. The GCF aims to make an ambitious contribution to attain the
mitigation and adaptation goals of the international community. Over time, it is
expected to become the main multilateral financing mechanism to support climate
action in developing countries. As of November 2015, 38 countries including 8
developing countries have committed to contribute as an initial contribution to GCF,
and total committed amount has reached about 10.2 billion US Dollars (GCF 2015).
Figure 15.10 shows the variety of fund provision schemes from GCF to end
users. The GCF will accredit the financial institutions as Implementing Entity or
Intermediary. Those Accredited Entities have the general role of implementing and
supervising all aspects of the GCF-funded projects and programme activities. They
have the full obligation towards the GCF to develop a project/programme pipeline
and be responsible for all aspects of project appraisal, structuring, implementation,
supervision and evaluation, including due diligence on financial, technical, legal,
452 T. Sudo

Fig. 15.10 Possible funding arrangement of GCF through implementing entity and/or interme-
diary. Source Green Climate Fund (2014)

environmental and social issues (GCF 2015). Therefore, Accredited Entities are
requested to comply with strict fiduciary standards. As of the end of August 2015,
20 entities have been accredited as Implementing Entity or Intermediary.
Considering that the purpose of the GCF is to address global issues, the GCF is
expected to be widely accessed and effectively and efficiently used. Therefore,
Implementing Entities and Intermediaries should be accredited to improve access to
the Fund. On the other hand, mismanagement of the fund will lead an inefficient use
of fund and that causes a loss of effectiveness. Hong and Sudo (2014) pointed out
that the balance between a stringent application of fiduciary standards, including the
Environment and Social Safeguard (ESS), and a wide access to the fund are the
most important issue for the GCF. This issue may be a complex one and causes
trade-offs as discussed in the Principal-Agent Theory. To avoid such trade off, an
appropriate readiness program will help to solve the issues.

15.4.2.2 Role of National Development Bank

Due to difference of economic scale of the Asian country, appropriate finance

resources may differ. Particularly, tax revenue may depend on the per capita income
of the countries. Under such circumstance, the national development bank, as
public entity, will play an important role to fund from the market, facilitate private
finance through co-finance and support implementation of national policy.
15 Domestic and International Finance in a Regional Perspective 453

Table 15.5 Key lessons learned from and challenges for Asian DFIs
Lessons learned Challenges
• DFIs can greatly help to promote • A significant number of DFIs have limited
low-carbon and climate resilient experience with low carbon/climate
infrastructure, if they: resilience/clean technology projects and in
✓ are given the mandate from government, related sectors and cross sector areas
✓ have a voice at the national policy table, • A significant number of DFIs have limited
✓ foster product development skills within knowledge of climate finance funds and the
their organization, requirements to access such funds and are
✓ proactively engage in outreach and technically unprepared to apply for
awareness building, and financing
✓ concentrate on readiness requirements to • A significant number of DFIs lack technical
be accredited to access the substantial skills in key project management areas such
international funds available to intermediate as management and oversight of
climate finance implementation processes, monitoring and
• DFIs are ideally suited to demonstrate how reporting procedures and others to secure
climate can be integrated (mainstreamed) in such financing. However, the volume of
developmental activities business in the sector is increasing
• DFIs can play a key role in developing a dramatically, underscoring the need to
regular stream of bankable projects. DFIs ensure DFIs are sufficiently prepared
are well placed to leverage private sector • A significant number of DFIs have not
climate finance by developing innovative received technical assistance and training
financing instruments on climate finance issues
Source Smallridge (2015)

Almost all Asian countries have their own national development banks, and
those are the member of the Association of Development Financing Institutions in
Asia and the Pacific (ADFIAP). ADFIAP is the group of development finance
institutions in Asia and the Pacific region. Currently 131 DFIs from 45 countries
(including outside of Asia and the Pacific region) are joined to the ADFIAP (2015).
Smallridge (2015) conducted an on-line survey to the members of ADFIAP to
measure the extent of ADFIAP members’ knowledge, involvement and experience
in supporting low carbon, climate resilience and clean technology projects. This
survey identified some key lessons learnt and challenges shown in Table 15.5.
In addition, the national development bank will be able to work with other
international development banks as a financial institution. One of the cases is the
Small Industries Development Bank of India (SIDBI). The SIDBI is one of the
public financial institutions of India to facilitate finance in the activities of
small-medium size enterprises (SMEs) in India, and SIDBI works as a member of
International Development Finance Club (IDFC). SIDBI also serves as an executing
agency of several development program financed by development financial insti-
tutions, such as JICA.
National Development Banks are expected to play a significant role to mobilize
domestic and international finance in low carbon programs and project in line with
their respective countries’ low carbon development policy, but their capacity is still
limited. Therefore, capacity development including knowledge and experience
sharing in the form of regional cooperation is indispensable.
454 T. Sudo

15.4.3 Innovative Approaches

15.4.3.1 Green Bond and Low Carbon Infrastructure Bond

Issuing bond is one of the way of mobilize finance from domestic and/or interna-
tional market. Green bond is the purpose-specific bond to mobilize finance
specifically for the purpose to finance in environmental projects. Recent years,
issuance of green bond is drastically increasing. According to Climate Bonds
Initiative (2015), total value of issuance of Green Bonds was USD 36.59 billion in
2014 and the pace of issuance of green bond is accelerated in 2015.
The security targeted to invest in infrastructure is a sort of Asset-backed Security
(ABS) called as “Infrastructure Bond”, and this will be applicable to the low carbon
infrastructure projects. In general, Repayment and coupon payment of the infras-
tructure bond will be made by the revenue from the targeted infrastructure project.
Since such securities are issued in a subdivided form, the third party investors can
purchase the securities easily and manage the risk in the law of large number.
Further, securities are in general transferable, so if the market transaction is
available for such securities, this may be able to solve the issue on the liquidity of
infrastructure assets.
Having said that, there are several challenges on the securitization. First, the
success of the securitization depends on the market condition. If there is no market
where such security transaction is available, it deems costly to issue and sell the
security. That will cause the increase of project cost and lead hesitation to the third
party investor to invest in the security. Further, scale (or depth) of the market is also
one of important factors to be considered. If the market is not enough large or
sophisticated, the market may not be able to absorb the volumes of securities. The size
of China’s ABS is estimated about US$ 15 billion, which is miniscule compared with
the US$ 10 trillion market in the United States in 2012. China’s ABS market is less
than 1 % of its fixed-income market (US$ 4.2 trillion), whereas in the United States,
the ABS market is 26 % of the US$ 38 trillion fixed-income market (Lum 2013).
Second, monitoring and evaluation of the targeted project is critical for pricing of the
security. The third party investors are limited to access project information and are
difficult to identify the risks of the targeted projects. Therefore, standardization of
monitoring and evaluation as well as reporting schemes will help to reduce transaction
cost for the third party investors. Third, liquidity of the security itself is also one of the
issues. Since the project revenue stream is in general stable, infrastructure-related
security will be held until maturity. In addition, lack of secondary market also makes
investors to hesitate to release the security from their hands.

15.4.3.2 Sovereign Wealth Fund

Sovereign Wealth Fund (SWF) is a long-term investment fund owned by a sovereign

nation, distinct from investments by national pension funds, state-owned-enterprises
15 Domestic and International Finance in a Regional Perspective 455

Table 15.6 Types of Sovereign Wealth Funds by policy objective

Type Description
Stabilization Funds Set up by countries rich in natural resources to insulate the budget
and economy from volatile commodity prices (usually oil). The
funds build up assets during the years of ample fiscal revenues to
prepare for leaner years
Savings Funds Intended to share wealth across generations. For countries rich in
natural resources, savings funds transfer nonrenewable assets into a
diversified portfolio of international financial assets to provide for
future generations, or other long-term objectives
Reserve Investment Funds established as a separate entity either to reduce the negative
Corporations cost-of-carry of holding reserves or to pursue investment policies
with higher returns. Often, the assets in such arrangements are still
counted as reserves
Development Funds To allocate resources for funding priority socioeconomic projects,
such as infrastructure
Pension Reserve Funds Pension and/or contingent-type liabilities on the government’s
balance sheet
Source IMF (2007)

and development banks, and distinct from central bank management of liquid official
foreign exchange reserves. Typically, sovereign wealth funds are funded from
commodity (natural resource) revenues, currency intervention or fiscal savings. The
International Working Group of Sovereign Wealth Funds (IWG-SWF) (2008)
defined sovereign wealth funds as “special purpose investment funds or arrange-
ments that are owned by the general government” and “created by the general
government for macroeconomic purposes, SWFs hold, manage, or administer assets
to achieve financial objectives, and employ a set of investment strategies which
include investing in foreign financial assets”.
International Monetary Fund (IMF) (2007) categorized SWF by policy objective
(Table 15.6).
Borst (2015) argued that Asia is a major player in the universe of sovereign
wealth funds. As a region, Asia accounts for nearly 40 percent of the more than
$7 trillion in total sovereign wealth fund assets and a disproportionate number of
the largest funds. Selected Asian Sovereign Wealth Funds and Pension Funds are
shown in Table 15.7.
Considering the asset size of SWFs in Asia, SWFs are one of major funding
source in Asia. However, in general, SWFs invest in external assets, especially
securities traded in major, developed markets (Seward et al. 2014). This may
depend on the objective of the funds. Gelb et al. (2014) compiles the functions for
SWFs (Table 15.8).
Major issues on the strategic asset allocation of the funds for fund managers are
safety, liquidity in short to middle term, and stable profit. Those issues may be able
to manage through portfolio management if and only if investment in asset is
reasonably small and minimize the loss when one of the assets is defaulted.
456 T. Sudo

Table 15.7 Selected Asian Sovereign Wealth Funds and Pension Funds
Country Fund name Type Source of Asset size
funds ($ billion)
Japan Government Pension Pension Pension 1,205
Investment Fund Reserve Fund contributions
China China Investment Reserve Foreign 482
Corporation Investment exchange
Corp. reserves
Hong Exchange Fund Reserve Foreign 327
Kong Investment exchange
Corp. reserves
Singapore Government of Singapore Reserve Foreign 248
Investment Corporation Investment exchange
Corp. reserves
China National Social Security Pension Fiscal surplus 205
Fund Reserve Fund
Singapore Temasek Holdings Savings Fund State-owned 158
holdings
Korea Korea Investment Reserve Foreign 57
Corporation Investment exchange
Corp. reserves
Malaysia Khazanah Nasional Berhad Development State-owned 39
Fund holdings
Brunei Brunei Investment Agency Savings Fund Oil and gas 30
Thailand Government Pension Fund Pension Pension 19
Reserve Fund contributions
Taiwan National Stabilization Fund Stabilization Foreign 15
Fund exchange
reserves
Viet Nam State Capital Investment Development State-owned 1
Corporation Fund holdings
Source Borst (2015)

Table 15.8 Functions for Sovereign Wealth Funds

Function Investment objectives Strategic asset allocation
Saving Inter-generational equity, national Long term investment horizon,
endowment, meeting particular diversification with moderate to high
long-term liabilities or contingent risk tolerance, and low liquidity
liabilities (pensions) requirement in short-medium run
Precautionary Stabilize spending in the face of Liquidity, safety (capital
short-term and medium-term preservation), short to medium term
volatility in resource income investment horizon
“Buffer” Hold committed funds to pace Safety (capital preservation),
disbursements in line with liquidity, short to medium term
absorptive capacity constraints investment horizon
Source Gelb et al. (2014)
15 Domestic and International Finance in a Regional Perspective 457

However, in general, infrastructure project requires high cost for construction, so

risks associated with the project may impact on the risk management of the funds
and funds may not be able to absorb the risks. In addition, it takes time to recover
the investment in infrastructure project due to high upfront cost and limited annual
revenue. This will be another barrier for SWFs in terms of liquidity.
One of options to remove these barriers is securitization. Securitization is one of
the financial practices in selling cash flow to the third-party investors in the form of
securities such as bond. As discussed in the previous section, even though the scale
of the bond market is still limited in Asia, securitization of low carbon infrastructure
projects may be able to mobilize funds from SWFs into low carbon projects.

15.4.3.3 Financial Transactions Tax (FTT)

A financial transaction tax is a levy on a monetary transaction. Targeted finance

transactions and purpose of use of the tax revenue are different case by case.
Keynes (1936) proposed a levy on the security transaction. Keynes (1936) con-
cerned on the predominance of speculation and noted that “The introduction of a
substantial government transfer tax on all transactions might prove the most ser-
viceable reform available, with a view to mitigating the predominance of specu-
lation over enterprise in the United States”. On currency transaction, Tobin (1974)
proposed the currency transaction tax famous as “Tobin Tax”.
Recently, UN (2010) highlighted FTT as one of sources for climate change
finance. In 2011, G20 at Cannes also highlighted FTT and noted in the declaration
as “We acknowledge the initiatives in some of our countries to tax the financial
sector for various purposes, including a financial transaction tax, inter alia to
support development” [para 82 of G20 (2011)].
European Commission adopted a proposal for a Council Directive on a common
system of FTT. However, the EU Member States that had expressed their oppo-
sition to a common system of FTT. Eleven EU Member States (Austria, Belgium,
Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain)
established “enhanced cooperation” in the area of the establishment of a common
system of FTT in 2013.
The tax revenue from FTT varies depending on the targeted financial instru-
ments and those volumes of transaction and tax rate. UN (2010) estimated the
revenue potential from FTT between US$ 2 billion and US$ 27 billion in 2020.
Gates (2011) reported to G20 in 2011 shows that the wide range of potential
revenue from FTT from US$ 9 billion USD to US$ 250 billion per year.
Canfin-Grandjean Commission (2015) noted annual revenue of the French FTT
marked 700 million Euros in 2012. Matheson (2011) argues that a securities
transaction tax (STT) “reduces trading volume, it may decrease liquidity or,
equivalently, may increase the price impact of trades, which will tend to heighten
price volatility”. UN (2010) noted that the global financial transaction tax would be
a new and additional source, but the share of the revenues to be allocated to climate
action would be a policy issue. So, it suggested that “strong international
458 T. Sudo

coordination, allowing for international implementation, would increase the effi-

ciency of such a source, limiting its distorting effects”. Without international
coordination and cooperation in the implementation of FTT, the relocation of
financial activity may happen easily since financial activities are already globalized
and financial institutions easily select the place for their business considering the
level of regulations, taxes.
Some of countries already introduce FTT within their country. However,
introduction of FTT in international and/or regional level is still debating. In case of
Asian region, although FTT is potential finance sources since the volume of
security transaction in Asian countries is increasing and financial market becomes
matured, the market is still vulnerable to the shock of global financial market.
Therefore, further political and technical debates on FTT may be necessary if Asian
countries consider introducing FTT as regional common system,

15.5 Conclusion

Low carbon development is a key development path in Asian region. Among

others, finance is one of key aspects to implement actions towards low carbon
development. The Asia-Pacific Region will require billions of dollars if it is to
transition to low-carbon growth paths and adapt to the unavoidable impacts of
climate change. Estimated finance needs deems so huge, but large amount of
finance will be available. Critical issue discussed in this chapter is the choice of
finance resource appropriate for country’s circumstances.
Figure 15.11 shows potential combination of finance resources and innovative
mechanisms. Although, each finance source and innovative mechanism have pros
and cons, better finance structure in combination with appropriate finance resources
and innovative mechanisms could overcome the weakness and challenges of each
finance resource and innovative mechanism. In addition, the options for the choice
of finance source and instrument will be extended by better collaboration among
Asian countries. Therefore, to find better win-win solution for Asian region, fol-
lowing policy recommendation will be proposed.
• Develop enabling environment: Accessible finance resources depends on the
country’s policy and economic circumstances and market condition. Among
finance resources, domestic finance will be central resource because of stability
and less risks. To enhance the mobilization of finance from domestic resource,
government should develop better enabling environment to collecting tax and
public service revenue as well as better market condition for private sector.
• Capacity Development: Capacity is also a crucial factor in enhancing climate
change activities in the region. First, countries need to develop the capacity to
manage the finance they receive, including procurement and contract manage-
ment and, in the case of loans, repayment schedule management. In addition,
even if developing countries receive technology transfers, there is no guarantee
15 Domestic and International Finance in a Regional Perspective 459

Fig. 15.11 Combination of financial resources and innovative mechanisms. Source Author

they will be used appropriately. Developing countries must develop their own
capacity to manage funds and technology. In addition, stronger financial man-
agement and banking sector capacity will help in mobilizing domestic financial
resources for low carbon development actions. There is a wide variety of
countries in Asia, including developed and emerging countries and great scope
for sharing knowledge and experience. As proposed in Sect. 15.4.1 in this
chapter, establishment of Low Carbon Development Finance Facility in Asia
could be an option to facilitate knowledge sharing among Asian countries as
well as to promote South–South cooperation and triangular cooperation.
Sometimes developing countries’ experience can be copied easily and cheaply
in other developing countries.
• Transparent and accountability to mobilize international finance public finance
resources: Transparency and accountability are keys for international finance
donors as well as recipient countries to effectively mobilize and target the
investments on low carbon infrastructure. Even though the international public
finance complement to the domestic finance resources, those are also stable
finance resources.
• Develop common approach among Asian countries: Common vision, goals and
approach can avoid losses by externalities. Sustainable Development Goals and
INDC targets will provide good foundation to create common approach in the
region.
460 T. Sudo

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 Part IV
Conclusion
Chapter 16
The Hard Choices that Asia Must Make

Kaliappa Kalirajan, Venkatachalam Anbumozhi

and Fukunari Kimura

16.1 The Recognition of the Need for Regional

Cooperation in the National Context

A remarkable transformation that happened in the energy sector in very recent times
is the declining world fossil-fuel prices, which may continue for some more time,
with the emergence of increasing sources of shale gas and tight oil in North
America (Herberg 2015). As a consequence, the probability of acceleration in the
use of fossil fuel around the globe is high. At the same time, the recent World
Energy Outlook Special Report published by the International Energy Agency
(2015) reveals that greenhouse gas (GHG) emissions from the energy sector
comprise about two-thirds of all anthropogenic GHG emissions and CO2 emissions
from the sector have risen over the past century to ever higher levels. These recent
developments necessitate taking effective actions in reforming the energy sector at
the national, regional, and international levels to tackling the climate change
problem without affecting energy security. Effective actions include mainly making
use of established low-carbon energy sources efficiently and increasing the phase of
the development and dissemination of new technologies that have yet to be adopted
in reasonable scales. In this context, there are encouraging positive signs in the
sense that the global investment in renewable energy sources in 2014 increased to
$270 billion leading to an increase in power generation by 128 GW. A frequently

K. Kalirajan (&)
Australian National University, Canberra, Australia
e-mail: [email protected]; [email protected]
V. Anbumozhi
F. Kimura
Economic Research Institute for ASEAN and East Asia, Jakarta, Indonesia
e-mail: [email protected]
F. Kimura
Faculty of Economics, Keio University, Tokyo, Japan
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 465

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_16
466 K. Kalirajan et al.

asked question with respect to the low-carbon energy systems such as renewables
and clean coal is about its competitiveness compared to the other carbon intensive
energy generation. The short answer to this question is that low-carbon energy
systems are becoming increasingly cost effective in a number of countries and
circumstances (International Energy Agency 2015).
How to develop and disseminate cost effective low-carbon energy technologies
at the national level depends on a number of factors, of which R&D, and technology
transfer through regional cooperation initiatives are two most important instru-
ments. An interesting question with respect to R&D is about whether developing
countries will have sufficient physical and human capital to devote to low-carbon
energy technologies such as solar, wind, advanced transport fuel research at the
national level. Research capabilities need to be supported and maintained not only
through national initiatives, but also through seeking collaboration across the
borders. Such collaborations when combined with local indigenous knowledge will
facilitate implementing more cost effective technologies. The possibility of effi-
ciency and effectiveness of such ‘behind the border’ and ‘beyond the border’
collaborative research in producing low-carbon energy systems and decarbonizing
existing energy systems being very high cannot be ruled out due to many reasons,
such as the pooling of resources including technical-know-how. Policymakers in
the Asian region need to recognize the fact that the current developments in world
energy markets with the emergence of newly viable supplies to development of
energy efficient technologies, financing windows available with new climate pacts
as well opportunities provided with current trade regimes presents new opportu-
nities for mutual gains. Thus, there is great potential for leveraging common interest
in stable low-carbon energy markets to promote greater cooperation. However,
achieving this outcome will require the involvement of dedicated and innovative
private sector and the support of strong policy commitment across countries.

16.2 Motivation for Regional Cooperation

in the International Context

The emerging economies of Asia alone currently account for nearly 40 % of GHG
emissions, up from 31 % in 2001. According to several studies (ADB–ADBI 2015;
IEA 2015), the cost of adopting climate change is likely to be higher in this region
than in other site, including Europe, the United States, the Middle East, and Africa.
Given the current emission profile, the latest round of climate change negotiations
for the adoption of a comprehensive global treaty will be in force in 2020. Today,
Asia remains in a delicate position. Its countries face common technology, finance
and capacity building challenges. Asia must be made an integral part of the solution
if the global efforts to combat climate change is to succeed.
The proposed framework for regional cooperation in accelerating low-carbon
green growth would be in the political interest of all governments in Asia for three
16 The Hard Choices that Asia Must Make 467

reasons. First, a more direct, region-wide push for market-based approaches on

energy efficiency, technology, and investment are essential to add credibility to the
voluntary pledges and national targets without losing economic competiveness.
Second, given the scale of investment required and the deterioration of public
finances in many countries, the cooperation, consultation and coordination among
governments in this region will make it possible for their countries to leverage on
private sector capital. Third, while it will take some time to agree on the details of a
global climate deal, it remains important to advance with concrete actions to pro-
vide the international community with experience and lessons for increased
financial and technical assistance to developing Asia.

16.3 Barriers to Regional Cooperation

The benefits of regional cooperation needs to be balanced against the barriers that
have to be overcome. Underpinning many barriers is the question of competitive-
ness (Bosello et al. 2003; Clive 2014; Kawai and Lee 2015), as noted in chapter
“Introduction: Serendipity of Low Carbon Energy System and the Scope of
Regional Cooperation”, there are existing trends towards collaboration based on the
market and non-market principles, which are considered to be reflective of market
forces. At the heart of any regional cooperation effort and competiveness rationale
is some form of relative analysis; that is, any increase in market share is by defi-
nition at someone else’s expense. While a country or sector may see advantages for
itself in a particular form of cooperation, this may be at the expense of another
country or firm in the same region. Collaboration in areas that are potentially
exploitable by markets are thus prone to concerns about whether countries in the
competing trading bloc will gain a greater advantage. In the face of competitiveness
in low-carbon technology transfer and innovation, nations now focus on arrange-
ments for intellectual property rights, which seek to regulate the basis on which free
trade is conducted.
One closely related type of barrier pertains to those arising from institutional
mismatch. Different countries have different structures and priorities for public and
private financing. This can mean that governmental involvement is manifested
through its support for different types of institutional investments on low-carbon
green growth. Hence, what is fundamentally the same financial vehicle could be
supported by, for example, public finance in China, or by private finance in China
and an international consortium of donors in Indonesia. Concerns about mismatch
arise not only because of potential confusion in identifying the right partner but also
because one party may feel that other institutional settings give it an advantageous
position in terms of exploiting the output. Such mismatch may also exist among
468 K. Kalirajan et al.

national agencies that are involved or responsible for supporting a collaborative

network such as low-carbon innovation centres. “Which Ministry is in-charge?” is a
common refrain in all directions.
As the support of bilateral and multilateral organisations for low-carbon actions
through technical and financial assistance grows, a new set of subsidiary issues is
developing around the question of where to locate a particular regional cooperation
facility in a multilateral context. Regional cooperation may also be difficult to
sustain in ever-changing political and public financial environments. The
longer-term nature of cooperative actions require commitments that last longer than
what governments are able to deliver. Under these circumstances, collaborators run
the risk of finding that their members had changed priorities and withdrawn support
from an initiative. On the other hand, every country is aware that a withdrawal from
previously agreed regionally coordinated initiatives comes with a political cost,
which can result in a country becoming locked in to a collaborative initiative which
it does not wish to continue.
Other known barriers pertain to project-level challenges such as (in ascending
order of importance) distance, language, and social capital.

16.4 No-Regret Policy Interventions for Improving

Regional Cooperation

To capitalise more fully on this opportunity to move regional cooperation ahead,

the following policy actions are proposed:
• Expand the ongoing trade negotiations to include low-carbon goods. It is high
time for the rest of Asia, particularly the rest of the emerging Asian economies,
to take cues from East Asia and form free trade agreements on goods and
services that have the potential to contribute significantly to climate change
efforts. The removal of tariffs and non-tariffs on four basic clean energy tech-
nologies (wind, solar, clean coal and efficient lighting) may be the first steps to
take. Liberalising trade and investment across borders in these and other specific
goods and services may have implications on INDC targets. Other relevant trade
concerns that need to be discussed are those related to the definition of products,
harmonising classifications and descriptions across countries within the har-
monised systems, changes in technology, and perceived impacts on domestic
industries.
• Establish a Regional Low-carbon Fund that could draw equities from regional
sovereign wealth and institutional investors such as pension funds as well as
foreign exchange reserves. Multi-lateral and bilateral financial institutions would
bit for preferential access to regional low-carbon development packages of their
finance mechanisms. Leading regional fund management firms would likewise
tender their bids, explaining how they would leverage the mechanisms on offer
to create a new fund or strengthen an existing one and generate enhanced
16 The Hard Choices that Asia Must Make 469

investment flows as a result. The credit support package could be opened to

preferential bids from end-investors themselves. The fund could work on a
long-term cycle, with the right to access public finance mechanisms tendered
every five years. In this way, the increased official development assistance that
developed countries provide in connection with the Green Climate Fund could
also be structured to mobilise a maximum possible amount of low-carbon
financing for developing countries in Asia.
• Start a formal regional public-private dialogue on the role of integrated carbon
market. The dialogue should be started as soon as possible to enable govern-
ments, business, and experts to discuss the rules governing emission trading
schemes; the role of an integrated carbon market in the low-carbon economy;
and the ground rules on how to coordinate for future actions, including the
establishment of international procedures, regional frameworks and allowance
targets. The dialogue should also tackle the shared level of environmental
integrity across emerging schemes; improvements in the bilateral offset market;
how to design approaches for reducing price fluctuations without distorting the
markets; and the wise use of revenues from auctioning.
• Set up low-carbon innovations centres for each sub-region (e.g., SAARC,
ASEAN, CAREC2) to facilitate applied Research, Development and Diffusion
programmes on locally relevant low-carbon solutions through open source
innovation among academics, businesses, and other actors. A range of activities,
shaped by the characteristics of the host region and appropriate to different
stages of the technology and market curve, could be utilised by the centres.
Funding for the centres would be drawn from regional public funds and phi-
lanthropic sources. These centres’ main purpose is to support nationally
appropriate mitigation actions and align international cooperation with domestic
priorities.
• Launch a regional knowledge platform for capacity building. This platform
should be created as soon as possible to enable progressive economies to engage
in a formal dialogue with policymakers, academics, private sector representa-
tives, and international institutes. Suitably set-up as a network of knowledge
institutes and as an independent organisation, the platform will establish a
learning environment on low-carbon green growth policies and practices. It will
also monitor, evaluate and report dynamic policy actions at national, subnational
and international levels. This platform will enhance learning, decision-making
and management; strengthen government accountability; improve public trust;
and enable stakeholder participation. Through widespread consultation, it can
also provide decision-makers with policy guidance, good practices, planning
tools and data necessary to accelerate low-carbon green growth. Funding for the
platform would be drawn from a range of public, private and philanthropic
resources.

2
SAARC—South Asian Association for Regional Cooperation; ASEAN—Association of
Southeast Asian Nations; CAREC—Central Asia Regional Economic Cooperation.
470 K. Kalirajan et al.

References

Asian Development Bank-Asian Development Bank Institute (ADB–ADBI). (2015). Managing

the transition to a low carbon economy: Perspectives, policies and practices from Asia. Tokyo:
Asian Development Bank Institute.
Bosello, F., Buchner, B., & Carraro, C. (2003). Equity development, and climate change control.
Journal of European Economic Association, 1, 601–611.
Clive, G. (2014). Environment and regional trade agreements: Emerging trends and policy
drivers, OECD trade and environment. Working papers 2014/02. Paris: Organisation for
Economic Cooperation and Development.
Herberg, M. (2015). U.S., Japanese, and the asian energy security in a new energy era. NBR
special report # 51. Seattle, Washington: National Bureau of Asian Research.
International Energy Agency (IEA). (2015). Energy and climate change, world energy outlook.
Special report. Paris: OECD/IEA.
Kawai, M., & Lee, J. (2015). Rebalancing for sustainable growth: Asia’s post crisis challenge.
Berlin: Springer.
Erratum to: Investing in Low-Carbon
Energy Systems

Venkatachalam Anbumozhi, Kaliappa Kalirajan, Fukunari Kimura

and Xianbin Yao

Erratum to:
V. Anbumozhi et al. (eds.), Investing in Low-Carbon
Energy Systems, DOI 10.1007/978-981-10-0761-3

The book was inadvertently published with an error in the book title. The title
should be Investing in Low-Carbon Energy Systems whereas it was given as
Investing on Low-Carbon Energy Systems. The title has been updated with the
correction.

The updated original online version for this book can be found at
DOI 10.1007/978-981-10-0761-3.

V. Anbumozhi
F. Kimura
Economic Research Institute for ASEAN and East Asia (ERIA),
Jakarta, Indonesia
e-mail: [email protected]
K. Kalirajan (&)
Crawford School of Public Policy, Australian National University,
Canberra, Aust Capital Terr, Australia
e-mail: [email protected]; [email protected]
F. Kimura
Faculty of Economics, Keio University, Tokyo, Japan
e-mail: [email protected]
X. Yao
Asian Development Bank, Manila, Philippines
e-mail: [email protected]

© Springer Science+Business Media Singapore 2016 E1

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3_17
 Table. A1 An overview of INDCs, SDGs and Regional Trade Agreements by country
Country INDCs Energy targets Trade SDGS
Australia • Economy-wide target to reduce • An indicative estimate of the • TPP country
emissions by 26–28 % below magnitude of potential energy • RCEP country
2005 levels by 2030 savings from appliance and • Ease of doing business
See Table. A1

• Base year 2005 equipment energy efficiency report 2013: 10 out of

Appendix 1

• Time frame: 2021–2030 measures alone is 32,000 185 (Source World

• Target type: absolute economy gigawatt-hours per annum by Bank 2013a, b)
wide emissions reduction by 2020 (Source Council of • Global competitiveness
2030, to be developed into an Australian Governments 2009) index 2013: 22 out of

DOI 10.1007/978-981-10-0761-3
emissions budget covering the • Renewable energy target of 144 (Source WEF 2013)
period 2012–2030 33,000 gigawatt hour by 2020 • Index of economic
• Gases covered: Carbon dioxide • 23.5 % of Australia’s electricity freedom 2013: 3 out of
(CO2), Methane (CH4), Nitrous generation in 2020 will be from 177 (Source The
oxide (N2O), renewable sources (Source Heritage Foundation
Hydrofluorocarbons (HFCs), Australian Ministry of the 2013)
Perfluorocarbons (PFCs), Environment 2015) • Environmental

© Springer Science+Business Media Singapore 2016

Sulphur hexafluoride (SF6), NF3 Performance Index
• Sectors: energy, industrial 2014: 3 out of 178
processes and product use, countries (Source Yale
agriculture, LULUCF, waste University 2015)
• 100 % of base year emissions
covered (Source Australian

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,

Government 2015)
(continued)

471
Table. A1 An overview of INDCs, SDGs and Regional Trade Agreements by country
472

Country INDCs Energy targets Trade SDGS

Brunei • Conserving carbon sink resources by • Reduce energy intensity by 45 % by • TPP country
maintaining 50 % of total land area 2035, with the 2005 level as the • RCEP country
under forest cover and apportioning a baseline • Ease of doing business
percentage of built-up areas as green • Renewable energy in total power report 2013: 79 out of
areas (Source Minister of generation mix: 954,000 MWh by 185 (Source World
Development Brunei Darussalam 2035 (Source Energy Department Bank 2013a, b)
2012) 2013) • Environmental
Performance Index
2014: 37 out of 178
countries (Source Yale
University 2015)
Cambodia • Reduction in Gg CO2eq and in % in • Reduce the future national energy • RCEP country • Population below
2030 compared to the baseline: demand by 20 % until 2035 compared • Ease of doing business $1.25 (PPP) per day
– Energy industries 1800 (16 %) to BAU projections (Ministry of report 2013: 133 out of 2011: 10.1 %
– Manufacturing industries 727 Industry, Mines, and Energy 2013) 185 (Source World (Source World Bank
(7 %) Bank 2013a, b) 2013a, b)
– Transport 390 (3 %) • Global competitiveness • Population without
– Other: buildings, cook stoves, index 2013: 94 out of electricity 2012:
waste, irrigation, solar lamps 155 (1 %) 144 (Source WEF 67 %
– Total savings: 3100 (27 %) 2013)
• BAU emissions by 2030 is 11,600 Gg • Index of economic
CO2eq freedom 2013: 95 out
• Time frame: 2020–2030 of 177 (Source The
• Gases covered: Carbon dioxide (CO2), Heritage Foundation
Methane (CH4), Nitrous oxide (N2O) 2013)
• Increasing the forest cover to 60 % of • Environmental
national land area by 2030 and Performance Index
maintaining it after 2030. Emission 2014: 145 out of 178
reductions 4.7 tCO2e/ha/year (Source countries (Source Yale
Cambodian Government 2015) University 2015)
Appendix 1

(continued)
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
China • To achieve the peaking of emissions • To increase the share of non-fossil • RCEP country • Population below
Appendix 1

around 2030 and making the best fuels in primary energy consumption • Ease of doing business $1.25 (PPP) per day
efforts to peak early to around 20 % (Source Chinese report 2013: 91 out of 2011: 6.3 %
Actions by 2030 Government 2015) 185 (Source World (Source World
• To lower emissions per unit of GDP Bank 2013a, b) Bank 2013a, b)
by 60–65 % from the 2005 level • Global competitiveness • Population without
• To increase the forest stock volume by index 2013: 28 out of electricity 2012:
around 4.5 billion cubic meters on the 144 (Source WEF 0.2 %
2005 level (Source Chinese 2013)
Government 2015) • Index of economic
freedom 2013: 136 out
of 177 (Source The
Heritage Foundation
2013)
• Index of economic
freedom 2013: 136 out
of 177
• Environmental
Performance Index
2014: 118 out of 178
countries (Source Yale
University 2015)
India • Reduce the emissions intensity of its • Annual fuel saving of more than • RCEP country • Population below
GDP by 33–35 % by 2030 23 million ToE • Ease of doing business $1.25 (PPP) per day
• Achieve about 40 % cumulative • Cumulative avoided electricity report 2013: 132 out of 2011: 23.6 %
electric power installed capacity from capacity addition of 19,000 MW 185 (Source World (Source World
non-fossil fuel based energy resources • CO2 emission mitigation of 98 million Bank 2013a, b) Bank 2013a, b)
by 2030 with the help of transfer of tons per year • Global competitiveness • Population without
technology and low cost international • 63 GW of nuclear installed capacity index 2013: 71 out of electricity 2012:
by 2032 (if supply of fuel is ensured) 24 %
473

(continued)
Table. A1 (continued)
474

Country INDCs Energy targets Trade SDGS

finance including from Green Climate • 60 GW of wind power installed 144 (Source WEF
Fund capacity by 2022 2013)
• Create an additional carbon sink of • 100 GW of solar power installed • Index of economic
2.5–3 billion tons of CO2 equivalent capacity by 2022 freedom 2013: 119 out
through additional forest and tree • Solarization of all the 55,000 petrol of 177 (Source The
cover by 2030 pumps across the country Heritage Foundation
• Base year: 2005 (Source Indian • 10 GW of biomass installed capacity 2013)
Government 2015) by 2022 • Environmental
• Vast potential of hydropower Performance Index
development to more than 100 GW 2014: 155 out of 178
(Source Indian Government 2015) countries (Source Yale
University 2015)
Indonesia • Emission reduction target of 29 % • Decrease energy intensity by around • RCEP country • Population below
(2881 GtCO2e) under BAU scenario 1 % per year on average until 2025 • Ease of doing business $1.25 (PPP) per day
by 2030 or 41 % with international (Source The National Energy report 2013: 128 out of 2011: 16.2 %
support Conservation Master Plan 2005) 185 (Source World (Source World
• Gases covered: Carbon dioxide (CO2), • 23 % energy comes from new and Bank 2013a, b) Bank 2013a, b)
Methane (CH4), Nitrous oxide (N2O) renewable energy (including nuclear) • Global competitiveness • Population without
• Sectors covered: energy (including by 2025, and at least 31 % by 2050 index 2013: 34 out of electricity 2012:
transport), industrial processes and • Crude oil share will be less than 25 % 144 (Source WEF 24 %
product use, agriculture, LULUCF, by 2025, and less than 20 % by 2050 2013)
waste • Coal share will be at least 30 % by • Index of economic
• Moratorium on primary forests 2025, and at least 25 % by 2050 freedom 2013: 108 out
clearing: the prohibition of peat land • Natural gas share at least 22 % by of 177 (Source The
conversion in 2010–2016 2025, and at least 24 % 2050 (Source Heritage Foundation
• 12.7 million hectares of forest area has Indonesian Government 2014) 2013)
been designated for forest • Environmental
conservation (Source Indonesian Performance Index
Government 2015) 2014: 112 out of 178
countries (Source Yale
University 2015)
Appendix 1

(continued)
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
Japan • Emission reduction target of 26 % by • Reduce electricity demand by at least • TPP country
Appendix 1

fiscal year 2030 (1.042 billion 10 % by 2030 • RCEP country

tCO2eq) • Energy mix by 2030: • Ease of doing business
• Estimated emissions in FY 2030 – Nuclear: 20–22 % report 2013: 24 out of
(million tCO2): energy (927), industry – Hydro: 8.8-9.2 % 185 (Source World
(401), commercial and other (168), – Coal: 26 % Bank 2013a, b)
residential (122), transport (163), – LNG: 27 % • Global competitiveness
energy conversion (73) – Oil: 3 % index 2013: 6 out of
• Estimated emissions in CY 2030: non – Renewables: 22–24 % (Source 144 (Source WEF
energy originated CO2 (6.7 % or 70.8 Japanese Government 2015) 2013)
million tCO2eq), methane (12.3 % or • Index of economic
31.6 million tCO2eq), nitrous oxide freedom 2013: 24 out
(17.4 % or 21.1 million tCO2eq), of 177 (Source The
HFCs (21.6 million tCO2eq), PFCs Heritage Foundation
(4.2 million tCO2eq), SF6 (2.7 million 2013)
tCO2eq), NF3 (0.5 million tCO2eq) • Environmental
• Removals target by LULUCF is 37 Performance Index
million tCO2e 2014: 26 out of 178
• Sectors covered: all sectors and countries (Source Yale
categories (energy, industrial, University 2015)
agriculture, LULUCF, waste)
• Gases covered: Carbon dioxide (CO2),
Methane (CH4), Nitrous oxide (N2O),
Hydrofluorocarbons (HFCs),
Perfluorocarbons (PFCs), Sulphur
hexafluoride (SF6), NF3 (Source
Japanese Government 2015)
(continued)
475
Table. A1 (continued)
476

Country INDCs Energy targets Trade SDGS

Lao PDR • Increase forest cover to 70 % of land • Increase the share of renewable energy • RCEP country • Population below
area (i.e to 16.58 million hectares) by to 30 % of energy consumption by • Ease of doing business $1.25 (PPP) per day
2020. Once the target is achieved, 2025. Estimated CO2eq reductions: report 2013: 163 out of 2012: 30.3 %
emission reductions will carry beyond 1,468,000 ktCO2eq (by 2025). (note 185 (Source World (Source World
2020. Estimated CO2eq reductions: that large scale technologies with Bank 2013a, b) Bank 2013a, b)
60,000–69,000 ktCO2eq (once the installed capacity equal to or greater • Global competitiveness • Population without
target has been met, by 2020 onwards) than 15MW are not included in this index 2013: 92 out of electricity 2012:
• Increase the share of biofuels to meet policy’s target) 144 (Source WEF 15 % (IEA, World
10 % of the demand for transport • Estimated CO2eq reductions from 2013) Energy Outlook
fuels by 2025 large-scale (>15 MW) hydropower • Index of economic 2014)
• Electricity available to 90 % of plants to provide clean electricity to freedom 2013: 144 out
household in rural area by 2020. neighboring countries 16,284 of 177 (Source The
Estimated CO2eq reductions: ktCO2eq per annum (2020–2030) Heritage Foundation
63 ktCO2eq/pa (once the target has (Source Lao PDR Government 2015) 2013)
been met in 2020) • Environmental
• Estimated CO2eq reductions from Performance Index
road network development: 2014: 127 out of 178
33 ktCO2eq/pa, and 158 ktCO2eq/pa countries (Source Yale
for public transport development University 2015)
• Build capacity to monitor and evaluate
policy implementation success, with a
view to producing new policy,
guidance and data
• Adaptation sectors: agriculture,
forestry and land use change, water
resources, transport and urban
development, public health (Source
Lao PDR Government 2015)
(continued)
Appendix 1
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
Malaysia • Carbon intensity reduction target of • To reduce final consumption by 10 % • RCEP country • Population below
Appendix 1

40 % by 2020 (Source Ministry of in all sectors from 2011–2030 (Source • TPP country $1.25 (PPP) per day
Natural Resources and Environment The National Energy Conservation • Ease of doing business 2004: 0.5 %
Malaysia 2014) Master Plan 2005) report 2013: 12 out of (Source World Bank
• Target of 2 GW nuclear power plant 185 (Source World 2013a, b)
capacity (Source Ministry of Science, Bank 2013a, b)
Technology and Innovation 2012) • Global competitiveness
• Cumulative total RE (MW): index 2013: 20 out of
– 2020: 2065 144 (Source WEF
– 2030: 3.484 2013)
– 2050: 11.544 • Index of economic
• Cumulative biomass (MW): freedom 2013: 56 out
– 2020: 800 of 177 (Source The
– 2030: 1340 Heritage Foundation
– 2050: 1340 2013)
• Cumulative biogas (MW): • Environmental
– 2020: 240 Performance Index
– 2030: 410 2014: 51 out of 178
– 2050: 410 countries (Source Yale
• Cumulative mini hydro (MW): University 2015)
– 2020: 490
– 2030: 490
– 2050: 490
• Cumulative solar PV (MW):
– 2020: 175
– 2030: 854
– 2050: 8874
• Share of RE capacity:
– 2020: 10 %
– 2030: 13 %
477

– 2050: 34 %
(continued)
Table. A1 (continued)
478

Country INDCs Energy targets Trade SDGS

• Annual RE generation (GWh):
– 2020: 11,227
– 2030: 16,512
– 2050: 25,579
• Renewable energy mix:
– 2020: 9 %
– 2030: 10 %
◦ 2050: 13 % (Source Ministry of
Energy, Green Technology, and Water
2008)
Myanmar Energy sector • Industrial processes: 20 % electricity • RCEP country • Population without
• Increase the share of hydroelectric saving potential (of the total forecast • Global competitiveness electricity 2012:
generation to 9.4 GW by 2030 electricity consumption) by 2030 index 2013: 133 out of 68 %
• Rural electrification through the use of • Hydroelectric power target of 9.4 GW 144 (Source WEF
at least 30 % renewable sources to by 2030 2013)
generate electricity supply • Rural electrification: the use of at least • Index of economic
• 20 % electricity saving potential (of 30 % renewable sources to generate freedom 2013: 172 out
the total forecast electricity electricity supplies (Source Myanmar of 177 (Source The
consumption) by 2030 Government 2015) Heritage Foundation
Forestry sector Increase national land 2013)
area as forest land with the following • Environmental
percent of total land area: Performance Index
• Reserved forest and protected public 2014: 164 out of 178
forest: 30 % of total national land area countries (Source Yale
University 2015)
(continued)
Appendix 1
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
• Protected area systems: 10 % of total
Appendix 1

national land area (Source Myanmar

Government 2015)
New • Economy-wide target of 30 % below • Continue to achieve a rate of energy • TPP country
Zealand 2005 levels by 2030 (which equates to intensity improvement of 1.3 % per • RCEP country
11 % below 1990 levels) annum • Ease of doing business
• Increasing renewable generation to • Renewable-sourced electricity of report 2013: 3 out of
90 % by 2025 90 % by 2025 185 (Source World
• Type of commitment: absolute • 2025 target: utilize up to 9.5 PJ/year of Bank 2013a, b)
reduction from base year (1990) energy from woody biomass or direct • Global competitiveness
emissions managed using a carbon use geothermal additional to that used index 2013: 17 out of
budget in 2005 (Source Ministry of Economic 144 (Source WEF
• Time period: 2021–2030 Development 2011) 2013)
• Sectors covered: energy, industrial • Index of economic
processes and product use, freedom 2013: 4 out of
agriculture, forestry and other land 177 (Source The
use, waste Heritage Foundation
• Gases covered: Carbon dioxide (CO2), 2013)
Methane (CH4), Nitrous oxide (N2O), • Environmental
Hydrofluorocarbons (HFCs), Performance Index
Perfluorocarbons (PFCs), Sulphur 2014: 16 out of 178
hexafluoride (SF6), NF3 (Source New countries (Source Yale
Zealand Government 2015) University 2015)
Philippines • Emissions reduction target of 70 % by • To achieved energy savings equivalent • RCEP country • Population below
2030 under BAU scenario of 2000– to 10 % of the annual final energy • Ease of doing business $1.25 (PPP) per day
2030 demand outlook from 2009–2030 report 2013: 138 out of 2012: 19 % (Source
• Reduction of CO2 emissions will Capacity installation targets by 2012– 185 (Source World World Bank 2013a,
come from energy, transport, waste, 2030: Bank 2013a, b) b)
forestry, and industry sectors (Source • Geothermal: 1165 MW • Global competitiveness • Population without
Philippines Government 2015) • Hydro: 5326 MW index 2013: 52 out of electricity 2012:
479

• Biomass: 81 MW 30 %
(continued)
Table. A1 (continued)
480

Country INDCs Energy targets Trade SDGS

• Wind: 1975 MW 144 (Source WEF
• Solar: 284 MW 2013)
• Ocean: 71 MW • Index of economic
• Total: 8902 MW (Source Department freedom 2013: 97 out
of Energy 2013) of 177 (Source The
Heritage Foundation
2013)
• Environmental
Performance Index
2014: 114 out of 178
countries (Source Yale
University 2015)
Republic • Emissions reduction target of 37 % by • Reduce energy intensity by 46 % • RCEP country • Population without
of Korea 2030 under BAU between 2007 and 2030 • Ease of doing business electricity 2012:
• Baseline BAU: 782.5 MtCO2eq • The overall energy savings goal for report 2013: 8 out of 36 %
(2020), 809.7 MtCO2e (2025), 850.6 2030 is nearly 38 Mtoe, 44 % of 185 (Source World
MtCO2e (2030) which should be achieved in industry Bank 2013a, b)
• Coverage: economy-wide (17 Mtoe), 32 % in the residential and • Global competitiveness
• Sectors covered: energy, industrial commercial sector (12 Mtoe), 19 % in index 2013: 26 out of
processes and product use, agriculture the transport sector (7 Mtoe), and 5 % 144 (Source WEF
and waste. LULUCF is subject to be in the public sector (1.9 Mtoe) 2013)
added (Source Ministry of Trade, Industry • Index of economic
• Gases covered: Carbon dioxide (CO2), and Energy 2008) freedom 2013: 34 out
Methane (CH4), Nitrous oxide (N2O), • 22–29 % of electricity generation of 177 (Source The
Hydrofluorocarbons (HFCs), from nuclear by 2035 (Source Heritage Foundation
Perfluorocarbons (PFCs), Sulphur Ministry of Trade, Industry and 2013)
hexafluoride (SF6) (Source Republic Energy 2013) • Environmental
of Korean Government 2015) Performance Index
2014: 43 out of 178
(continued)
Appendix 1
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
countries (Source Yale
Appendix 1

University 2015)
Singapore • Reduce emissions intensity by 36 % • Energy intensity improvement (from • TPP country
from 2005 levels by 2030 and 2005 levels) target of 35 % by 2030 • RCEP country
stabilize its emissions with the aim of • Raise solar power in the energy • Ease of doing business
peaking around 2030 system up to 350 MW by 2020 report 2013: 1 out of
• Singapore’s GHG emissions per S (Source Sustainable Singapore 185 (Source World
$GDP (at 2010 prices) in 2030 is Blueprint 2015 2014) Bank 2013a, b)
projected to be 0.113 kgCO2e/S$ • Global competitiveness
• Time frame: beginning 2021–2030 index 2013: 2 out of
• Sectors covered: energy, industrial 144 (Source WEF
processes and product use, 2013)
agriculture, land use, land use change • Index of economic
and forestry, waste freedom 2013: 2 out of
• Gases covered: Carbon dioxide (CO2), 177 (Source The
Methane (CH4), Nitrous oxide (N2O), Heritage Foundation
Hydrofluorocarbons (HFCs), 2013)
Perfluorocarbons (PFCs), Sulphur • Environmental
hexafluoride (SF6) (Source Performance Index
Singaporean Government 2015) 2014: 4 out of 178
countries (Source Yale
University 2015)
Thailand • Emissions reduction target of 20 % • Reduce energy intensity by 25 % in • RCEP country • Population below
under BAU by 2030 or 25 % subject 2030 (Source Ministry of Energy • Ease of doing business $1.25 (PPP) per day
to adequate and enhanced access to 2011) report 2013: 18 out of 2010: 0.3 %
technology development and transfer, 185 (Source World (Source World
financial resources and capacity Bank 2013a, b) Bank 2013a, b)
building support • Global competitiveness • Population without
• Percentage of national emissions index 2013: 31 out of electricity 2012:
covered: 100 % 1.5 %
481

(continued)
Table. A1 (continued)
482

Country INDCs Energy targets Trade SDGS

• Time frame: 2021–2030 144 (Source WEF
• Coverage: economy wide (inclusion of 2013)
land use, land use change, and forestry • Index of economic
will be decided later) freedom 2013: 61 out
• Gases covered: Carbon dioxide (CO2), of 177 (Source The
Methane (CH4), Nitrous oxide (N2O), Heritage Foundation
Hydrofluorocarbons (HFCs), 2013)
Perfluorocarbons (PFCs), Sulphur • Environmental
hexafluoride (SF6) (Source Natural Performance Index
Resources and Environmental Policy 2014: 78 out of 178
and Planning Thailand 2015) countries (Source Yale
University 2015)
Vietnam • Emissions reduction target of 8 % by • Increase the proportion of electricity • TPP country • Population below
2030 with domestic resources generated from the renewable energy • RCEP country $1.25 (PPP) per day
compared to the BAU scenario or to 4.5 % in 2020 and 6 % in 2030 • Ease of doing business 2012: 2.4 %
25 % with international support • First nuclear power plant to be put into report 2013: 99 out of (Source World
• Projections for 2020 and 2030 (not operation by 2020 and target capacity 185 (Source World Bank 2013a, b
included industrial processes): 474.1 by 2030 is 10,700 MW (with Bank 2013a, b) • Population without
million tCO2e (2020), 787.4 million electricity production of about 70.5 • Global competitiveness electricity 2012:
tCO2e (2030) billion kWh) index 2013: 68 out of 4.5 %
Using domestic resources: Targeted capacity by 2030 144 (Source WEF
• Emissions intensity per unit of GDP • Wind power: 6200 MW 2013)
will be reduced by 20 % compared to • Biomass power: 2000 MW • Index of economic
the 2010 levels • Other renewable electricity resources: freedom 2013: 140 out
• Forest cover will increase to the level 5600 MW (Source Decision of 177 (Source The
of 45 % No. 1208 of Prime Minister dated 21 Heritage Foundation
• Time frame: 2021–2030 July 2011) 2013)
• Gases covered: Carbon dioxide • Environmental
(CO2), Methane (CH4), Nitrous oxide Performance Index
(N2O), Hydrofluorocarbons (HFCs), 2014: 136 out of 178
Appendix 1

(continued)
Table. A1 (continued)
Country INDCs Energy targets Trade SDGS
Perfluorocarbons (PFCs), Sulphur countries (Source Yale
Appendix 1

hexafluoride (SF6) University 2015)

Conditional contribution (with
international support):
• Emissions intensity per unit of GDP
will be reduced by 30 % compared to
2010 levels
• National budget will be able to meet
approximately one third of the
financial needs to implement
adaptation measures (2021–2030) and
will seek international support and
private sector investment for the
remainder (Source Vietnamese
Government 2015)
483
484 Appendix 1

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Appendix 2

Main Policies to support RE- Grid connected

Wind (onshore and near-shore)

Land
Exemption and reduction of land use/rent (according to Decision 37/2011/QD-TTg; and
Article 10 of Decree 04/2009/ND-CP. Reduced by 50 %, to be paid but not later than 5 years
from the date of allocation), including:
–Wind power plant area according to regulation
–Transmission grid
–Transmission stations
PPC is responsible for providing available land to wind power projects
Taxation and import tariffs
Import tax: tax exemption for imported materials, equipment, equipment and machineries which
are not manufactured yet in VN (according to Decision 37/2011/QD-TTg; Decree
04/2009/ND-CP)
Corporate income tax: exemption, reduction for enterprises, special support for investment, 2
options:
Tax rate: 10 % for 15 years (Article 34 of Decree 24/2007/ND-CP), possible extension to
30 years (depend on special areas of investment incentives)
–Tax exemption for 4 first years, 50 % tax reduction for the next 9 years (Article 35 of Decree
24/2007/ND-CP)
Concessional funding available (name of funds)
Environment Protect Fund of Vietnam. Supported 207 VND/kWh
Feed-in-tariff (VND/kWh)
▪ The power purchase contract duration: 20 years, with possible extension
Purchasing price (FIT): 7.8 UScents/kWh—excluded VAT
Technology Transfer and R&D
N/A
Other facilitating policies (e.g. net metering, standard PPAs, grid code, dispatch rules etc.)
EVN must buy all electricity from wind power plants according to the SPPA
–Environment protection fee exemption (according to Article 16 of Decree 04/2009/ND-CP)
–Soft loan and CDM
▪ Low interest rate (according to VDB’s regulations)
▪ Apply CDM (Decision No. 130/2007/QD-TTg and related circular No. 58/2008/TTLT-
BTC- BTNMT
(continued)

© Springer Science+Business Media Singapore 2016 487

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3
488 Appendix 2

(continued)
Wind (onshore and near-shore)
Solar PV
Land
Exemption and reduction of land use/rent (according to Decision Article 10 of Decree
04/2009/ND-CP.
Taxation and import tariffs
Import tax: tax exemption for imported materials, equipment, equipment and machineries which
are not manufactured yet in VN (according to Decision 37/2011/QD-TTg; Decree
04/2009/ND-CP)
Corporate income tax: exemption, reduction for enterprises, special support for investment, 2
options:
Tax rate: 10 % for15 years (Article 34 of Decree 24/2007/ND-CP), possible extension to
30 years (depend on special areas of investment incentives)
–Tax exemption for 4 first years, 50 % tax reduction for the next 9 years (Article 35 of Decree
24/2007/ND-CP)
Concessional funding available (name of funds)
Environment Protect Fund of Vietnam. Supported 207VND/kWh
Feed-in-tariff (VND/kWh)
▪ The power purchase contract duration: 20 years, with possible extension
Purchasing price (FIT): 7.8 UScents/kWh—excluded VAT
Technology Transfer and R&D
N/A
Other facilitating policies (e.g. net metering, standard PPAs, grid code, dispatch rules etc.)
EVN must buy all electricity from wind power plants according to the SPPA
–Environment protection fee exemption (according to Article 16 of Decree 04/2009/ND-CP)
–Soft loan and CDM
▪ Low interest rate (according to VDB’s regulations)
▪ Apply CDM (Decision No. 130/2007/QĐ-TTg and related circular No. 58/2008/TTLT- BTC-
BTNMT
Biomass (wood and agricultural waste)
Land
Exemption and reduction of land use/rent (according to Decision 24/2014/QD-TTg; and Article
10 of Decree 04/2009/ND-CP. Reduced by 50 %, to be paid but not later than 5 years from the
date of allocation), including:
–Biomass power plant area according to regulation
–Transmission grid
–Transmission stations
People’s Committee is responsible for providing available land to wind power projects
Taxation and import tariffs
▪ Import tax: tax exemption for imported materials, equipment, equipment and machineries
which are not manufactured yet in VN (according to Decision 24/2014/QD-TTg; Decree
04/2009/ND-CP)
▪ Corporate income tax: exemption, reduction for enterprises: special support for investment
- Tax exemption for 4 first years, 50 % tax reduction for the next 9 years (Article 35 of
Decree 24/2007/ND-CP)
(continued)
Appendix 2 489

(continued)
Wind (onshore and near-shore)
Concessional funding available (name of funds)
N/A
Feed-in-tariff (VND/kWh)
▪ The power purchase contract duration: 20 years, with possible extension
▪ Purchasing price (FIT): 5.8 UScents/kWh—excluded VAT for bagasse
Purchasing price based avoided cost of the imported coal fired power plants (under studying)
Technology Transfer and R&D
N/A
Other facilitating policies (e.g. net metering, standard PPAs, grid code, dispatch rules etc.)
EVN must buy all electricity from biomass power plants according to the SPPA
–Environment protection fee exemption (according to Article 16 of Decree 04/2009/ND-CP)
–Soft loan and CDM
▪ Low interest rate (according to VDB’s regulations)
▪ Apply CDM (Decision No. 130/2007/QĐ-TTg and related circular No. 58/2008/TTLT-
BTC- BTNMT
Municipal solid waste
Land
✓ Exemption and reduction of land use/rent (according to Decision 31/2014/QD-TTg; and
Article 10 of Decree 04/2009/ND-CP. Reduced by 50 %, to be paid but not later than 5 years
from the date of allocation), including:
–Wind power plant area according to regulation
–Transmission grid
–Transmission stations
People’s Committee is responsible for providing available land to wind power projects.
Taxation and import tariffs
▪ Import tax: tax exemption for imported materials, equipment, equipment and machineries
which are not manufactured yet in VN (according to Decision 31/2014/QD-TTg; Decree
04/2009/ND-CP)
▪ Corporate income tax: exemption, reduction for enterprises: special support for investment
–Tax exemption for 4 first years, 50 % tax reduction for the next 9 years (Article 35 of
Decree 24/2007/ND-CP)
Concessional funding available (name of funds)
N/A
Feed-in-tariff (VND/kWh)
▪ The power purchase contract duration: 20 years, with possible extension
Purchasing price (FIT): 10.05 UScents/kWh—excluded VAT for incineration technology and
7.2805 UScents/kWh—excluded VAT for landfill technology
Technology Transfer and R&D
N/A
Other facilitating policies (e.g. net metering, standard PPAs, grid code, dispatch rules etc.)
EVN must buy all electricity from MSW power plants according to the SPPA
–Environment protection fee exemption (according to Article 16 of Decree 04/2009/ND-CP)
–Soft loan and CDM
▪ Low interest rate (according to VDB’s regulations)
(continued)
490 Appendix 2

(continued)
Wind (onshore and near-shore)
▪ Apply CDM (Decision No. 130/2007/QĐ-TTg and related circular No. 58/2008/TTLT-
BTC- BTNMT
Biogas (digesters)
Land
✓ Exemption and reduction of land use/rent (according to Article 10 of Decree 04/2009/ND-CP.
Reduced by 50 %, to be paid but not later than 5 years from the date of allocation), including:
–Biogas power plant area according to regulation
–Transmission grid
–Transmission stations
People’s Committee is responsible for providing available land to wind power projects
Taxation and import tariffs
▪ Import tax: tax exemption for imported materials, equipment, equipment and machineries
which are not manufactured yet in VN (according to Decree 04/2009/ND-CP)
▪ Corporate income tax: exemption, reduction for enterprises: special support for investment
–Tax exemption for 4 first years, 50 % tax reduction for the next 9 years (Article 35 of
Decree 24/2007/ND-CP)
Concessional funding available (name of funds)
N/A
Feed-in-tariff (VND/kWh)
Under investigation
Technology Transfer and R&D
N/A
Other facilitating policies (e.g. net metering, standard PPAs, grid code, dispatch rules etc.)
–Environment protection fee exemption (according to Article 16 of Decree 04/2009/ND-CP)
–Soft loan and CDM
▪ Low interest rate (according to VDB’s regulations)
Apply CDM (Decision No. 130/2007/QD-TTg and related circular No. 58/2008/TTLT- BTC-
BTNMT
Geothermal
No specific regulations in place but appropriate FiT levels are under investigation.
Appendix 3

Sustainable Development Goals, Targets and Indicators

Proposed for Australia for Consideration:
Climate Change and Low-Carbon Growth-Related SDGs

Goal 2: Curb human-induced climate change, including through and affordable and
sustainable low-emissions energy system.
Target 1b: Ensure agriculture practices are productive and sustainable based on
high efficiency use of water, land, nutrients and energy.

Indicators:
• Establish targets and reporting systems to monitor regional efficiencies of
nitrogen and phosphorus nutrient use;
• Develop greenhouse gas intensity indicators, targets and reporting for the food
production systems utilising where possible available data reporting systems;
• Establish water use efficiency and catchment ecosystem health targets for
existing and new irrigation developments;
• Develop a national target and indicator for the loss/gain of arable land for food
production through competition for from urban and industrial (biofuels and
coal-seam gas) land Protection of biodiversity indicator.
Target 1c: Increase the resilience of agricultural businesses and their dependent
communities to changes in the global environment, including markets, climate
change, drought, flood and fire.
Indicators: Develop measures of rural community resilience in terms of infras-
tructure, health and education services.
Target 1d: Adopt sustainable ocean and fresh water fishery practices and rebuild
designated fish stocks to sustainable levels.
Indicators: Develop sustainability targets and indicators for marine and fresh water
aquaculture production systems.
Target 1e: Reduce loss an waste throughout the food production value chains.

© Springer Science+Business Media Singapore 2016 491

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3
492 Appendix 3

Goal 2: Curb human-induced climate change, including through an affordable and

sustainable low-emissions energy system.
Target 2a: Reduce Australia’s greenhouse gas emissions below 2000 levels by
19 % by 2020, 40–60 % by 2030 and at least 80 % by 2050 and the national carbon
budget for the period 2013–2050 is no more than 10.1 Gt CO-e, in line with the
targets recommended by the Climate Change Authority.

Indicators:
• Emissions –Mt CO2-e
• Emissions per capita t –Mt CO2-e
Target 2b: Ensure all Australians and the Australian economy have access to
sufficient and affordable clean energy.
Target 2c: Improve the energy productivity of Australia’s economy by reducing the
emissions intensity of electricity generation and increasing the energy efficiency of
Australia’s buildings, industry and transport.

Indicators:
• Carbon intensity-t CO2-e per $GDP
• Energy intensity GJ per $GDP
• Energy efficiency buildings GJ/m2
• Emission intensity of transport g CO2
Target 2d: Reduce non-energy related emissions of green house gases through
improved practices in agriculture, forestry, waste industrial processes and fugitive
emissions by x % by 2030.
Target 2e: Expand investment in research, innovation, development and imple-
mentation of technologies and practices for a low-carbon economy.
Target 2f: Reduce the non-green house gas impacts of energy production and use.
Target 3a: Provide all Australians with access to safe and affordable water, sani-
tation and hygiene (WASH) services.
Target 3b: Ensure water is use deficiently and effectively to maximise productivity
for all consumptive uses (homes, businesses, agriculture, and urban open space).
Indicators: Household, industry and rural uses—Efficiency targets to be developed
at a regional level to meet local geographic, climatic and socio-economic
circumstances.
Target 3c: Ensure surface water and ground water in Australia is monitored and
governed sustainably and in an integrated manner to satisfy human needs while
preserving cultural and ecosystem values.
Target 3d: Ensure water systems are resilient, with the capacity to cope with
extreme events, in particular climate change impacts and rapid population growth in
urban areas.
Appendix 3 493

Indicators:
• Flood indicator—number of lives and properties at risk of 1:100 year floods
• Water supply security—water remains available for critical human needs in
periods of prolonged drought
• Ratio of water consumption to total water volume available
• Time on water restrictions
Target 3e: Develop a national governance framework for effective stewardship of
all water resources.
Target 8a: Protect and restore Australia’s unique biodiversity and biodiversity
hotspots.
Target 8b: Recognise, communicate and account for the full value and benefits
provided by ecosystem services.
Target 8c: Ensure Australian governments (local, state and national) and busi-
nesses commit to building natural capital via integrated and adaptive management
of water, agricultural, and, soils, forests, fisheries, cities, mining and hydrocarbon
resources to support inclusive economic development and the achievement of all
sustainable development goals.

Indicators: None specified

Source: Watson et al. (2014)
Index

A Energy policy, 117, 120, 139, 147, 150, 161,

APEC 54 list, 361, 363, 365, 368 172, 179, 192, 236, 240, 252–256,
Asia, 2, 7, 15, 20, 24, 53, 62, 70, 125, 127, 263–265, 267, 273, 328, 332, 335, 343,
169, 178, 188, 211, 216, 221, 246, 268, 351
272, 293, 310, 318, 321, 323, 362, 399, Energy White Paper, 255–257
401, 431, 441, 448, 451 European Union (EU), 327, 328, 329, 334,
335, 338, 343, 347, 350
B
Business as usual (BAU) scenario, 186, 191, F
192, 196 Fuel subsidy, 84, 92, 94, 96, 97, 106, 108, 124,
226
C Free trade agreements, 275, 276
Carbon markets, 4, 14, 16, 159, 167, 180, 245,
310, 316, 324, 392, 395, 399, 404, 410, G
424, 430 Green growth, 2, 3, 6, 12, 18, 20, 24, 39, 53,
Carbon pricing, 255 56, 61, 76, 117, 125, 159, 172, 176,
China, 6, 7, 12, 15, 18, 20, 23, 35, 38, 49, 68, 194, 197, 207, 212, 223, 310, 469
127, 173, 187, 201, 219, 230, 268, 272, Green house gas (GHG), 186, 190, 192, 194,
279, 284, 315, 317, 320, 368, 387, 401 196, 197, 210, 212
Climate change, 2, 4, 13, 47, 56, 61, 70, 77, 84, emissions, 328, 335–339, 346, 465, 466
97, 100, 103, 105, 117, 145, 171, 187,
209, 253, 254, 266–268, 274–276, 318, I
324, 333–335, 342, 350, 351, 392, 395, INDC, 60, 101, 158, 198, 234, 236, 239, 241,
415, 424, 439, 442, 448, 451, 458, 466 245, 267, 284, 290, 306, 351, 468
Climate finance, 13, 453 India, 12, 15, 20, 53, 56, 60, 65, 68, 70–72, 77,
Collaboration, 466–468 104, 268, 272, 277, 284, 310, 318, 368,
Comparative analysis, 272, 292 453
Computable general equilibrium, 87 Indonesia, 6, 7, 13, 17, 23, 62, 68, 80, 86, 94,
101, 104, 275, 317, 323, 368, 387, 404,
D 442, 467
Development cooperation, 165, 172, 268, 276, Innovative approach, 439
311, 321, 325, 450 Institutional investment, 311, 318, 324
Investment and finance, 438, 439
E
Emission trading system (ETS), 39, 328, J
336–338, 346, 349, 397, 400, 412, 428 Joint crediting mechanism (JCM), 284, 287,
Energy cooperation, 330 404

© Springer Science+Business Media Singapore 2016 495

V. Anbumozhi et al. (eds.), Investing in Low-Carbon Energy Systems,
DOI 10.1007/978-981-10-0761-3
496 Index

L R
Linking of ETS, 392, 413, 415, 423, 424, 431, RCEP, 104, 126, 176, 202, 277, 321, 360, 363,
432 368, 387
Low carbon development, 3, 40, 20, 37, 41, 44, Regional cooperation, 3, 5, 6, 24, 53, 61, 73,
48, 51, 71, 132, 185–187, 192–194, 77, 104, 123, 127, 132, 169, 172, 177,
196, 203, 205–208, 211, 212, 216, 220, 179, 186, 201, 203, 205, 206, 209, 216,
229, 239, 323, 439, 449, 459, 468 220, 236, 238, 240, 245, 266, 268, 272,
Low-carbon economy, 87, 97, 102, 103, 106, 295, 310, 317, 322, 360–362, 365, 368,
171, 216, 226, 311, 325, 328, 347, 469 383, 386, 388, 392, 468
Low carbon energy resources, 61, 62, 219, 234, barriers to, 467, 468
241, 333 motivation for, 466, 467
Low-carbon energy system, 465–469 need for, 465, 466
Low-carbon energy and green goods (LEG), No-Regret policy, 468, 469
362, 364, 367, 379, 383, 387, 389 Regional energy cooperation(REC), 328, 329,
Low-carbon growth, 252, 266–268, 273, 279 331, 343, 347, 349, 351, 352
Low-carbon technologies, 347, 349 Research cooperation, 272

N S
New Zealand, 104, 201, 264, 276, 310, 312, Scenario analysis, 43
316, 321, 368, 399, 401, 413, 423 Sustainability analysis, 176, 295
Sustainable development, 267
P
Package based infrastructure projects, 302 T
Potential export of LEG under different Thailand, 12, 17, 24, 68, 72, 80, 112, 123, 132,
scenarios, 386 162, 180, 220, 231, 237, 240, 276, 317,
Public-private partnership (PPP), 128, 152, 402, 429, 442
207, 290, 306 Trade policy, 275, 276