ADB energy

ADB warns about Asia's energy policies

Asia must radically change its unsustainable energy path to avoid disaster, according to the Asian Development Bank.
Changyong Rhee, chief economist, Asian Development Bank
Changyong Rhee, chief economist, Asian Development Bank

It is well known that Asia’s rapid economic growth is creating a commensurate expansion in its energy needs. Also, the region’s requirement is mainly for fossil fuels, most of them imported, and the result will likely be environmental damage caused by a swamping of global carbon dioxide targets. Meanwhile, government measures to regulate domestic demand, for instance through subsidies, is perversely benefiting the rich at the expense of the poor.

Concrete but practical measures are essential to tackle Asia’s “energy challenge”, according to the Asian Development Bank (ADB). It is the special theme of the ADB’s latest economic outlook released yesterday, which highlights the balance the region must achieve to deliver energy to all its citizens while reducing its dependence on fossil fuels.

“Asia could be consuming more than half the world’s energy supply by 2035, and without radical changes carbon dioxide emissions will double,” said ADB chief economist Changyong Rhee to media at Hong Kong’s Foreign Correspondents Club yesterday morning. “Asia must both contain rising demand and explore cleaner energy options, which will require creativity and resolve, with policymakers having to grapple with politically difficult issues like fuel subsidies and regional market integration,” he added.

Rhee argued that the region needs to create a pan-Asian energy market by 2030, replicating the type of cooperation and integration that happens in Europe. That means electric grids should be interconnected across national borders, with harmonised regulations, standards and pricing policies.

Demand could be curbed by replacing inefficient, widespread fuel subsidies with ones targeted specifically to help the poor, such as a system similar to Indonesia’s. Most fuel subsidies artificially lower the cost of power and impose large fiscal burdens; eliminating them could reduce carbon dioxide emissions by 2.6 billion tons by 2035, according to the ADB.

Moreover, second-generation greenhouse gas emission taxes could be recycled to reduce the cost of cleaner inputs, limiting the adverse effect on economic activity while mitigating global warning, said Rhee.

Meanwhile, “the supply of clean energy needs to be broadly pursued”, with each country developing new technologies “according to its comparative advantage”, so that Asia can expand its energy supply. Technology transfers from developed countries can help.

Regional cooperation is also needed to aid those countries with energy deficiencies, for instance through “income policies to secure an adequate energy floor for the poor, selecting appropriate technologies for distributed and off-grid power generation and promoting community participation”.

It is clearly a difficult task, and coordinated action among Asian policymakers will be tough to achieve. But, the consequences of inaction, based on the ADB’s simulations are potentially disastrous.

An annual economic growth rate of 6% means that Asia could account for 44% of world GDP by 2035, and its energy consumption would rise from a third in 2010 to between 51% and 56%.

If by 2035 Asia simply expands energy access without changing the way it consumes, the development agency predicts that the region’s oil consumption will double, natural gas consumption will triple and coal use will increase by 81%. In addition, with only 9% of proven global oil reserves, the region will almost triple oil imports by 2035, making it more vulnerable to external supply shocks.

The one bright spot is shale gas. China has the largest resources in the world, although there are technical uncertainties such as leakage and water contamination that need to be addressed. The other economically viable alternative to traditional fossil fuels is nuclear power.

If the Fukushima accident leads to the abandonment of the nuclear option, then the ADB predicts that carbon dioxide emission would be 8% to 13% higher in 2035.

“But expanding nuclear energy in Asia requires addressing three remaining challenges: proliferation, waste management and, above all, safety.”

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