Investment needed for a net-zero Asia-Pacific is just 20% more than current trajectory: report
Making large changes in financing choices is also required, such as diverting capital away from fossil fuel-based pathways
THE amount of investment needed for key markets in the Asia-Pacific to achieve net-zero carbon emissions is just 20 per cent more than what is required in their current energy transition trajectory, based on a report by decarbonisation investment platform GenZero and research organisation BloombergNEF.
The report, which was released on Wednesday (Oct 16), found that about US$89 trillion of investments would be needed between 2024 and 2050 for six Asia markets – China, India, Indonesia, Japan, South Korea and Vietnam – to limit global warming to 1.75 deg C.
This is only 20 per cent more than the US$74 trillion needed in a scenario where there is no further policy support for decarbonisation, and capital is injected mainly into economically competitive clean technologies.
Under this scenario, which the report terms as “economic transition”, global warming would hit 2.6 deg C, which is well above the Paris Agreement goals to keep global warming under 2 deg C.
The report noted that the additional amount needed to achieve net-zero emissions is not just about the financing gap. It is also about making large changes in investment choices, especially in diverting capital away from fossil fuel-based pathways and towards low-carbon solutions at a certain scale and speed.
In 2023, about US$840 billion was invested in low-carbon technologies across the Asia-Pacific, and the report indicated that annualised investments need to treble to US$2.3 trillion over the next six years, until 2030.
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The required amount rises 40 per cent to US$3.3 trillion between 2031 and 2040, then declines to US$3 trillion between 2041 and 2050.
These scenarios require the power sector to substantially decarbonise, as it is the single-largest contributor to carbon emissions in the region.
Currently, only four low-carbon solutions – electric vehicles, renewable power, energy storage and power grids – are mature and commercially scalable.
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While these solutions need to be deployed at a much-larger pace and scale to get on track to meet net-zero goals, there is little to no technology risk and they come with minimal economic premiums.
The report also argues that while solar and wind would gradually take up a large share of energy supply in the region in the economic-transition scenario, they would still be insufficient, and that a more diverse set of technologies is required to hit net zero.
These technologies, which include carbon capture and storage, hydrogen, sustainable aviation fuels, heat pumps and nuclear, however, are not economically competitive at scale and are too costly under the economic-transition scenario.
“Achieving commercialisation of these technologies within the next decade will be imperative,” read the report.
It highlighted various barriers and policy improvements that could get these Asian markets on track for net zero.
Of utmost priority is reducing power sector emissions by phasing out unabated fossil fuel generation. But this is hampered by the lack of a competitive electricity wholesale market in some jurisdictions, such as Indonesia and Vietnam, as this leads to a lack of appropriate pricing signals to incentivise the closure of coal generators.
Accelerating the build-up of renewable energy capacity, investing in grid upgrading, as well as enabling power system flexibility through the use of energy storage systems are other recommendations from the report.
While a larger pool of investment capital has emerged for these mature technologies, project developers and commercial banks are still responsible for most clean energy project financing.
The cost to access this capital remains a limiting factor, especially in the current high interest-rate environment.
As for less-mature low-carbon technologies, development institutions can be leveraged to catalyse private investments in these solutions.
The report also recommended implementing more robust carbon pricing to drive decarbonisation.
It said: “This is especially important in hard-to-abate sectors as low-carbon solutions using hydrogen and carbon capture and storage technologies won’t be economically competitive against other alternatives without a high carbon price...
“To be effective, a market’s carbon pricing mechanism needs to be sufficiently high and should cover a significant share of emissions.”
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