Asia-Pacific Energy Policy in the Post-2015 Low-Carbon World S.K. Chou, Professor Executive Director, Energy Studies Institute, National University of Singapore

5th International Conference on Energy - Sustainable Energy Policies and Technologies

City University of Hong Kong, 15-17 October 2014

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Overview

• The Asia-Pacific Region

• Climate Change & the Post-2015 Agenda

• Energy in Asia-Pacific: Key Issues & Trends

• Opportunities in Energy Policy & Technologies

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Source: Influence Relations

Asia-Pacific , geographically speaking, includes more than 45 countries, comprising more than half the world’s population. The Asia-Pacific Economic Cooperation (APEC) lists only 21 countries. Most analysis on Asia-Pacific uses this definition.

N: Mongolia

S: New Zealand

W: Iran

E: Kirabati

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Sub-Regions and Countries in the Asia-Pacific

• Northeast Asia

• Central Asia

• Southeast Asia

• Pacific Islands

• South Asia

Source: Australia Department of Environment

Why 2015?

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2015

Agreement

“Paris

Protocol”

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Historical & Present Carbon Dioxide (CO2) Concentrations

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Changes in Annual Temperature

The baseline period is 1986-2005 The late 21st Century period is 2081-2100 The mid 21st Century period is 2046-2065

Source: IPCC AR 5 WG II (http://www.ipcc-wg2.gov )

Changes in Annual Precipitation

The baseline period is 1986-2005 The late 21st Century period is 2081-2100 The mid 21st Century period is 2046-2065

Source: IPCC AR 5 WG II (http://www.ipcc-wg2.gov )

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The Post-2015 Agenda

• Paris 2015 will be the most important milestone for climate change since Copenhagen 2009, representing a key moment to make progress on climate negotiations

• The IPCC Assessment Report 5 science shows we are just about at the end of our lifeline for carbon emissions with real limitations on a carbon budget

• The danger of inaction is clear – we have to have a urgent action at national and global level to reduce CO₂ emissions within this decade to ensure we do not end up with catastrophic climate change

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Source: Women’s Environment & Development Organization, UNFCCC

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Energy in Asia-Pacific

• Asia-Pacific economies account for ~60% of world energy consumption

• Net importer of energy

• According to APEC energy outlook (2013) >80% of APEC’s primary energy demand in 2035 is likely to be met by fossil fuels

▫ 46 percent increase in carbon dioxide emissions from fuel combustion

• At their 2011 meeting in Honolulu, Hawaii, APEC Leaders set a target:

▫ Reduce the region’s energy intensity by at least 45 percent by 2035 based on a variety of measures

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IEA Energy Technology Perspectives 2014: Sector contributions to emissions reductions

Source: International Energy Agency

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Related energy concerns

• Volatility in the oil market

• Rapid growth of developing economies

• Recovery from economic crisis

• Fukushima nuclear accident

• Advances in energy technologies

• Food, water and heat stresses Source: UK Met Office – Human Dynamics of Climate Change

Map on ‘Present Day Human Dynamics’

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Key Opportunities in the Asia-Pacific Opportunities Energy Policy Options Other Considerations

LNG and Unconventional Gas Displacement of oil and coal Ensuring energy Security

Legal and regulatory framework e.g. formal policy documents, setting production targets, rules to permit companies (foreign investors) to take part, subsidies and tax breaks

Rights to the resources e.g. customary land rights Environmental concerns about hydraulic fracturing

Harnessing Energy Efficiency Reduce energy intensity

EE policies, demand side integration

Slow uptake by private sector, institutional challenges

Clean/Renewable Energy Technologies Reduce energy poverty Improve sustainability

Debt financing, risk mitigation and equity financing of RE technologies, capacity building, grants to promote R&D, bilateral cooperation

Energy supply vs. energy service inadequacy, grid interconnectivity, intermittency issues

Fossil fuel subsidy reform Reduce debt burden Reduce reliance on fossil fuels Real cost of energy

Energy sector reform, price increase over time, increase transparency and availability of energy subsidy data, providing assistance to vulnerable groups

Public opinion, political acceptability and the polls, special interests, weak institutions, lack of information

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Case Study: Singapore

Opportunities Some Energy Policies

LNG and Unconventional Gas

LNG Terminal began operations in May 2013, opened in February 2014 Initial throughput capacity of 3.5 million tonnes per annum (Mtpa) Phase 3 expected to be completed by 2018

Harnessing Energy Efficiency Mandatory Energy Labelling & Minimum Energy Performance Standards Energy Conservation Act entered into force April 2013

Energy management for corporations & transport facility operators Powers of enforcement

Energy Efficiency Improvement Assistance (EASe) Scheme Small & Medium Sized Enterprise Energy Efficiency grant Green Mark Rating Scheme

Clean/Renewable Energy Technologies

Pulau Ubin Micro-Grid (Energy Market Authority) Intelligent Energy System Pilot (Energy Market Authority, Singapore Power) CleanTech Park (Jurong Town Corporation)

50ha park to cluster clean tech companies for test bedding and prototyping of clean tech and urban solutions

S$140 million for research into clean energy technologies under the banner of the Energy Innovation Programme Office (EIPO) at the National Research Foundation

Unconventional Gas & LNG

• Asia-Pacific LNG market is playing an increasingly important role in global and regional fuel mix, possibly to displace coal and oil

• Member economies are beginning to create favorable conditions for trade and investment to support the LNG market, such as by relaxing destination clauses or negotiating FTAs

• As of today, approximately 40 additional LNG terminal projects proposed or under construction in the region

• The IEA Energy Technology Perspectives 2014 warns that gas must be seen for what it is: a transition fuel, not a low-carbon solution unless coupled with CCS.

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Source: California Energy Commission

Renewable energy technologies

• Renewable energy goals help spur investment (post-2015 timeline): ▫ Malaysia aims to have 17% of its energy demand met from renewable sources by 2030

▫ Thailand aims to have 25% of the country’s electricity generated from renewable sources by 2021

▫ East Timor is seeking a 50% contribution to total energy production from renewable sources within just eight years

• Being open to and strengthening bilateral partnerships ▫ US-China Renewable Energy Partnership by the DOE and China’s National Energy Agency

in 2009 can increase deployment of RE technologies

▫ Japan-Indonesia energy saving project in Suryacipta City of Industry in West Java

• Most countries have introduced some form of renewable energy legislation but jurisdictional issues and differing acceptances of foreign investment across provincial and national governments need to be paid more attention

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Energy Efficiency

• Though worldwide energy intensity levels have improved substantially over the past two decades, the picture for Asia-Pacific is mixed

• Rapidly industrializing countries such as Thailand, Malaysia and South Korea show no trends of improvement

• India and China show dramatic improvements in energy intensity, though this reflects their rapid rates of economic growth and their very low levels of energy efficiency from which these countries began their impressive growth trajectories in the 1980s and 1990s

• Tremendous opportunities exist across Asia-Pacific to fill the “energy efficiency gap”, the difference between the level of efficiency actually achieved and the level judged to be optimal at prevailing prices

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Country/EE

policies

Brunei Laos Malaysia Myanmar Indonesia Singapore Thailand Vietnam

Nationwide and

sectoral policies

45%

energy

intensity

reduction

by 2035

(2005)

10%

energy

savings

from 2012-

2020,

develop

national

renewable

energy

plan

National

Energy

Efficiency

Master

Plan

(NEEMP),

reduce the

electricity

consumpti

on by 10%

in the year

2020

compared

to a BAU

scenario

Save 5% of

total primary

energy

consumption

by 2020, 8%

EE

improvement

by 2030

(2005)

Industrial

sector

improvement

by 10% against

BAU and

reduce energy

related GHG

by 2020

Energy

intensity

reduction of

1% per year,

energy

elasticity of

less than 1 in

2025

35%

energy

intensity

reductions

by 2030

from 2005

levels

Reduce energy

intensity (energy

use per unit of

GDP) by 25% in

2030 (2005)

Secure savings of

3 – 5 % during

the period 2006 –

2010 (Phase One)

and

savings of 5 – 8 %

during the period

2011 – 2015

Energy Efficiency Lack of harmonization makes it difficult to compare progress among countries

Source: Various government reports

Removing Fossil Fuel Subsidies

APEC Friends of Fossil Fuel Subsidy Reform established in 2011, including Costa Rica, Denmark, Ethiopia, Finland, New Zealand, Norway, Sweden and Switzerland to encourage transparent rationalization and phase-out of subsidies

Some progress made:

▫ Last June, Indonesia increased petro prices by 44% to cut annual subsidy bill of $20 billion

▫ Malaysia slashed petrol subsidies in 2013 and increased household energy bills by 15% to reduce budgetary deficit (from subsidies) of 4.5% of GDP

▫ Peru and New Zealand undergoing voluntary peer reviews in 2014 of inefficient fossil fuel subsidies

▫ Egypt and India considering similar measures

However, public opinion has put politicians under pressure to roll back some of the reforms

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Source: Global Subsidies Initiative, APEC

Attracting Finance for Low Carbon Generation (1)

• Attracting finance requires appropriate risk-return

• Lack of carbon price undermines investor confidence

• Need to de-risk low-carbon investments in order to achieve 2 degrees scenario

• Risk allocation must be made more transparent

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Regulatory

• Policy (change in subsidy regime)

• Local acceptance

• Licensing • Regulation

Construction

• Delays • Cost

overruns

Market

• Fossil fuel and CO2 price

• Electricity price • Dispatching and

curtailment risk (load factor)

• financing

Operations

• Load factor (new technology)

• O&M costs • Safety • Dismantling

Source: International Energy Agency Energy Technology Perspectives 2014

Risks

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Cash flow profile of a low-carbon power plant and associated risks

Source: International Energy Agency Energy Technology Perspectives 2014

Attracting Finance for Low Carbon Generation (2)

• Financing low carbon plants in a competitive framework requires high returns on capital invested

• A high carbon price could stimulate low-carbon investment but a sufficient price unlikely in most regions, including the Asia-Pacific

• To trigger low carbon investments government must supplement electricity markets

• Governments must make the risks more transparent to all stakeholders

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Source: International Energy Agency Energy Technology Perspectives 2014

Low Carbon Support Schemes (not limited to Asia-Pac)

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Source: International Energy Agency Energy Technology Perspectives 2014

Attracting Finance for Low Carbon Generation (3)

• None of these options should be regarded as the perfect solution, governments should carefully apply the best option from their “basket” of instruments

• Caveats exist for all the options available to supplement markets

• Promoting too-expensive technologies too early may be unsustainable in the long run and may increase the cost of climate change mitigation

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Source: International Energy Agency Energy Technology Perspectives 2014

Finance Opportunities in Asia-Pacific

Asian Development Bank is dedicated to energy finance in the region:

• Clean Energy Financing Partnership Facility (CEFPF) established in 2007

▫ Intended to finance policy, regulatory, and institutional reforms that encourage clean energy development

• $228 million in energy projects in the Pacific in the next 3 years to help countries reduce heavy reliance on fossil fuels and support sustainable and environment-friendly growth.

• Regular publication on energy developments and opportunities in Asia-Pacific

UN Framework Convention on Climate Change –

Nationally Appropriate Mitigation Actions:

• Developing countries are eligible for finance from the Global Environment Facility, Green Climate Fund, Technology Mechanism (Climate technology Center and Network) etc.

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Source: Asian Development Bank, UNFCCC

Concluding Notes

• Asia Pacific is diverse – there is no magic bullet or one-size-fits all solution to the challenges the region faces

• Significant opportunities in LNG and unconventional gas development, renewable energy technologies, energy efficiency and fossil fuel subsidy removals

• Financing low carbon generation and technologies remain a significant barrier, but many lessons from ongoing projects

• Overall there should be greater coherence in institutional governance of energy in the Asia-Pacific region to be able to achieve a truly low-carbon future post-2015

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References Asia-Pacific Economic Cooperation (2014) 2014 –APEC Energy Ministerial Meeting, Beijing Declaration - Joining Hands Toward Sustainable Energy Development in the Asia-Pacific Region, Available online at: http://www.apec.org/Meeting-Papers/Ministerial-Statements/Energy/2014_energy.aspx

Asia-Pacific Forum for Environment and Development, Overview of the Asia-Pacific Region, Available online at: http://www.apfed.net/pub/apfed1/final_report/pdf/overview.pdf

Andrews-Speed, P. and Len, C. (2014) The legal and commercial determinants of unconventional gas production in East Asia, Journal of World Energy Law and Business, 7(5), pp. 408-422

Doshi, T. and Zahur, N. B. (2013) Energy-Efficiency Policies in the Asia-Pacific: Can We Do Better?, 2013 Pacific Energy Summit Working Papers, Available online at: http://nbr.org/downloads/pdfs/eta/PES_2013_summitpaper_Doshi_Zahur.pdf

International Energy Agency (2014) Energy Technology Perspectives 2014

Shi, X. (2014) Setting effective mandatory energy efficiency standards and labelling regulations: A review of best practices in the Asia Pacific Region, Applied Energy 133, pp. 135-143

The Economist (2014) Fuelling Controversy, from the January print edition, Available online at: http://www.economist.com/news/finance-and-economics/21593484-economic-case-scrapping-fossil-fuel-subsidies-getting-stronger-fuelling

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Thank you