Commentary

No Energy Transition Without Asia Leadership

Mathieu Nègre, Portfolio Manager for Emerging Market Impact Equities, Union Bancaire Privée, says Asia’s contribution is critical to global net zero ambitions.

 The recent decision by China to suspend cooperation with the US on climate change comes at a very inopportune moment, given the increased importance of Asia in the fight against climate change.

It is fair to say that the awareness of the need for an energy transition has come later in Asia than in Europe. This was partly justified by the fact that Asia represents a lower share of historic emissions. Back at the Earth summit of Rio de Janeiro in 1992, Asia as a continent was responsible for only 16.5% of historic emissions. But 30 years of industrial success and urbanisation have modified the landscape, and according to the latest available data Asia is now up to 31%, while the old industrial regions (Europe, US) are down to 46%, and the Asian share of emissions will most probably continue to increase.

What is true of emissions looks increasingly true when we look at the potential solutions. For instance, solar energy is a stronger proposition now than ten years ago. It is now competitive without subsidies in many countries. This progress is largely due to cost savings that have happened in parallel with the increased market share of Chinese solar energy companies, which is now above 80% in most areas of the supply chain[1].

Similarly, the top ten producers of batteries for electric vehicles are all located in Asia, and they have played a pivotal role in the current surge in electric vehicle sales. Asian companies also play a leading, if not critical, role in wind energy, high-speed rail, bicycles, and many of the semiconductors that improve energy efficiency around the world. And this list could go on.

Asian start-ups are also rising through the ranks. Bloomberg NEF[2] recently released a study about “climate unicorns”[3]. It estimates that 13 companies from Asia have reached that status, making the region the most represented after North America, but ahead of Europe.

Making exceptions

It is no wonder that diplomats have tried to carve out an exception in times of political disagreements for the fight against climate change. We saw it at the COP26 in Glasgow, where, despite a tense geopolitical situation, the United States and China took the time to issue a joint declaration to remind the world that they were intending to deal with climate change “through cooperation in multilateral processes”[4]. We saw it again in June this year when the White House announced a two-year pause on any new solar import tariffs.

As an example of the level of interdependence, Chinese producer BYD announced in June that it would soon be supplying Tesla. All other known battery suppliers to Tesla are, of course, from Asia as well. Meanwhile, the American company is continuing to bet on China with a potential new plant next to its Shanghai Gigafactory.

It is thus logical that more regional actors are committing to a meaningful energy transition. It started at country level, with China making the welcome but unexpected pledge to strive for carbon neutrality in September 2020. The speed picked up after that with Japan, South Korea and India all undertaking in the 15 months that followed to reach net zero.

High-impact companies

The movement is also being confirmed on the ground by individual companies joining climate initiatives in ever-increasing numbers. The latest progress report from the Science-Based Targets initiative (SBTi) shows that 449 Asian companies had an approved science-based target at the end of last year, 20% of the global total and ahead of North America[5]. Importantly, the level of acceleration among ‘high-impact companies’ is similar to what we have seen in Europe. This is a welcome development, as there is still a lot of ground to cover, with most of such companies not having a commitment in place yet.

Seeing the energy transition as something that America and Europe can lead alone is no longer possible, which is why China’s decision to pull back from working with the US on climate issues is a significant setback for those worrying about the future consequences of climate change. The length of the suspension is not known yet, but the shorter the better given the urgency of climate action. For the key decision-makers in the region, this is an opportunity to continue to show leadership and move forward. A successful global energy transition cannot take place without Asia.

 

[1] Solar PV Global Supply Chains, an IEA special report, July 2022

[2] More Climate Unicorns Are Set to Join the Herd in 2022, Bloomberg NEF, 28 June 2022

[3] start-ups valued at 1 billion US dollars or more, and attacking a problem directly related to climate change

[4] https://www.carbonbrief.org/china-briefing-11-november-2021-us-china-glasgow-declaration-calls-for-concrete-actions-xis-absence-at-cop26/

[5] North America is defined as the US and Canada in this report.

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