Southeast Asia, home to nearly 600 million people, has seen robust growth despite two major financial crises. Since 1990, the region has grown at an average of 9 percent while its urban populations have nearly doubled in the same period. Millions have been lifted from poverty.
But growth has also driven up energy demand. A recent International Economic Agency (IEA) report on Southeast Asia’s energy outlook noted that, because the region now needs two-and-a-half times more energy than in 1990, policymakers are responding by using more coal. Oil and natural gas remain the dominant fuels, but coal use has been rising fast, the agency said.
Policymakers must consider if the trend towards coal reflects current aspirations. As energy use ramps up, they have an opportunity to build an energy future that may be a win-win for everyone. Such a future balances economic imperatives with energy security, harmony with the environment and good health for future generations.
Shell believes that responsibly delivering cleaner, more reliable and affordable energy is the best contribution governments and industry can make.
Cost of coal
Coal use in the region has been rising by double digit rates since 1990, according to IEA. This is underpinned by the fact that coal is the most abundant fossil fuel in Southeast Asia, making the fuel attractive from an energy security standpoint. But it comes at a cost.
At the end of 2012, coal-fired electricity capacity represented 75 percent of the thermal capacity under construction, with most of the projects located in Vietnam and Indonesia, the two countries where coal is abundant in the region.
In its projections, the agency said coal-fired capacity in the region will double to 80 gigawatts by 2020 and double again to 160 gigawatts by 2035.
However, using more coal hurts the environment and people, often considerably. The sulphur oxide, nitrogen oxide, fine particles and heavy metals that coal-burning emits result in smog, acid rain and premature deaths. According to the World Health Organization, fine particles cause about 8 percent of lung cancer deaths, 5 percent of pulmonary deaths and 3 percent of respiratory infection deaths across the world. A World Bank report released this year calculated that pollution and environmental degradation cost India US$80 billion a year. India’s lesson can be instructive for Southeast Asia.
Coal use also may not properly reflect the people’s future energy aspirations. Recent surveys Shell conducted with some 3,400 people in six Asia Pacific countries—Indonesia, Philippines, Thailand, Vietnam, Singapore and Australia—bear out this observation. At least 7 in 10 people ranked reducing carbon dioxide as important or very important, and a majority saw their governments as having the leading role in shaping a cleaner energy future.
The Shell surveys showed middling to very low desire for coal as a future energy source. Indonesia and Vietnam, and to a lesser extent the Philippines, were more likely to desire future energy from coal, though even for them coal was not one of the top three choices, which were solar energy, hydropower and natural gas. The potential for Asia’s governments to tap into the desire for a cleaner future is enormous.
A cleaner Asia
One major stride policymakers can take is to consider the use of gas. Gas is uniquely positioned to address the region’s energy challenges—the region has vast gas resources to be developed; it is acceptable to many people and is affordable in the long run.
According to IEA, gas is abundantly available. The agency suggests more than 250 years at current consumption rates. Southeast Asia itself is richer in gas than oil: A the end of 2012, the region had 7.5 trillion cubic meters of proven gas reserves, or 3.5 percent of the world total.
Because of its relatively low carbon dioxide and other emissions, gas is environmentally acceptable. Natural gas plants emit significantly less than a tenth of the sulphur oxide, nitrogen oxide, particulates, and heavy metals produced by coal. Even traditionally heavy coal users like China and the United States, are starting to move away from coal. Southeast Asia can be a part of this trend while it meets its policy objectives.
Finally, gas is affordable. Gas-fired power stations are more economical to build than any other new-build competing source of energy. And switching from coal to gas is the fastest and cheapest way to reduce carbon dioxide emissions.
Fossil fuel subsidy reform
To achieve a cleaner energy future, governments can undertake a few more urgent policy actions. These include rigorously implementing air pollution regulations for power plants and committing to the elimination of subsidies that skew the playing field in energy markets.
IEA noted in its report that fossil fuel subsidy reform remains a challenge in Southeast Asia, although progress has been made. The subsidies amounted to $51 billion in 2012—almost equivalent to Macau’s GDP (measured by purchasing power parity) last year. Removing them can encourage investments in energy infrastructure and stimulate improvements in energy efficiency and renewable deployment.
The region is at a tipping point in its future energy choices. It has an opportunity to become a pacesetter in energy policy, if it can demonstrate to other developing regions how energy needs can be met sustainably.
(The author is executive vice president of Shell Integrated Gas.)