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Race to Net-Zero

Loo Yen Chew, Senior Consultant

looyenchew@hka.com

Shamila Neelakandan, Partner, Head of Operations Malaysia & Singapore

shamilaneekandan@hka.com

Whilst it is not possible to ascertain the role that anthropogenic climate change plays in increasing occurrence of natural disasters globally, most experts agree that the increased level of greenhouse gases (GHG) in the atmosphere, to varying degree, have contributed to an increase in global temperatures, which in turn causes disruption to the natural ecosystem. This change contributes to extreme weather events such as droughts, hurricanes, and storms at an increased severity level.

Despite the COVID-19 pandemic and its devastating consequences, an opinion poll conducted by UNDP[1]United Nations Development Programme. and its partners in late 2020 shows a pervasive recognition of climate change as a global emergency. It therefore not surprising that 59% of 1.22 million people surveyed wanted an urgent and comprehensive action from their policy maker[2]UNDO and University of Oxford. (2021, January). People’s Climate Vote. in respect of climate change.

With COP 26 taking place, net-zero has become the current buzzword and is the most topical discussion at present time. This is not without reason. We know that national targets[3]Paris Agreement requests each signatory countries to submit nationally determined contributions (NDCs) to show how a country targets to reduce its national GHG emissions. NDCs are submitted every … Continue reading set since Paris are widely considered as insufficient to meet the Paris Agreement goal[4]Climate Action Tracker highlights that there is more than 90% probability the temperature will go over 2 degrees based on the NDCs that were submitted. and, yet most signatory countries have also fallen short on their less ambitious targets. With the five-year deadline for the signatory countries to upgrade their commitment under the so-called “ratchet mechanism” looming closer, the underlying negotiations in COP 26, 2021 makes it pivotal for race to net-zero.

So, what is net-zero?

Put simply, the term net-zero refers to a state of equilibrium where the GHG releasing into the atmosphere are offset by removal out of the atmosphere.  

But why reaching net-zero is important? Based on the available scientific findings, we know that our planet has been getting warmer and if CO2 emissions reach zero, human-induced global warming can be stopped.

The Paris Agreement – first international treaty on climate change, refers to the net-zero goal by stating:

“Holding the increase in the global average temperature to well below 2°C and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”

This sets the parameters within which net-zero can be proclaimed.

Why 2050?

The target year of 2050 is seen as the finite period within which climate related negotiations are considered necessary and the plausible.[5]DW.COM. (2019, May 31). Net-zero by 2050: What Does it Mean? https://bit.ly/3mudtjR. The IPCC[6]The Intergovernmental Panel on Climate Change is an intergovernmental body of the United Nations mandated to provide impartial scientific information on human-induced climate change including its … Continue reading noted in its 2018 report that human induced global warming reached approximately 1 degree in 2017 and based on the impacts already felt, it assessed changes in the climate system should the global temperatures were to increase further between 0.5 and 1 degree. IPCC concluded that anything beyond 1.5 degrees (e.g 2 degrees of global warming) will make the planet much more inhospitable.

Drawing on that, the IPCC recommended that we should aim to limit the global warming to 1.5 degrees and this can be achieved only if GHG emissions reach net-zero by 2050. However if we reach net-zero in 2070, the global temperature is likely to increase beyond that to 2 degrees.

Who is in the race?

The global push for net-zero was set in 2015, when nearly every country in the world signed the Paris Agreement.

Six years on, 134 countries[7]Commitments to net-zero can be pledged via an online platform launched by UN Climate Change – The Global Climate Action at https://climateaction.unfccc.int/. Visit Energy and Climate Intelligence … Continue reading which represents 68% of world economy, had committed to carbon neutrality through national pledges.

Bhutan and Suriname are the two early overachievers amongst the pledgers, having already attained carbon negative status.

Finland is targeting 2035 and Austria, Iceland, Germany, and Sweden are all targeting 2045 or earlier.

The United States (the US), the European Union (the EU), Japan, Brazil, Canada and some 118 countries set a target of 2050.

In addition to Indonesia, Kazakhstan and Ukraine, the world largest emitter, China is targeting 2060. As China is responsible for an estimated 24% of global GHG emissions, China’s pledge is significant. The issue is are they able to achieve it and what measures are being taken towards realizing this target.

Setting a target is perhaps the easiest step in the net-zero race but the real challenge is in solidifying that target into an actionable policy. To creating rigour in these commitments, implementation ought to be enshrined through legislative statute to give a basis of legal force. By early 2021, only 16 countries have passed their carbon neutral targets into law or have a proposed legislation in place.

Equity of net-zero by 2050

The goal of achieving net-zero by 2050 is undoubtedly a useful tool in framing the effort to tackle climate change however we are increasingly seeing that being turned into a call for all country to announce their net-zero by 2050 targets.[8]The Guardian. (2021). UK’s COP 26 President Calls for World to Get on Track to Hit Net Zero by 2050. https://bit.ly/3AgDBDN

We should be cautious that not all countries are in the position to affect change. The top three GHG emitters that include China, the EU, and the US contribute 41.5% of global emissions, whilst the bottom 100 countries only account for 3.6%.[9]Countries’ GHG emission and GDP can be found on https://ourworldindata.org/. Collectively, the G20 countries account for circa 75% of global GHG emissions. The problem of international wealth inequality further complicates the debate of what constitutes national fair shares of climate action. A report done by Oxfam showed that the richest 10% of the world’s population are responsible for 50% of global CO2 emissions, the poorest 50% of population are responsible for 10% of the emissions.[10]Oxfam. (2015, December 2). Extreme Carbon Inequality.

Many developing countries have yet to peak in their emissions and addressing poverty is an urgent overriding challenge nationally, especially after the COVID-19 outbreak. Since the start of the pandemic, there have been unprecedented number of calls for the International Monetary Fund (IMF) to provide emergency funding and financial assistance, from in excess of 90 developing countries. A push for a uniform target of net-zero by 2050 will cause backlash from these countries; especially against the backdrop of developed countries’ failure to hold up to their end of the bargain to provide USD 100 billion a year of climate finance to developing countries by 2020. Pakistan’s climate minister once described the G7’s climate finance as “peanuts in the face of an existential catastrophe”.[11]The Guardian. (2021).G7 Reaffirmed Goals but Failed to Provide Funds Needed to Reach Them, Expert Says. https://bit.ly/3plZbVL

Combating climate change is not optional and unquestionably, developing countries have to pull their weight. With climate change disproportionately affecting the poorer countries, we all have skin in the game. Net-zero can draw important focus to climate action however, it should be poised carefully and with credibility to avoid bitter fight between signatory countries.

Where does Southeast Asia fits in this bigger picture?

In Southeast Asia, five (5) out of 11 countries have committed to net-zero target in early 2021, these include Indonesia, Laos, Myanmar, Cambodia, and Timor-Leste.

ASEAN[12]Southeast Asia is a region comprised of 11 countries, however only 10 countries are ASEAN (Association of Southeast Asian Nations) members. Timor-Leste is not currently in the ASEAN bloc. contributes around 3.5% of global GHG emission. The total emission comparatively to other developed countries or regions is considered low. However, like many developing regions, energy demand growth in the region is at a rise and this raises the question of how best the region can accommodate its higher levels of economic activity and energy consumption without aggravating environmental consequences. From an economic perspective, it is important that low emitter countries in ASEAN get in line with the green agenda in order to stay resilient in global trading. The market for carbon pricing or cap-and trade systems is set to grow quickly[13]The World Bank’s carbon pricing dashboard shows that there are currently 64 carbon pricing systems covering 21.5% of global emissions, this is nearly twice of 2015 at 12.07%. Visit … Continue reading as a means of bringing down emissions and drive investment into cleaner options globally. Countries that fail to get onboard risk losing out on growth opportunity and competitive edge in trading.

Indonesia is the region single largest GHG emitter (48% of Southeast Asia emissions) and the biggest economy (34.5% of Southeast Asia GDP), Indonesia’s action in the journey to net-zero is paramount for the region. In July this year, Indonesia has updated its nationally determined contribution (NDC)[14]NDCs submitted to the UNFCCC secretariat are available on https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx to the United Nations (UN), aiming to reach a net-zero emissions target by 2060 or sooner. This is welcome news especially after the government first announcement of net-zero by 2070 goal less than six months earlier were heavily criticized for lack of ambition.

In a recent decision[15]Decision issued on 14 September 2021.in a landmark civil environment lawsuit, the Indonesian court found the government officials including the President to have been negligent in protecting its citizen from air pollution. The ruling is a small step in the right direction especially as it forces the legislators to rethink and be accountable for their environmental and climate policy. The director of Air Quality Life index at the University of Chicago notes: “There’s currently about 10 power plants that are within a hundred-kilometer radius of Jakarta, and these plants are allowed to emit 3-7.5 times more pollution, particulate matter than Chinese coal-fired power plants.[16]Nikkei Asia. (2021, September 16). Jakarta Court Finds Jokowi Negligent Over City’s Air Quality. https://Jakarta court finds Jokowi negligent over city’s air quality – Nikkei Asia. Jakarta was ranked the ninth worst capital city globally in terms of levels of PM.25[17]PM2.5 – a type of fine particulate matter understood to be the most harmful to human health and has been linked to causing negative health problems such as respiratory illness, cardiovascular … Continue reading.[18]IQAir. (2020). World Air Quality Report 2020 – Region &City RM 2.5 Ranking. Visit https:// Empowering the World to Breathe Cleaner Air | IQAir to find out more.

Thailand, Philippines, Malaysia, Singapore, and Vietnam collectively contribute 41.8% of Southeast Asia GHG emissions. These countries do not appear to have a net-zero target pledge in 2020 although some of them have, in anticipation of COP 26 in November 2021, announced in tandem their net-zero ambitions. The remaining 10.2% of GHG emissions are shared by Laos, Myanmar, Cambodia, Timor-Leste, and Brunei.

Thailand’s updated NDC to the UN shows no improvement against its previous target to reduce GHG emissions by 25% from its projected business as usual (BAU) level by 2030. Thailand is said to be developing its long-term Greenhouse Gas Emission Development Strategy and its Climate Change Act and is expected to present them at the COP26 in November 2021. Recognizing the risk of being banned by trade partners and to secure more future free trade agreements, Thailand in a 7-point plan proposes to achieve carbon neutrality by 2065 under a new energy plan that could see renewable energy accounting for 50% of its power generation capacity, gradually displacing natural gas that accounts for 57.5% of its current power mix.   

Philippines was ranked as the eighth highest risk country to extreme natural events worldwide (an improvement from third in 2017).[19]Aleksandrova at al. (2021). World Risk Report Analysis and Prospects 2021. Visit https:// WorldRiskReport_2021_Online.pdf (weltrisikobericht.de) for full report.  With loss and damage from natural events costing the country around 0.5% of its GDP annually, climate change mitigation action to ensure future disaster resilient development is crucial. Philippines, in its first NDC to the UN is aiming to reduce GHG emissions by 75%, of which 2.71% is unconditional. Disappointingly, the bulk of its commitment – 72.29% is conditional on financial support or the means of implementation from other countries under the Paris Agreement. Philippines’ modest commitment perhaps is a strong reflection of perceived fair shares on the path to net-zero; Philippines annual emissions are less than half the global average of four (4) tons per capita. However, we must point out that the Philippines’ moratorium on new coal firing power plants announced in October 2020 is a strong commitment to get in line with the green agenda. The moratorium is likely to put a stop to 8GW of 12GW pre-permit coal projects in the pipeline. Whether this will also lead to investment treaty claims as seen elsewhere is yet to be confirmed.

Malaysia’s updated NDC to the UN includes, amongst other things, to achieve 45% of unconditional carbon intensity reduction compared to the 2005 level; this represents a 10% improvement on the previous target. It is important to emphasize that Malaysia’s carbon intensity reduction target is measured per unit of GDP, instead of absolute reduction. This reflects the challenge many developing countries face for doing their fair shares to reduce GHG emissions under international pressure whilst providing capacity to sustain economic growth. Malaysia’s Prime Minister on 27 September announced Malaysia’s commitment to achieve net-zero by earliest 2050. Whilst Malaysia has given its commitment not to build new coal-firing power plants, its commitment of net-zero by 2050 (at best) lacks details and needs to be supported by further long-term development studies.

Singapore aims to achieve climate neutrality by no later than 2060. Its updated NDC in March 2020 is aiming to achieve absolute terms of emission reduction by 36% from 2005 level by 2030. This update is an improvement on the previous target which tied in with its GDP, however, maintaining a 36% reduction as in the first NDC is hardly a game changer. Singapore’s geographical constraints that lead to its limitation for adopting non-fossil fuel alternatives is its biggest challenge to achieving net-zero emissions, however this is not insurmountable with technological advances. Singapore has been described by Blackrock as an “outlier” amongst its neighboring developing countries and being a capital for finance in Asia, should step up and lead the way in helping to facilitate the region’s energy transition.[20]The Business Times. (2021, September 28). Singapore Should Step Up to Help Emerging Countries with Net-Zero Transition. https://bit.ly/3uQdD8X

Vietnam has been described as the “unlikely solar champion” having pivoted to renewables after its plan to add coal firing power plants was sidelined by lenders. In 2020, it has added more than 13 gigawatts of solar capacity, from only 378 megawatts in 2019. Vietnam is now ranked seventh in the world in respect of its installed solar capacity.[21]Bloomberg Green. (2021, May 20). As Banks Shun Coal, Vietnam Emerges an Unlikely Solar Champion. https://bloom.bg/3leC8JO Vietnam’s solar boom did not come from its government’s policy, but as a consequence of market requirements in a rapidly growing manufacturing sector that demands surging electricity levels within the context of limited funding of fossil fuels by lenders. Despite its strong adoption of renewable energy, Vietnam is rated badly on climate action by researchers. Its updated NDC to the UN, aiming to reduce GHG emissions by 36% from projected BAU level by 2030, of which only 9% is unconditional. Regrettably, the remaining 27% reduction is conditional based on international support. Ahead of COP 26, Vietnam has also reaffirmed its intention to reach net-zero by 2050 or earlier.

The goal of achieving net-zero emissions by 2050 that was initially adopted by developed economies, has filtered its way down globally. We now seen that the majority of ASEAN countries have jumped on the bandwagon, however much of the details and policies in achieving the goal are still in development. Whilst it is praiseworthy that ASEAN countries have set themselves a goal that is comparable to developed economies which arguably should strive to reach net-zero emissions earlier than 2050, there are structural and financial barriers that many ASEAN countries, especially being developing economies, are facing and may constraint their implementation. However, with all good intentions, the setting of goal in embracing green agenda that aligns with the global movement should encourage discussion that opens opportunities in new areas of development and investment.  

References

References
1 United Nations Development Programme.
2 UNDO and University of Oxford. (2021, January). People’s Climate Vote.
3 Paris Agreement requests each signatory countries to submit nationally determined contributions (NDCs) to show how a country targets to reduce its national GHG emissions. NDCs are submitted every five years and countries should enhance their ambitions over time.
4 Climate Action Tracker highlights that there is more than 90% probability the temperature will go over 2 degrees based on the NDCs that were submitted.
5 DW.COM. (2019, May 31). Net-zero by 2050: What Does it Mean? https://bit.ly/3mudtjR.
6 The Intergovernmental Panel on Climate Change is an intergovernmental body of the United Nations mandated to provide impartial scientific information on human-induced climate change including its nature, political, and economic impacts, and possible response to overcome climate change.
7 Commitments to net-zero can be pledged via an online platform launched by UN Climate Change – The Global Climate Action at https://climateaction.unfccc.int/. Visit Energy and Climate Intelligence Unit’s website https://eciu.net/netzerotracker/map for an interactive map.
8 The Guardian. (2021). UK’s COP 26 President Calls for World to Get on Track to Hit Net Zero by 2050. https://bit.ly/3AgDBDN
9 Countries’ GHG emission and GDP can be found on https://ourworldindata.org/.
10 Oxfam. (2015, December 2). Extreme Carbon Inequality.
11 The Guardian. (2021).G7 Reaffirmed Goals but Failed to Provide Funds Needed to Reach Them, Expert Says. https://bit.ly/3plZbVL
12 Southeast Asia is a region comprised of 11 countries, however only 10 countries are ASEAN (Association of Southeast Asian Nations) members. Timor-Leste is not currently in the ASEAN bloc.
13 The World Bank’s carbon pricing dashboard shows that there are currently 64 carbon pricing systems covering 21.5% of global emissions, this is nearly twice of 2015 at 12.07%. Visit https://carbonpricingdashboard.worldbank.org/map_data for interactive map.
14 NDCs submitted to the UNFCCC secretariat are available on https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx
15 Decision issued on 14 September 2021.
16 Nikkei Asia. (2021, September 16). Jakarta Court Finds Jokowi Negligent Over City’s Air Quality. https://Jakarta court finds Jokowi negligent over city’s air quality – Nikkei Asia.
17 PM2.5 – a type of fine particulate matter understood to be the most harmful to human health and has been linked to causing negative health problems such as respiratory illness, cardiovascular disease, and premature mortality.
18 IQAir. (2020). World Air Quality Report 2020 – Region &City RM 2.5 Ranking. Visit https:// Empowering the World to Breathe Cleaner Air | IQAir to find out more.
19 Aleksandrova at al. (2021). World Risk Report Analysis and Prospects 2021. Visit https:// WorldRiskReport_2021_Online.pdf (weltrisikobericht.de) for full report.
20 The Business Times. (2021, September 28). Singapore Should Step Up to Help Emerging Countries with Net-Zero Transition. https://bit.ly/3uQdD8X
21 Bloomberg Green. (2021, May 20). As Banks Shun Coal, Vietnam Emerges an Unlikely Solar Champion. https://bloom.bg/3leC8JO

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