Asia’s Net
Zero Energy
Investment
Potential

March 2021

1

Summary
Asia is the world’s largest and fastest growing consumer of energy as well as the largest emitter of CO2.
This is a result of its rapid economic development, dominant manufacturing base and dependency on
coal as the primary source of energy. In this context, the decarbonisation of Asia poses an unprecedented
challenge.
Rising to the occasion, China, Japan and South Korea have recently pledged net zero targets by the middleof this century, heralding a transformational change ahead in the Asian energy sector and potentially acting
as the key catalyst for decarbonisation efforts in other Asian countries.
A key reason for the adoption of net zero is the significant economic benefits conferred. Renewable energy
is now largely cheaper than fossil fuels, generates more employment per dollar of expenditure than fossil
fuels and would significantly reduce fossil fuel imports.
Referencing studies conducted by the International Energy Agency (IEA), Tsinghua University and six
integrated assessment models (IAM), the Asia Investor Group on Climate Change (AIGCC) estimates that theinvestment opportunity for Asia’s energy supply1 to achieve net zero to be in the region of USD26 trillion(2°C scenario) to USD37 trillion (1.5°C scenario) cumulatively from 2020 to 2050 (equivalent to 1.7 per centto 2.0 per cent of Asia’s GDP). We expect more details on the required investment in the coming months
when governments unveil their net zero roadmaps.
Figure 1: Asia energy decarbonisation investment scenarios (2020-50)(USD tr)
45

1.5°C

2°C

40
35
30
25
20
15
10
5
0

Tsinghua

IAM

Average

IAM

Tsinghua

IEA

Average

Source: Agencies, AIGCC estimates

The scale of this opportunity makes it the defining investment trend of this century and investors,
companies and governments in Asia will need to work together to achieve these net zero goals, with action
required across a range of fronts including policy, disclosure and investment.
We summarise the key conclusions of this report as follows:
Asia faces decarbonisation challenges from:1•

A high reliance on fossil fuels which were responsible for 80 per cent of power generated amongst
twelve major Asian countries in 2019.

•

Uneven availability of both wind and solar resources, which are necessary for smoothing output,
improving reliability of supply and reducing the need for storage.

•

A lack of decarbonisation ambition and disappointing track record of implementing previous targets
amongst six of nine Asian countries examined.

Asia is well placed to effect this transition:•

In China and India, renewable power costs are up to 25 per cent cheaper compared to developed
countries, contributing towards China’s renewable power achieving grid parity in 2021 and Indiansolar power already undercutting coal power.

•

Amongst the four largest economies in Asia, three (China, South Korea and Japan) have committed
to achieving net zero, while India has set ambitious renewable energy targets whilst having
exceeded the previous goal.

•

Our projected estimate for Asia’s decarbonisation investment of USD26 trillion (2°C scenario) to
USD37 trillion (1.5°C scenario) is well within the means of most countries, representing 1.7 percent to 2.0 per cent of GDP (a similar level to existing levels of spending on energy) and can bepartially funded through the reduction of fossil fuel imports and redirection of fossil fuel capital
expenditure.

Next steps towards decarbonisation to be undertaken:•

Governments need to set high and clear targets (I.e. net zero ambitions) whilst creating a conducive
environment of regulations (I.e. mandatory renewable targets, grid connections) and commerce (I.e.
feed-in-tariffs, emissions trading schemes, green finance).

•

Governments will need to manage the social cost of decarbonisation by ensuring an equitable andstable transition of employment from fossil fuel sectors to renewable sectors and maintain financial
market stability as fossil fuel assets are phased out.

•

Companies need to play their part in complying with Nationally Determined Contributions (NDCs)
at the minimum and adopting Paris-aligned science based targets as a base case, and adopt
improved disclosure standards such as the Task Force for Climate-related Disclosures (TCFD)
recommendations.

Investors can play a significant role through:2•

Identifying and allocating capital towards sectors and companies well placed to enabledecarbonisation efforts.

•

Engaging with companies and policymakers to encourage the adoption of Paris-aligned climate
targets and share best practices in terms of target setting and disclosure.

Assessing Asia’s decarbonisation investment potential
Three major studies provide the framework
A comprehensive assessment of the required investments to decarbonise Asia’s energy supply faces amyriad of challenges given the diversity of the region, uncertain pathways and evolving technology. We
have identified three recent publicly available assessments that can assist:•

IEA estimates that under its Sustainable Development Scenario (SDS), which provides a 50 per centprobability of achieving a 1.65°C scenario, the cumulative energy supply investment in Asia would
require USD13.9 trillion up to 2040.

•

Tsinghua University estimates the cost of China’s investment in energy supply for a within 2°C andunder 1.5°C scenarios at around USD14 trillion and USD20 trillion to 2050, respectively.

•

Integrated Assessment Models (IAM) drawn from the International Institute for Applied Systems
Analysis (IIASA) database of AIM/CGE, IMAGE, MESSAGEix-GLOBIOM, POLES, REMIND-MAgPIE and
WITCH-GLOBIOM model sets,2 point to a cumulative Asia ex-Japan energy supply investment
requirement for within 2°C and under 1.5°C scenarios at around USD31 trillion and USD38 trillion to2050, respectively.

Figure 2: Estimates of decarbonisation investment opportunities in Asia

Country/

Cumulative inv. (USD tr)

AgencyRegionScenario

Sector

2040

IEA

Asia

Well below 2°C

Energy supply

13.9

Energy supply

-

14.4

Entire economy

-

18.4

Energy supply

-

19.9

Entire economy

-

25.4

Below 2°C

Energy supply

-

31.1

Below 1.5°C

Energy supply

-

38.4

Below 2°C

Energy supply

-

13.9

Below 1.5°C

Energy supply

-

16.5

Below 2°C
Tsinghua

China
Below 1.5°C
Asia ex-Japan

IIASA
China

2050

Sources: Agencies, AIGCC estimates

To arrive at an estimate of Asia’s total net zero energy investment potential we proceed in the following
sections to:3•

Provide more background on each model including key assumptions and forecasts.

•

Adjust the estimates in each model to approximate the 2050 timeline, include all of Asia andencompass energy supply only.

•

Calculate an average of these adjusted estimates to arrive at a composite estimate for 1.5°C and 2°Cscenarios.

IEA SDS model for Asia to 2040
The IEA’s Sustainable Development Scenario (SDS) models a pathway for net zero CO2 emissions globallyby 2070, which would provide a 50 per cent probability of limiting the temperature rise to less than 1.65°C,
in-line with the Paris Agreement. This model is less ambitious compared to the other two models due tothe 1.65°C ambition (vs 1.5°C for the other two) and projections that only reach to 2040.
Figure 3: IEA SDS Asia CO2 emissions

Figure 4: IEA SDS Asia CO2 net power additions (2020-40)(GW)(Billion t)

4000

20

3500
3000

15

2500
2000

10

1500
1000
500

5

Source: IEA

r

rs
he
Ot

la
So

d
in
W

o

r
ea

dr
Hy

Natural gas

cl

Oil

Co

Coal

il

-1000

O

2040

Nu

2030

s

2025

Ga

2019

al

0

0
-500

Source: IEA

Since this model only projects investments to 2040, we multiply the required investment to 2050 bya factor of 1.5x to factor in a linear increase in required investment. This extrapolation leads us toconclude that the IEA SDS scenario for Asia (which we consider to be a 2°C scenario) would require a total
investment of USD20.2 trillion from 2020-50.
Figure 5: IEA SDS investment potential for Asia, adjusted to 2050

Cumulative investments (USD trillion)
Category

2020-40

2020-50

Renewable

6.0

9.0

Networks

6.4

9.6

Fossil fuels

0.6

0.9

Nuclear

0.5

0.7

Total

20.2

Source: IEA, AIGCC estimates

The limitation of this approach is that a linear extrapolation from 2040 to 2050 is simplistic given themultiplicity of variables such as power demand growth, renewables mix, technology costs and storage
costs. A complete assessment of these variables is beyond the scope of this report, but we believe thatthe linear extrapolation is reasonable as the declining cost of renewables technology is likely to be offset
by the higher costs of storage investment to backstop intermittency which escalates in the final stages ofdecarbonisation.3

4

The IEA will be releasing a new report in May 2021 that will set out in detail what is needed to fully
decarbonise the energy sector and be fully in-line with a 1.5°C scenario. For now, we incorporate this SDS
scenario in our 2°C investment assessment and do not have an IEA scenario for a 1.5°C assessment.

Tsinghua low carbon development strategy for China
In October 2020, the Institute for Climate Change and Sustainable Development (ICCSD) at Tsinghua
University published its primary findings on China’s long-term low carbon development strategy andtransition pathways. A multi-disciplinary team of 24 leading research institutions and think tanks
conducted 18 sub-projects to explore pathways to achieve net zero emission in China by 2050.
This study models China’s pathways to a 2050 net zero outcome based on a 1.5°C and 2°C scenario. Bothpathways model for a stabilisation of emissions from 2020 to 2030, with major reductions coming during
the 2030-50 timeframe.
Figure 6: China’s GHG emissions in the 2°C and 1.5°C scenarios

Figure 7: Cumulative Chinese investment required to 2050

(Bn tCO2)(USD t)

16

30

14

25

12

20

10
8

15

6

10

4

5

2
0

2020

2030
2°C

2050

1.5°C

Source: Tsinghua

02°C
Energy supply

1.5°C
Industrial

Transport

Building

Source: Tsinghua

We regard this study as the most comprehensive and up-to-date model of the largest economy in Asia,
which is based on the key assumptions outlined in Figure 8.
Figure 8: China’s energy mix in 2°C and 1.5°C development pathways

2020
(%)

2050
2°C

1.5°C

45

>70

85

- Non-fossil fuels

32

90

>90

- Coal

65

<10

<5

Electricity/Primary Energy
Electricity from:

Source: Tsinghua

5We believe that extrapolating Tsinghua’s estimate of China’s required investment to the rest of Asia on thebasis of present fossil fuel demand that needs to be replaced, is a useful exercise in gauging the potential
investment requirement for Asia. This process leads us to an estimated investment in Asia’s energy system
of USD25 trillion in a 2°C scenario and USD34 trillion in a 1.5°C scenario as detailed in Figure 9 below.
Figure 9: Asia’s potential investment in energy systems (Tsinghua extrapolation, 2020-50)

2019 fossil fuel

2°C

1.5°C

(Exajoules)

USD t

USD t

China

120.6

14.4

19.9

India

31.0

3.7

5.1

Japan

16.3

2.0

2.7

South Korea

10.8

1.3

1.8

Taiwan

4.4

0.5

0.7

Malaysia

4.0

0.5

0.7

Thailand

5.3

0.6

0.9

Indonesia

8.4

1.0

1.4

Philippines

1.8

0.2

0.3

Vietnam

3.5

0.4

0.6

206.0

24.6

33.9

Total

Source: Tsinghua estimates for China, AIGCC estimates for other countries

The limitations of this approach of extrapolating China’s decarbonisation investment to the rest of Asia arethat it fails to take into account:•

Each country has different input costs. For example, decarbonising Japan and South Korea may costmore than China on a per unit basis due to their higher land and labour costs•

Decarbonising large land masses such as China and India may be more easily accomplishedcompared to decarbonizing archipelagos such as Indonesia and Philippines.

Integrated Assessment Models for Asia ex-Japan under 1.5°C and 2°C scenarios
Based on published research by a team of climate researchers,4 we draw upon six global energy-economy
models, or integrated assessment model (IAM) frameworks as detailed below to derive an estimate of theinvestment needed in Asia ex-Japan to achieve a 1.5°C and 2°C outcome.
These models span a range from least-cost optimisation to computable general equilibrium model, andfrom game-theoretic to recursive-dynamic simulation models. The authors thus believe that this diversity
generates findings that are robust and encompass a wide scope of technologies and their outcomes.

6Figure 10: Details of Integrated Assessment Models

Acronym

Model

Developer

WITCH

World Induced Technical Change Hybrid

European Institute on Economics and theEnvironment

AIM/CGE

Asia Pacific Integrated Model

National Institute for Environmental Studies

IMAGE

Integrated Model to Assess the Global
Environment

PBL Netherlands Environmental Assessment
AgencyMESSAGEixGLOBIOM

Model for Energy Supply Strategy
Alternatives and their General
Environmental Impact - Global
Biosphere Management

International Institute for Applied Systems
Analysis

POLES

Prospective Outlook on Long-term
Energy Systems

Joint Research Centre of the European
Commission

REMINDMAgPIE

Regional Model of Investment andDevelopment - Model of Agricultural
Production and its Impacts on theEnvironment

Potsdam Institute for Climate Impact Research

Source: Agencies

Using these six models, we have extracted the emissions pathways and required investment in the Figure
11 below. The average of these six models indicate an annual energy investment requirement (excluding
carbon, capture and storage (CCS) and demand side energy efficiencies to maintain uniformity with the
IEA and Tsinghua scenarios) for Asia ex-Japan of USD1.3 trillion per annum in a 1.5°C scenario (or total of
USD38.4 trillion from 2020-50) and USD1 trillion per annum in a 2°C scenario (or total of USD31.1 trillion
from 2020-50).
Figure 11: Asia ex-Japan’s GHG emissions pathways

Figure 12: Asia ex-Japan’s energy investment required to 2050

(Bn tCO2)(USD bn/yr)

600
500
400

20

15

Source: IIASA

7

Po
w

2°C

1.5°C

y
en
c

S
CC

effi
ci

e
ag
or
st

De
m

an

d

+

er

-T

&

D

C
E&

E&

C

ar
-n
uc

le

er
g

y

ss
il

en
-b

-n
n
ge

Hy
d

ro

io

on

as

s

os

om

-f

bi
on
-n

er

fo

RE

si

S
n
ge
ro
w

lf
si

Source: IIASA

Hy
d

ue
ls

-f

2050

Po

1.5°C

2045

C

2040

CC
w

si
l
os

2°C

2035

-f
os

2030

E&

2025

er

2020

Po
w

0

/o

fu

el
s

5

l

300
200
100
0

10

Since the data from these IAM’s are not available for Japan, we have used estimates from the Network
for Greening the Financial System (NGFS) scenarios to estimate decarbonisation costs for Japan, where
we estimate energy investment needs of USD1.7-2.3 trillion for 2°C and 1.5°C scenarios, respectively, as
detailed in Figure 13 below.
Figure 13: NGFS decarbonisation investment scenarios for Japan (2020-50)(USD trillion)

3.0
2.5
2.0
1.5
1.0
0.5
0.0

1.5°C with
CDR
(Orderly)

1.5°C withlimited CDR(Disorderly)

1.5°C(average)

2°C with CDR(Orde rly)

2°C with CDR(Disorderly)

2°C with
2°C with limited
CDR
limited(Disorderly)
CDR (Orderly)

2°C(average)

Source: NGFS, AIGCC estimates

By combining the assessments of IAM for Asia ex-Japan and NGFS for Japan, we arrive at a total
investment requirement for Asia’s energy system of USD33 trillion in a 2°C scenario and USD41 trillion in a
1.5°C scenario as detailed in the figure below.
Figure 14: Asia’s potential investment in energy systems

2°C

1.5°C

USD t

USD t

Asia ex-Japan

31.1

38.4

Japan

1.7

2.3

Total

32.8

40.7

Source: IIASA, NGFS, AIGCC estimates

8

Cumulative investment of USD37 trillion in a 1.5°C scenario
From these three scenarios detailed above, we arrive at our estimate for Asia’s potential investment in energy
systems at USD26 trillion (2°C scenario) to USD37 trillion (1.5°C scenario), as detailed in the figure below.
Figure 15: Asia’s potential investment in energy systems (2020-50)(USD t)

2°C

1.5°C

IEA SDS (to 2050)

20.5

n.a.

Tsinghua (inc. Rest of Asia)

24.6

33.9

IIASA (inc. Japan)

32.8

40.7

Average

25.9

37.3

Source: Tsinghua, IIASA, AIGCC estimates

9•

The range of USD26 trillion and USD37 trillion is equivalent to 1.5 per cent to 2.0 per cent of Asia’sGDP, which compares with Intergovernmental Panel on Climate Change (IPCC) estimates of required
global investment of 2.5 per cent of global GDP between 2016-35 in its Special Report on Global
Warming of 1.5°C.5•

We believe the level of investment (as a per centage of GDP) in Asia may be lower than the IPCC’s
global estimate as Asia’s cost of renewables power is up to 25 per cent cheaper in China and India
compared to the United States (US) and European Union (EU), as detailed in the final section of thispaper, due to lower labour and component costs.

Reimagining Asia’s energy landscapeThe decarbonisation of Asia’s energy landscape presents an unprecedented challenge. In the global
context during 2019, Asian demand constituted 43 per cent of energy, 76 per cent of coal, 36 per cent of oiland 21 per cent of natural gas. Asian energy demand is growing at the fastest rate in the world at double
the global average for the past decade.
Figure 16: Global energy demand breakdown (2019)

Others23%

Figure 17: Regional energy demand growth (CAGR, 2009-19)(%)

Source: BP

pe
ro
Eu

Am

S

h

CI

Nt

m
tA

La

a

ld
or
W

ric

Ea
id

M

As

ia

Pa

c

North
America20%

AfEurope
14%

st

Asia
43%

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5

Source: BP

Reducing Asia’s emissions are critical as Asia is responsible half of global CO2 emissions (17 gigatonnes perannum). By fuel, the majority of Asia’s CO2 emissions stem from coal combustion, which accounts for 72
per cent of global CO2 emissions from coal and 32 per cent of aggregate global CO2 emissions. By sector,
power generates almost half of Asia’s CO2 emissions, followed by industry (28 per cent) and transport (13per cent).

Figure 18: Global CO2 emissions by region (2019)

Figure 19: Asia CO2 emissions by sector (2019)

Residential
Others4%
3%

Others21%

Europe12%
North
America18%
Source: IEA

10

Asia
49%

Transport
13%

Electricity
and heat
producers
48%

Industry28%
OtherenergySource: IEA

We attribute Asia’s high intensity of carbon emissions to the heavy dependency on coal for power
generation, which constituted 59 per cent of Asia’s total power generation in 2019. This is over three time
the average of coal power generation levels in the rest of the world, who use comparatively more natural
gas and nuclear power.
Figure 20: Asia power generation breakdown by fuel (2019)

Renewables
9%
Hydroelectric
14%

Oil
1%

Figure 21: Asia vs Rest of World power generation mix (2019)(%)
60

Natural
Gas
12%

50
40
30
20

Nuclearenergy
5%

10

Coal
59%

Asia

Source: IEA

ne

w

ab

le
s

dr
o

Rest of World

Re

Hy

Na

tu

Nu

cl

ea

r

l
Co
a

ra

lG

Oi

l

as

0

Source: IEA

Heavy industry is another key carbon emitter and Asia is a dominant producer of steel, cement andchemicals, commanding an average global share of 66 per cent among these sectors in 2019. There areconsiderable hurdles to decarbonising these sectors, which necessitate the adoption of new production
technology such as the use of green hydrogen to substitute coking coal to produce green steel.
Asia is also home to around one-third of the global transport fleet, which accounts for 13 per cent of theregion’s emissions. This includes a passenger car and commercial vehicle fleet of around 300 million
vehicles and 78 million vehicles, respectively. Converting a large proportion of these fleets to electric orhydrogen poses a significant challenge given the financial and infrastructure hurdles to be overcome.
Figure 22: Asia global share of heavy industry (2019)

(%)
40

(%)
80

35

70

30

60

25

50

20

40

15

30

10

20

5

10
0

Source: CEIC

11

Figure 23: Asia global share of road and air transport (2019)

0
Steel

CementChemicals

Passenger
car fleet

Source: OICA, IATA

Commercial
vehicle fleet

Passenger
flight miles

Freight
flight miles

Decarbonisation pathways and country breakdown

40

40

20

20

0

0

Non-fossil

e

h
ut

So

Si

ng

ap

Ko

or

si

ay

a

M

al

pa

Ja

si

di

FossilSolar + Wind

Source: BP

ne

In

do

In

in
Ch

EU

pa

Ja

a

si

In

do

ne

di

in

In

Ch

Fossil

re
a
Ta
iw
an
Th
ai
la
n
Vi d
et
na
m

60

a

60

n

80

a

80

a

(%)
100

M
a n
Ph laysiili
pp a
Si ine
ng s
So ap
ut or
e
h
Ko
re
Ta a
iw
Th an
ai
la
Vi nd
et
na
m

(%)
100

a

Figure 25: Asia’s power generation mix (2019)a

Figure 24: Asia’s energy generation mix (2019)EU

The challenge of decarbonising Asia is apparent from the pre-dominance of fossil fuels to generate energy.
In 2019, fossil fuels constituted an average of 91 per cent of total energy generated and 80 per cent of
power generated amongst twelve major Asian countries. In contrast, Europe relied on fossil fuels for 74 percent of total energy generated and only 39 per cent of power generated for the same period.

Non-fossil

Solar + Wind

Source: BP

According to climate scenarios set out by the Network for Greening the Financial System (NGFS), 6 thepathways for Asia to decarbonise involve:•

In the average of 1.5°C scenarios, the proportion of power needs to rise for renewables to 73 percent and nuclear to 22 per cent, and a concurrent decline in gas to 5 per cent and coal to 0 per centby 2050.

•

In the average of 2°C scenarios, the proportion of power needs to rise for renewables to 69 per centand nuclear to 16 per cent, and a concurrent decline in gas to 8 per cent and coal to 0 per cent by 2050.

Figure 26: Asia’s power generation mix pathway - NGFS 1.5°C
scenario(EJ/yr)140(EJ/yr)
140

120

120

100

100

80

80

60

60

40

40

20

20

0

2020

Gas

Source: NGFS

12

Figure 27: Asia’s power generation mix pathway - NGFS 2°C
scenario

2050 (Orderly)

Nuclear

Coal

2050 (Disorderly)

Renewables

0

2020
Gas

Source: NGFS

2050 (Orderly)
Nuclear

Coal

2050 (Disorderly)
Renewables

We believe that Asian countries’ potential to decarbonise are likely to depend on the following nonexhaustive factors:•

Sufficiency of both solar and wind resources since these resources are complementary in smoothing
power output, improving reliability of supply and reducing the need for storage.

•

Successful adoption and economical implementation of power storage solutions such as batteries
and hydrogen, which have yet to be commercialized at a large scale.

•

Government ambition in setting high bars (I.e. net zero ambitions) whilst creating a conducive
regulatory (I.e. mandatory renewable targets, grid connections) and commercial environment (I.e.
feed-in-tariffs, hydrogen infrastructure).

•

Track record of achieving previous renewables targets, as this points to the respective countries’
ability to muster the necessary resources to effect this change.

In Asia, we believe that China, India and Vietnam have the most realistic chance of reaching their 2030
wind and solar capacity targets as their current installed capacities are already 45 per cent, 19 per cent and66 per cent of their 2030 targets, respectively. Japan and South Korea, who have less solar resources andgreater seasonality of energy demand, are likely to require green energy imports to decarbonise.
Figure 28: Summary assessment of Asian countries decarbonisation potential

ResourceRE
capac.
(2019,GW)(GW)

Year target (2020)

RE actual vsCountry

Solar

Wind

Net zero

China

High

High

Yes

416

>1200

2030 Exceeded

India

High

High

No

73

450

2030 Exceeded

Indonesia

High

Low

No

0

6.5

2025 Missed

Japan

Low

MediumYes

66 45 (wind)

2040 n.a.

Malaysia

High

Low

No

1

7

2025 Missed

S. Korea

Low

Medium

Yes

12

185

2034 n.a.

TaiwanLow

MediumNo

5

272025 n.a.

Thailand

High

Low

No

4

18

2037 n.a.

Vietnam

High

Low

No

8

14

2030 Exceeded

Source: BP, NREL, Agencies, AIGCC estimates

13

RE target

Going green is good business
In September 2020, China became the first major Asian economy to make a net zero pledge, which was
followed by Japan and South Korea. We believe these announcements stem from the necessity to combat
climate change, rapidly improving economics of renewable energy and need for economic stimulus.
The improving economics of renewable energy have been driven by a dramatic fall in costs. Over the
past ten years, the global weighted levelised cost of electricity (LCOE) from utility-scale renewable
power generation for solar and wind (offshore and onshore) have fallen by 82 per cent and 33 per centrespectively, according to the International Renewable Energy Agency (IRENA).
The IEA forecasts these cost reductions to continue, with absolute cost declines of up to 60 per cent for
major renewable technologies over the next two decades from technological advancement and economies
of scale. This will further enhance the already favourable economics of renewable power and accelerate its
adoption in Asia, where renewables constituted only 9 per cent of electric power generated in 2019.
Figure 29: Global weighted average LCOE trend

Figure 30: Capital cost reductions (2040 vs 2019)(USD/kWh)

(%)

0.4

0
-10

-20
-30

0.3

-40
-50

0.2

er

s
H

yd
ro

-s

ge
n

ca

el

le

ec

ba

tr

tt

ol

er

ys

ie

wi
nd

V
rP
la
So

hi

ho
re
id

Offshore wind

19

ffs

18

O

17

ic

16

Gr

Onshore wind

15

tr

14

ec

13

ve

pu
Solar

12

El

11

at

10

He

0.0

cl

m

es

ps

s

-60
-70

0.1

Source: IRENA

Source: IEA

As the proportion of renewable energy increases, it has become more important to capture the full costof renewable power due to the issue of intermittency. The IEA has addressed this by combining LCOE withadditional costs from accounting for flexibility and capacity to generate a value-adjusted LCOE (VALCOE).
Even so, the VALCOE remains materially lower than fossil fuels at present, and the IEA expects this costdifferential to further widen by 2040.

14

We expect the benefit of lower renewables cost to be especially pronounced in selected countries in
Asia since VALCOE of renewables is up to 25 per cent cheaper in China and India compared to the US and
EU. In addition, the cost advantage of renewables vs fossil fuels in the US and EU is also much smaller incomparison to China and India.
Figure 31: China value-adjusted levelized cost of electricity(VALCOE) comparison

Figure 32: Global comparison of VALCOE of solar vs gas (2019)(USD/MWh)(USD/MWh)

120

100

100

80

80

60

60
40

40

20

20

0

Nuclear

Coal

Gas
CCGT

2019

Solar PV

Wind
Wind
onshore offshore

0

US

EU

China

Solar

2040

Source: IEA

India

Gas

Source: IEA

An additional benefit of deep decarbonisation would be a sharp reduction in fossil fuel imports, which weestimate to have totaled USD820 billion for Asia in 2019. Assuming a similar level of energy prices going
forward, this would be equivalent to a cumulative sum of USD25 trillion over the next 30 years, which
would significantly defray the costs of the energy transition.
Figure 33: Fossil fuel import costs in 2019 (USD billion)

Country

Oil

Gas

Coal

Total

China

258

42

23

324

India

119

10

10

139

Japan

74

23

12

110

South Korea

70

21

14

105

Taiwan

21

7

7

36

Malaysia

24

2

3

29

Philippines

10

1

12

23

Thailand

21

0

1

22

Indonesia

22

0

0

22

Vietnam

10

1

0

10

Total

630

107

83

820

Source: National Statistics Offices, AIGCC estimates15

Another source of investment in renewables could come from redirecting capital expenditure (capex) fromthe oil & gas industry. In 2020, we estimate that the major Asian oil companies cumulatively incurred capexof USD115b with China accounting for 70 per cent of total Asian expenditure, and with minimal amounts
directed towards renewable capex.
In 2020, European oil majors announced low carbon investment capex targets of an average of 26 per centof total capex for the 2020-30 period. We calculate that if Asian oil companies were to announce a similarlevel of low carbon capex, this would unlock an additional USD30b per annum of renewables investments
in Asia, equivalent to 4 per cent and 2.5 per cent of our estimate of Asia’s required investment for the 2°C
and 1.5°C scenarios respectively. As we would expect the ratio of low carbon capex to substantially rise in
the medium-to-longer term, the importance of this contribution is likely to proportionately rise.
Figure 34: Asian oil sector capex

Figure 35: EU oil majors low carbon capex share targets (perannum)(USD b)

(%)

140

45

120

40
35

100

30

80

25

60

20

40

15
10

20
0

2017

2018
China

2019

5

2020

0

Asia ex-China

Source: Companies

BP (2030)

Total (2030)

Repsol(2020-25)

ENI (202021)

Equinor(2020-25)

Source: Companies

Most long-term scenarios modeling net zero targets include the imposition of a carbon tax, and this can be
an additional source of revenue for governments, as even in 1.5°C scenarios residual CO2 is still expected tobe generated. Using the carbon emissions pathway from Tsinghua and extrapolating to the rest of Asia, weestimate that Asian governments can generate carbon tax revenues in the range as detailed in Figure 36.
Figure 36: Scenario analysis of potential carbon tax revenues in Asia

Carbon tax

2030

2050 (2°C)

2050 (1.5°C)(USD/t CO2)

(USD b)(USD b)(USD b)

20

339

95

48

40

679

190

95

60

1017

284

143

80

1357

379

191

100

1696

474

239

Source: BP, Tsinghua, AIGCC estimates

16

The adoption of renewable energy can also lead to higher net employment, as studies have shown thatspending on renewable energy produces about twice as many jobs per dollar of expenditure than an equalamount of spending on fossil fuels.7
In addition to direct employment in renewable energy production, jobs will be created throughinvestments in smart grids, transmission and distribution networks, storage capacity, charging
infrastructure and construction. A successful transfer of skills from the fossil fuel industry to renewables
will therefore play an important role in mitigating higher unemployment from the fossil fuel industry.
Globally, IRENA estimates that renewable energy employment could expand to 25 million workers by 2030,
outpacing job losses in the fossil fuel sector by around 6 million workers. In 2018, IRENA estimated total
direct employment in solar and wind sectors in China of 2.3 million workers, a similar number to the coalindustry, showing the potential for renewables to provide a net expansion of employment as renewables
energy constituted just 5 per cent of China’s primary energy demand vs 58 per cent for coal.

Source: IRENA

17

s

al

he

rm

og

ot

Bi

as
om

So

la

Bi

dr

in

ue
of

Source: IRENA

Ge

Wind

Hy

Solar

Bi

rP

India

la

China

So

0.0

V

0.5

W

1.0

er

1.5

ow

2.0

op

2.5

as

(million)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

3.0

r…

(million)dFigure 38: Global renewable energy employment (2018)ls

Figure 37: Renewable energy employment (2018)

References and Footnotes
1.

Energy supply is defined as broad coverage of different energy technologies including resource extraction, power generation,
fuel conversion, pipeline and transmission and energy storage.

2.

See Figure 10 for full details of these six global energy-economy models

3.

Wood Mackenzie (June 2019), Deep decarbonization requires deep pockets

4.

Nature Energy (July 2018), Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development
Goals

5.

IPCC Special Report: Global Warming of 1.5 ºC - Summary for Policymakers

6.

AIGCC Policy Update (July 2020), Central bank climate scenarios: Unpacking the NGFS

7.

Political Economy Research Institute (2017), Renewable Energy Investment and Employment in China

About
The Asia Investor Group on Climate Change (AIGCC) is an initiative to create awareness and encourage
action among Asia’s asset owners and financial institutions about the risks and opportunities associatedwith climate change and low carbon investing. AIGCC provides capacity and a trusted forum for investors
active in Asia to share best practice and to collaborate on investment activity, credit analysis, risk
management, engagement and policy related to climate change.
AIGCC members come from 11 different markets in Asia and internationally, and include asset owners
and managers with a combined AUM of over US$13 trillion. With a strong international profile, the AIGCC
network of members and key stakeholders include asset owners and managers, government pension andsovereign wealth funds, family offices and endowments. AIGCC represents the Asian investor perspective inthe evolving global discussions on climate change and the transition to a net-zero emissions economy.
AuthorYong-Liang Por
Research Manager, AIGCC
yong.por@aigcc.net
We would like to thank GIC Private Ltd for their assistance in reviewing this report and AIGCC members fortheir input.

info@aigcc.net

18

www.aigcc.net				@AIGCC_Update