SECOND NEAT WORKING GROUP MEETING ON ENERGY SECURITY
COOPERATION IN EAST ASIA
SINGAPORE
30 June 2006

I. INTRODUCTION

The East Asian Institute, on behalf of NEAT Singapore, organized the NEAT WG(Network of East Asian Think Tanks Working Group) Meetings on Energy Security
Cooperation in East Asia. The first meeting (Phase 1) was held on 6 May 2005 and thesecond (Phase 2) on 30 June 2006. Both meetings were held in Singapore. Delegatesfrom all 13 APT (ASEAN Plus Three) countries attended the June 2006 meeting.
This report identifies the major issues raised by delegates regarding energy security
cooperation. In this WG meeting, the participants concentrated on energy conservationand the lessons which can be drawn from the more energy-efficient APT countries. ThisWG meeting also discussed the maritime dimension of energy security.
The goals of the NEAT WG on Energy Security Cooperation are three-fold: promoteenergy conservation, energy consumption efficiency and energy security in East Asia,
share and learn from the experiences of energy-efficient APT countries, and support an
East Asian Community in the long run through regional energy cooperation. The 2ndWG meeting on Energy Security Cooperation was particularly timely in the wake ofcontinuing oil price rises and global concern, if not tension, over energy security,1especially oil.
A preliminary draft was first distributed to all delegates for their comments andacceptance. The final report on energy security cooperation will be presented along withthe other WG reports at the Fourth Annual NEAT meeting in Kuala Lumpur in August
2006.

II. THE BACKGROUND

The WG meeting had three panels and a general discussion.

Each panel had twosessions: presentation and discussion. Background papers were first read to establish theagenda for discussion. Delegates then freely exchanged their views on the issues
concerned. The panels consisted of the following:
1. Improving Energy Efficiency
This panel focused on the experiences gained and challenges faced in improving
energy consumption efficiency in the APT countries. The lead paper was on theimpressive efforts of the Japanese industry and society to conserve energy sincethe 1973 oil shock. Indeed, Japan can be considered the benchmark for energyefficiency and conservation for other APT countries to emulate. (APT energy
efficiency statistics are provided in Appendix 1). Delegates from other APTcountries also presented papers on their respective countries’ experiences as well
as shared their national requirements and efforts to improve energy consumption
efficiency.

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While delegates in principle accepted the logic of the market to set energy prices,
avoid waste and boost energy efficiency, they were also sensitive to the politicaland social realities of certain APT countries which provide fuel subsidies tomaintain social stability. Nevertheless, APT countries should seriously consider
reducing energy price subsidies in the long run to ensure greater efficiency andconservation of energy resources.

2. Energy Security Cooperation: The Maritime Dimension
This panel explored various potential areas for cooperation among East Asian
countries in their search for maritime energy security. One background paper
examined China’s energy security needs while another focused on the issues ofpiracy and hypothetical terrorism in the Straits of Malacca. This panel examined
the possible role of APT countries for enhancing energy security cooperation in
the Straits of Malacca. Analysis of energy security in the Straits is timely
especially when Lloyds has labeled the Straits a “war risk” area and hiked
insurance premiums.
It was concluded that the alleged problems of piracy and terrorism in the Straitsof Malacca have been exaggerated. There have actually been few pirate attacks
on oil tankers and no terrorist attacks at all within the Straits. Nevertheless, there
is still much room among the APT countries to cooperate with the littoral states
to prevent potential piracy and terrorism, and ensure the unimpeded flow ofenergy through the Straits where 60,000 ships transit annually, carrying 525

3million tons of cargo worth US$ 390 billion (one-third of world trade). By 2004,
26 tankers heading for Asian ports passed through the Straits each day carrying
11 million barrels of oil. Moreover, with continuing increases of traffic in theStraits, APT countries may need to address the problem of congestion andpotential accidents which could delay or disrupt energy flows vital to the region.

3. Energy Conservation: National Policies
Delegates shared their countries’ experiences and policies on energy
conservation. This panel also discussed various APT countries’ experimentation
with bio-fuels and geo-thermal energy which may reduce oil dependence in thefuture.

4. General Economic Framework
There are at least four factors which underpin energy conservation: economic,institutional, a “green” strategy to raise public consciousness, and the sharing of
national experiences and the need for regional cooperation.
a) Economic factors: Energy consumption is closely related to GDP growth.
Indeed, the levels of energy consumption are closely linked to the level of
economic development of a country, or more precisely, the stages of itsindustrialization. To reduce energy consumption, the price mechanism is mosteffective, ie, how to get the price right, though it is acknowledged that certain

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APT countries cannot eliminate energy price subsidies quickly without
incurring serious social dislocation. Reducing energy consumption also involves
the use of “incentives”; for example, citizens and companies are given awards
and publicity for drastically reducing their energy consumption by using electric
devices/equipment which the government has labeled “energy efficient” (these
consume less power per unit of output, but with higher initial capital outlay),and “disincentives” such as penalizing people and organizations that continue to
use old, energy-inefficient equipment.
b) Institutional factors: The state plays an important role in ensuring energy
conservation, including the use of tax incentives, a conducive regulatory
framework, voluntary guidelines and/or mandatory ones (eg, the setting of air
conditioning no lower than 26 degrees Celsius), governmental efforts andcommitments to energy saving techniques and R & D (eg, research into newbuilding styles and materials which reduce the need for air cooling and heating),
and establishing standards for energy efficient buildings and cars. Simply put,the state has an important role to formulate and implement energy conservation
measures.
c) Raising public awareness about energy conservation: governments should
inculcate energy-saving behavior in the general public, school children, andindustrial/business associations, through energy conservation campaigns andcompetitions that alert citizens from all walks of life about the quantities ofenergy that they as individuals, families and workers use for various daily
activities and how they could play a part in saving energy at home, school and5

at work. These activities are highly cost effective from the standpoint of energy
conservation.
d) APT countries should share their national experiences and enhance regional
cooperation in energy conservation. The papers presented at the workshop sent
the “signal” that APT countries are cooperating to make East Asia more
efficient in the use of precious energy and friendlier to the environment.

III. POLICY RECOMMENDATIONS: ENERGY CONSERVATION

Recommendation 1: APT countries should set national targets of energy efficiency witha view to catching up with the world’s best standards in the long run. China’s target inits 11th Five-Year Plan (2006-10) for reducing energy consumption by 20% per unit ofGDP is a case in point.

Recommendation 2: APT governments should expand all existing energy conservation
efforts. These may include: conducting energy audits and inspections, setting minimum
energy consumption efficiency standards, arranging energy efficiency demonstrations,enhancing public education on energy efficiency, and organizing energy-efficiency
labeling programs and international technical exchanges (especially from Japan).

Recommendation 3: APT states should pay attention to energy-saving activities byintroducing (mandatory or voluntary) energy efficiency standards for common
household products. These include: air conditioners, heaters, gas cooking appliances,

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gas water heaters, oil water heaters, refrigerators, freezers, ovens, rice cookers,computers, DVD players, TV sets and fluorescent lights.

Recommendation 4: Manufacturing industries should adopt more efficient methods ofproduction by using less energy per unit of output.

Recommendation 5: APT governments should promote energy conservation efforts inthe consumption of oil -- especially gasoline and diesel -- in the transport sector,
developing policies which ensure that the increasing numbers of vehicles on the roads
use fuel as efficiently as possible.

Recommendation 6: APT countries should hold regular energy conservation campaigns
which educate people about the relative quantities of energy they use and waste in thehome and at work each day, and instill in them the imperative of practicing
energy-conserving behavior at all times.

IV: POLICY RECOMMENDATIONS: ENERGY SECURITY COOPERATION
IN THE STRAITS OF MALACCA
Recommendation 1: The more developed APT countries may consider providing
material or technical assistance to the less developed littoral states. Besides patrol boats
and training ships, these APT countries could help Indonesia build a surveillance radar
network in Sumatra to cover the Straits.
Recommendation 2: APT countries should participate and cooperate actively in

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ReCAAP (Regional Cooperation Agreement on Combating Piracy and Armed Robbery
against Ships).
Recommendation 3: There should be APT multilateral exercises to:a) handle environmental disasters caused by oil spillage from tankers, tugs andbarges

in the Straits, andb) provide humanitarian assistance by mounting search and rescue operations inthe Straits. These initiatives can be regarded as CBM (Confidence BuildingMeasures). They aim to boost mutual trust and confidence, reduce suspicion anddevelop a spirit of cooperation among APT countries.
Recommendation 4: APT countries should also build on the Malaysian June 2006
proposal for a Southeast Asian Disaster Relief Center to provide humanitarianassistance and handle environmental disasters. This proposal can be expanded to cover
the Straits of Malacca and potential maritime disasters with the participation of APTcountries.

V. CONCLUSION

APT governments should do whatever possible to encourage higher energy
consumption efficiency and reduce the transitional period between high and low
environmental impact of economic development, ie, improve the so-called“Environmental Kuznet’s Curve” (see Figure 4). Asia is the fastest developing region in
the world. Concomitantly, energy demand is growing at an unparalleled rate. With8

global energy resource depletion on the one hand, and increasingly worrying
energy-related environmental degradation on the other, it is becoming urgent that each
unit of energy consumed in Asia be utilized to the fullest degree, and as cleanly aspossible.

The more developed APT countries are encouraged to transfer energy conservation
technology and know-how to the less developed members, which should introduce
policy and regulatory framework to absorb them. Thus, APT countries can share all theirenergy-efficiency experience for mutual benefit and enhance trust within the East AsianCommunity.

9APPENDIX 1
Table 1 – Asia: Intensity Rankings for 1980 and 2004
(British Thermal Units per USD using constant Year 2000 dollars and market exchange rates)

1980

2004

China

101,936

China

32,910Laos

23,761Indonesia

28,042Singapore

19,838Vietnam

26,000Indonesia

18,412

Laos24,123Myanmar18,349Thailand

22,159

Malaysia

16,224

Malaysia

23,000Vietnam

15,874Singapore

18,728US

15,174Myanmar16,133

Brunei14,486

Brunei

16,103Thailand

13,643

Philippines

14,400Korea

13,317

Korea

14,100Philippines

11,870

US

9,400

Japan

5,508

Japan

4,580

Cambodia

1,900

Cambodia

746

Notes: Figures for 2004 are estimates.
Energy intensity shows how much energy is used to produce a certain amount of goods andservices and is defined as the ratio of total energy consumption over GDP. It can be written as:
I= E/GDP
where I is energy intensity, E is energy consumption and GDP is the level of output in an economy.
Changes in energy intensity may show that there are changes in the structure of an economy,changes in the mix of energy sources or changes in the efficiency of energy use in the economy.

Source: Energy Information Administration International at
http://www.eia.doe.gov/pub/international/iealf/tablee1g.xls (8 May 2006).

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Table 2- Asia: Energy Intensity and Elasticity Data (2004)
Intensity

Elasticity ratio

Cambodia

1945

0.09

Japan

4580

0.59

Laos

15063

0.84

Singapore

18728

0.92

Philippines

14400

0.97

Korea

14100

1.13

Brunei

16103

1.20

Myanmar

16133

1.37

China

32910

1.61

Indonesia

28042

1.70Malaysia

23000

1.81

Thailand

22159

1.84

Vietnam

26000

2.01

Notes:The elasticity of energy consumption is an estimate of how much energy is required to produce anadditional unit of GDP. It can be written as: rate of energy consumption growth/rate of GDP
growth.
If the elasticity of energy consumption is greater than 1, the economy's energy consumption isgrowing more rapidly than GDP. If it is less than 1, the economy's energy consumption is growing
less rapidly than GDP. If it is 1, it is growing proportionally with GDP. In general, the lower theenergy intensity, i.e. below one, the more energy efficient the economy, e.g., Japan.

Source: Energy Information Administration International at
http://www.eia.doe.gov/pub/international/iealf/tablee1g.xls (8 May 2006).

11Figure 1 - Energy Intensity of ASEAN 6BruneiIndonesia

Malaysia

Philippines

Singapore

Thailand

35000

30000

Singapore

Malaysia

Indonesia

25000

BTUs

20000

15000

10000

Philippines

Thailand

Brunei5000

01980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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Figure 2 - Energy Intensity of Cambodia, Laos, Vietnam & Myanmar

Cambodia

Laos

Vietnam

Myanmar

30000

MyanmarVietnam

25000

BTUs

20000

15000

Laos

10000

Cambodia
500001980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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Figure 3 - Energy Intensity of US, Japan, Korea & China
USJapan

Korea

China

120000100000

China

BTUs

80000

60000

US40000

Japan

Korea

20000

01980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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Table 3 – Asia: Electricity Distribution Losses (% of Electricity Supply)
1960196919801989199619992003

Brunei2.0

1.24.9

China

6.9

7.0

6.5

Indonesia

12.3

11.8

16.3

3.6

3.3

4.8

Korea

5.1

4.1

3.2

Malaysia

11.1

8.0

4.6

Myanmar

35.1

28.5

18.4

Philippines

16.7

14.8

12.9

Singapore

4.5

4.2

6.6

Thailand

8.6

8.2

7.2

Vietnam

18.9

15.6

14.0

Asia

16.9

17.8

17.8

6.4

7.0

6.7

Non-OECD

12.0

12.5

12.5

World

8.4

9.0

9.3

Japan

11.5

6.5

4.4

4.5

excluding
China
OECD

7.6

5.9

Sources: IEA, Energy Statistics of OECD Countries. Paris: OECD/IEA, various years;
IEA, Energy Statistics of Non-OECD Countries. Paris: OECD/IEA, various years.

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Figure 4: Improving the ‘Environmental Kuznets Curve’----- Accelerated transition fromhigh environmental impact to low
environmental impact

Environmental Impact
Index

GDP per Capita

Notes:In the original (1956) version of the ‘Kuznets Curve’, Simon Kuznets postulated that income inequality
before development is low; it then tends to increase as incomes rise but decrease after incomes have reacheda certain level. The theory is now also used to examine how the environmental impact of developmentchanges over time. According to the ‘Environmental Kuznets Curve’, as per capita GDP rises, theenvironmental impact also rises steeply; it then reaches a peak and thereafter declines, ie, that society
initially pays little attention to the environmental damage resulting from industrialisation. But after acertain point, when people begin to enjoy comfortable lifestyles, the desire for a clean environment begins
to increase and translate into government policy, thereby reversing destruction to the environment.

Tanabe believes that the environmental impact of modernisation and industrialisation in Asia need not be as
serious in the early stages (represented by the dotted line) as it was in the Western developed world, nordoes it take as long if energy- efficient equipment is used right from the start.

Source: Yasuo Tanabe, Vice President Research Institute of Economy, Trade and Industry (RIETI)Energy Efficiency: Lessons from Japan “From Cool Japan to Cool Asia”, NEAT WG presentation, 30
June 2006.

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