Feeding Asia’s energy appetite

By Changyong Rhee

Asia’s rise is increasingly considered a foregone conclusion, yet the extent to which the region will prosper hinges on its ability to feed its voracious, ever-increasing appetite for energy. To complicate matters further, Asia faces a seemingly irreconcilable paradox: if it can somehow secure sufficient energy resources to maintain robust growth, it will decisively boost rising global CO2 levels in the process, with enormous economic and social costs.

To date, developing Asia’s energy needs have risen rapidly in tandem with its economic expansion, which is on the upswing again despite the economic doldrums afflicting other parts of the world. [People Republi of] China’s recovery is firming to 8.2 per cent, India’s recovery should reach 6.0 per cent if reform can build momentum, and region-wide developing Asia’s GDP growth should climb to a healthy 6.6 per cent this year.

If developing Asia maintains 6 per cent annual growth, its share of world GDP will increase from 28 per cent to 44 per cent by 2035, with the region’s energy consumption rapidly rising to a whopping 56 per cent over the same timeframe.

Consumption needs
Consumption needs could be even greater, as Asia’s leaders also face a moral imperative of extending the benefits of electricity to more than half billion people who are still, literally, in the dark. Ensuring affordable energy for the poor is central to the notion of “inclusive growth”, the kind of growth whose benefits reach even to the poorest and most vulnerable segments of society. Yet, getting those people connected will require a five-fold increase in yearly energy investments - and will result in even greater environmental fallout.

The region’s desperate need for more energy is also problematic for several other reasons. The region may well possess a quarter of world coal reserves, but only 16 percent of conventional gas reserves and 15 percent of technically recoverable oil and natural gas liquids. To bridge this gap, it will have to triple oil imports by 2035, rendering it even more vulnerable to external energy price shocks.

If Asia maintains its current energy mix, coal use will increase by 81 percent, oil consumption will double and natural gas use will more than triple. This would raise energy-related CO2 emissions to more than 20 billion tons -- nearly the level seen by climate change experts as barely globally sustainable -- by 2035. In effect, Asia’s emissions alone would swamp global targets.

The harsh truth is that there is no magic pill -- Asia must act now if it is to successfully power inclusive, sustainable growth this century.

Containing burgeoning energy demand is critical. Replacing inefficient general fuel subsidies with targeted subsidies, as pioneered by Indonesia, should be the first step. Consumer fuel subsidies impose a tremendous burden on public budgets, exceeding 4 percent of GDP in Bangladesh and Pakistan, and 2 percent in India, Indonesia and Vietnam. Those who benefit from subsidies -- and invariably resist scrapping them -- are rarely the poor.

We should not underestimate the importance of behavioral change in managing demand. After the Fukushima nuclear accident in 2011, Japan succeeded in curbing electricity demand through the Setsuden (saving electricity) movement, lowering peak usage by 15 percent during the summer of 2012.

Cleaner energy
Delivering cleaner energy is also key. In less than a decade, generating capacity rose from negligible to 82 gigawatts (GW) for wind and to 20 GW for solar, with great potential to further expand both. But many experts predict that it will take decades for them to be commercially cost competitive. Asia can’t and shouldn’t wait, however. The only way forward is to make conventional energy cleaner and more efficient now.

One increasingly feasible possibility is for Asia to utilize its substantial reserves of shale gas to offset coal use. Asia’s geology is incompletely investigated, but indications are that China has the world’s largest shale gas resources -- nearly 20 percent of the total. With India and Pakistan also possessing sizeable shale gas reserves, unconventional gas could provide a cleaner bridge to a future that is less dependent on fossil fuels.

Asia faces a dilemma over nuclear power. The Fukushima disaster powerfully underscored the risks, and reminds us of the three remaining challenges to viable nuclear power: proliferation, waste management and safety. But if nuclear were phased out and replaced by current energy mix, CO2 emissions from Asia’s power sector would rocket, rising to 8 percent-13 percent higher by 2035.

Integration of energy markets
More than anything else, regional integration of energy markets can have greater benefits. Connecting electricity and gas grids across borders can create economies of scale that improve efficiency.

Integrating power transmission in the Greater Mekong Subregion, for example, would save US$14 billion over 20 years by allowing the substitution of hydropower for fossil fuels, reducing CO2 emissions by 14 million tons per year by 2020.

The region must strive to establish a Pan-Asian Energy Market by 2030, aspiring to the degree of regional cooperation that currently prevails in Europe. There’s an imperative here to share information and harmonize regulations, standards, and pricing policies. What can be achieved in Europe can be equaled, if not surpassed, in Asia.

The reality is that Asia is on an unsustainable path where growth trumps environmental costs. But eventually -- perhaps sooner than most are willing to accept -- this imbalance will erode Asia’s gains. Action is needed on all fronts if the “Clean Asian Century” is to be more than just a slogan.

(The writer is Chief Economist of Asian Development Bank)

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