Building a sustainable future through an Asean ‘Green Deal’

FIVE years ago, the European Union (EU) set a commitment to achieve climate neutrality by 2050 through the Green Deal, making it the first climate-neutral continent.

Holistically, the plan encompasses various actions aimed at fostering a cleaner environment, promoting affordable clean energy, advancing smarter transportation, establishing a circular economy, and generating new employment opportunities in greener industries.

To note, an integral aspect of the EU’s Green Deal is ensuring a just transition for all, recognising the significance of environmental sustainability for both individuals and the economy – “just” as in “fair and equitable”.

During the Third Asean-EU Dialogue on Sustainable Development on Nov 18, 2021, the Green Team Europe Initiative was launched in collaboration with Asean and South-East Asia.

It was reported that this initiative received an initial grant of €30mil from the EU budget and would be implemented in tandem with the European Green Deal and the Asean Community Vision 2025.

A statement released by the 12th Asean-UN Summit chairman on Nov 11, 2022, stated that “the UN Secretary-General called for a Climate Solidarity Pact between developed and emerging economies to combine their capacities and resources,” pointing towards multi-country, transboundary collaboration.

The then chairman had also taken note of “Cambodia’s idea to establish an Asean Green Deal with the aim to gradually transform the Asean region towards a green future, sustainability, effective use of resources, resilience and economic competitiveness.”

Following the recent Conference of Parties (COP28) last month, Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad had said that nations were calling upon the global effort to reduce GHG emissions in line with 1.5°C pathways by transitioning away from fossil fuels in energy systems, prioritising decarbonisation as a long-term strategy within the private sector.Following the recent Conference of Parties (COP28) last month, Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad had said that nations were calling upon the global effort to reduce GHG emissions in line with 1.5°C pathways by transitioning away from fossil fuels in energy systems, prioritising decarbonisation as a long-term strategy within the private sector.

Malaysian blueprint

The 12th Malaysia Plan (12MP) is our current blueprint for the nation’s development up until 2025. It outlines key strategies and initiatives across various sectors, with a strong emphasis on transitioning towards a sustainable and inclusive future.

Crucial points to note include a focus on sustainability and economic transformation.

When it comes to shifting towards a low-carbon, climate-resilient economy, the 12MP recognises the urgency of addressing climate change and outlines plans for reducing greenhouse gas (GHG) emissions to invest in renewable energy and improve energy efficiency.

This is laid out in Chapter 8: Environment of the 12MP:

> Target 8.1: Reduce greenhouse gas emissions by 45% by 2030 compared to 2005 levels

> Target 8.2: Increase the share of renewable energy in total primary energy supply to 31% by 2025.

The rise and promotion of a circular economy and its principles is due to the government’s push to encourage resource efficiency, waste reduction, and recycling to minimise our environmental impact and promote sustainable resource management.

There has also been strong emphasis on environmental protection as the plan also includes initiatives for biodiversity conservation, sustainable land management and the protection of natural resources.

Meanwhile, Europe has set ambitious targets for reducing GHG emissions, investing in renewable energy and improving energy efficiency which aligns with Malaysia’s own goals outlined in the 12MP.

Region not on track

Following a report produced by a collaboration between Bain & Company, Temasek, GenZero, and AWS (Amazon Web Services) titled Southeast Asia’s (SEA) Green Economy 2023 Report: Cracking the Code, “the region is not on track to deliver its 2030 climate targets.”

It noted that SEA will have to manage competing priorities on the road to 2030 as energy security, accessibility, and affordability will remain top priorities for the region.

However, we still need to deliver on our climate goals while fulfilling the energy demand.

The report found that “about 40% of SEA energy consumption from fossil fuels relies on imports by 2030 under current policies” – making the region vulnerable in terms of energy security and trailing in their emissions goals.

Funding and support

To combat this, an Asean Green Deal can draw inspiration from the European Green Deal framework, which includes proposed legislation and funding mechanisms like the Recovery and Resilience Facility (RRF) and the Just Transition Mechanism (JTM).

The JTM provides targeted support to regions most affected by the transition, playing a crucial role in ensuring a fair transition to a climate-neutral economy.

In tandem, its Territorial Just Transition plans play a key role in identifying regions eligible for funding and outlining their specific challenges, development needs and objectives to be achieved by 2030.

Adopting this targeted support mechanism can help Asean nations receive funding for their decarbonisation efforts, tailored to each nation’s most pressing needs.

On the other hand, the RRF – established as a temporary financial instrument by the EU – supports member states in recovering from the economic and social impact of the Covid-19 pandemic.

It exists as a crucial component of the EU’s NextGenerationEU plan, which involves a €750bil investment in a greener, more digital and resilient Europe.

In contrast, Asia School of Business deputy dean of research Dr Melati Nungsari and postdoctoral scholar Dr Pieter E. Stek note that “Asean has a far weaker degree of economic and regulatory integration than the EU.

“The EU’s 2024 budget is €189.4 billion, whereas a large part of Asean’s operations are funded through development and technical assistance funds from non-Asean countries. So it’s not a fair comparison.”

They add that the region’s strength lies in “in coordinating policies and regulations whenever possible.”

“One area where this appears to be happening quite successfully is in the area of financial regulation. Asean countries are working well together to adopt harmonised ESG frameworks for finance and capital markets.

“Cross-border trade facilitation, including energy trading, is another area where Asean is making a positive impact.

“However, Asean has so far failed to cooperate meaningfully in the environmental domain, as we see with the recurring Malaysia-Indonesia-Singapore cross-border haze problems, and has struggled in the social domain; for example concerning refugees or migrant workers. While the region adopts certain aspirational statements about many social and environmental issues, there is no Asean-wide capacity to implement this.”Murali Ram manages the Cities & Advisory practice at Arup in Malaysia. He acts as a sustainability advisor to urban actors and is the lead author of the publication Creating Future-Proof Cities: How to Navigate the Climate Crisis.Murali Ram manages the Cities & Advisory practice at Arup in Malaysia. He acts as a sustainability advisor to urban actors and is the lead author of the publication Creating Future-Proof Cities: How to Navigate the Climate Crisis.

Pooling resources

According to Arup Cities & Advisory Malaysia lead Murali Ram, an Asean Green Deal could be modelled on the EU’s Green Deal, which mandates specific cuts in GHG emissions, increases in the share of renewable energy while improving energy efficiency.

“In addition to targets, the EU has an established carbon price and enforcement systems.

“However, Asean has traditionally shied away from imposing enforceable standards on member states. That said, the negative and visible effects of climate change and the steady increase in emissions over the last two years are strengthening the drive for much needed collective action.

“Galvanising the region as a whole to reduce emissions in tandem would have considerably more positive impact and peer progress.

“There is also an opportunity to address visible transboundary pollution from the haze in Asean affecting not just the environment but our future health and livelihoods,” he says.

A key concern is protecting the region’s food supply.

“As home to the rice basket of the world, Asean is extremely vulnerable to climate change – drought, flooding, heatwave and rising sea levels. Between 2009 and 2020, natural, climate-related disasters were said to have cost Asean US$97.3bil,” he says.

“A deal would help drive economic sustainability and emerging economies by pushing members to maintain competitiveness and access to key export markets. Pooling resources and learning should lower transition costs for members with greater development challenges,” he says.

Green benefits

Green economic investments hold immense potential for both Asean and the EU, offering opportunities for sustainable growth and job creation.

A study conducted by the Asian Development Bank and published in March of 2021 reveals economic benefits of a green recovery in Asean – showcasing the potential for green investments to drive economic revitalisation.

This means that companies and sectors in carbon-intensive industries need support in the transition to low-carbon technologies through economic diversification and climate-resilient investments.

Murali notes that we are already seeing the benefits of energy efficient technologies.

“There are savings to be made in heavy emitting industries, agriculture, transportation as well as electricity generation.

“A deal should ensure that there is sharing and learning between the countries – particularly to expand on emerging low-cost and digital solutions,” he emphasises.

Green Economic Zones

The concept of Green Economic Zones (GEZs) is a promising model for sustainable development and attracting green investments.

GEZs integrate best practices and technologies to promote sustainable growth – emphasising the importance of green energy infrastructure, efficient production and consumption practices, and the establishment of robust green finance platforms.

“The idea of GEZs as low carbon production sites is to change the business-as-usual approach to manufacturing in emerging economies. Products exported to the US and EU will soon need to include a product carbon footprint,” says Murali.

“GEZs are thus important to maintain product competitiveness. This could translate well for FDI, including from within the region.

“For many countries though, a GEZ will need considerable infrastructure investments – particularly for renewable energy (solar, wind, geothermal) and energy storage, waste and logistics.

“The diversity within Asean means that we will not see a ‘one-size fits all approach’ to reducing emissions, but focusing on common targets, goals and technologies can create a larger economic and environmental benefit,” he says.

Scalable and adaptable GEZs tailored to the specific needs of Asean member states can play a pivotal role in driving economic growth while mitigating environmental impacts.

New ‘digital’ law

Embracing the circular economy in both the physical and digital world, Europe recently updated its product liability laws and may hold manufacturers accountable for longer product lifespans, from material durability to software updates.

The new law extends beyond physical objects, now encompassing digital elements like manufacturing files and software used in products.

However, freely available, non-commercial open-source software will not be subject to it.

The EU has recognised the rise of online purchases and products packed with digital features, to which the new law redefines “product” to include items like manufacturing files and software.

This overhaul addresses the growing realities of digital economies where online sales and software-infused products are the norm.

It ensures accountability for the entire product lifecycle, from physical durability to software updates, while still protecting non-commercial, open-source software.

“Digital” may be an area Malaysia needs to catch up on in this matter. Digitalisation will be a key driver as digital technologies continue to grow, boosting economic growth and inclusivity.

Similarly, the 12MP outlines strategies for enhancing digital infrastructure, promoting digital literacy and developing digital industries to meet this change.

As there is a year left to go to realise the goals and aspirations of 12MP, a new green deal ought to consider the inevitable digitalisation of businesses to transition sustainability and what that means for businesses and consumers.

Transition to green economy

A potential Asean Green Deal serves as a comprehensive framework that connects Asean and the EU in their joint pursuit of a cleaner, more sustainable future.

By drawing inspiration from the EU Green Deal and leveraging existing partnerships, Asean can make the transition smoother.

Dr Nungsari and Dr Stek adds that “all major economic policies also serve domestic political and economic interests.”

“One could also cite the Inflation Reduction Act in the United States, or various trade policies by China, Japan, South Korea, and by individual Asean countries as ‘trade protection measures’”.

They add that Asean countries like Malaysia might benefit by seeing increased exports of solar panels to Europe, while the EU’s policies on biodiesel and deforestation remain controversial.

The potential economic opportunities, environmental benefits, and lessons learned from successful green initiatives underline the importance of international collaboration, knowledge-sharing, and investment in driving the transition to a green economy.

As individual nations, cross-border collaboration is needed to create a sustainable, responsible world.

Resources and tools in EU Green Deal

The European Green Deal can serve as a framework for developing an Asean Green Deal.

Its proposed legislation and funding mechanisms – including the Recovery and Resilience Facility (RRF) and the Just Transition Mechanism (JTM) – can help support the transition to a green economy and ensure societal resilience.

The JTM is a tool designed to ensure a fair transition to a climate-neutral economy, providing targeted support to the most affected regions. It aims to mobilise approximately €55bil from 2021 to 2027 to alleviate the socioeconomic impact of the transition.

Notably, the JTM consists of three pillars:

> A Just Transition Fund, with a budget of €19.2bil, expected to mobilise around €25.4bil in investments.

> The Just Transition scheme, providing budgetary guarantees and advisory support to mobilise €10-15bil in private sector investments.

> A public sector loan facility, combining €1.5bil of grants with €10bil of loans from the European Investment Bank to mobilise €18.5bil of public investment.

Territorial just transition plans define the regions eligible for funding and outline the challenges, development needs and objectives to be met by 2030. The approval of these plans opens the doors to financing under the other two pillars.

Meanwhile, the RRF exists as a temporary financial instrument established by the EU to support member states in recovering from the economic and social impact of the Covid-19 pandemic.

It is the centrepiece of NextGenerationEU – the EU’s €750bil plan to invest in a greener, more digital and more resilient Europe.

Critically, the RRF provides grants and loans to member states based on their pre-pandemic gross domestic product (GDP) and the severity of the economic and social damage they suffered from the pandemic.

The total amount of funding available under the RRF is €723.8bil – of which €312.5bil is in grants and €360bil is in loans.

Member states can use the RRF funds to finance reforms and investments in a variety of areas, including the following:

> Green transition: Investments in renewable energy, energy efficiency and sustainable mobility.

> Digital transition: Investments in broadband infrastructure, digital skills and artificial intelligence.

> Economic and social resilience: Investments in healthcare, education, and research and development.

> Institutional reforms: Reforms to improve the efficiency and effectiveness of public administration.

The RRF is a performance-based instrument, which means that member states must meet certain milestones and targets in order to receive the full amount of funding they are allocated.

The European Commission monitors the implementation of member states’ recovery and resilience plans, and can suspend or reduce funding if they are not making sufficient progress.

On the other hand, the Just Transition Platform serves as a support system providing technical assistance and advisory support to EU countries and regions, and a central access point for information on funds, opportunities, and best practices, promoting exchange among stakeholders.

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