December 10, 2024
SINGAPORE – To the rest of the world, Pari Island may be just another of the thousands of islands that make up the vast Indonesian archipelago, some so tiny they do not have names.
But non-profit Friends of the Earth Indonesia is fighting for more visibility for the plight of its 1,500 inhabitants, who are facing the loss of their homes and fishery livelihoods as sea levels rise.
The island was partially inundated an unprecedented 10 times in 2023 by exceptionally high tides.
Island communities in South-east Asia, like those on Pari, have long grappled with worsening climate impacts, but often find it difficult to access the funds they need to become resilient against floods and typhoons. Countries in the region also need assistance to phase out coal.
But the recently concluded UN Climate Change Conference COP29 could offer some hope, with developed countries agreeing to channel US$300 billion (S$402 billion) a year to developing countries by 2035. The ultimate aim is to raise US$1.3 trillion annually by 2035 for countries in need, through various forms of finance.
But the US$300 billion core amount was criticised as woefully insufficient by climate-vulnerable countries and civil society, who expected richer countries – who were historical emitters – to commit more.
It is also uncertain how the amount will be raised. While developed countries will take the lead, the COP29 decision stated that the amount will come from “a wide variety of sources, public and private, bilateral and multilateral, including alternative sources”.
Mr Gao Xi, a research associate at the NUS Energy Studies Institute (ESI), said: “Most South-east Asian countries are coastal, making them particularly vulnerable to threats such as typhoons, floods and droughts caused by climate change. Frequent extreme weather events often result in significant financial losses and social disruptions.”
In 2024 alone, the Philippines was struck by six typhoons within a span of 30 days – between October and November – killing more than 170 people, displacing more than 214,000 people and causing damage worth about 470 million pesos (S$10.8 million). While the archipelago is prone to tropical storms, such back-to-back typhoons within a month is unusual.
As most countries in South-east Asia are still developing and have relatively weak economic foundations, climate finance is necessary for the region to take climate action, added Mr Gao, with money particularly needed for clean energy generation, low-carbon transport and coastal defence.
According to the International Energy Agency, Asean will need US$21 billion in investments annually from 2026 to 2030 just to upgrade its energy infrastructure. And to build resilience against climate impacts, the region needs US$422 billion until 2030.
The finance outcomes from the UN conference in Azerbaijan could also benefit other developments in South-east Asia, such as the future regional power grid and carbon trading, which can also benefit Singapore.
Funding the Asean power grid
The funds pledged at COP29 could provide crucial support for accelerating the development of the Asean power grid.
One of the region’s decades-long ambitions, the complex power interconnection will enable electricity trade across borders – for both energy security and access to greener energy.
The regional ambition made progress with the Laos-Thailand-Malaysia-Singapore electricity import pilot in 2022, which transmitted 100MW of hydropower from Laos to Singapore, via Malaysia and Thailand. This was later extended to include another 100MW from Malaysia’s electricity grid in October 2024, but this includes a mix of energy sources, including coal and natural gas.
Singapore is also laying the groundwork for the regional grid by committing to import 5.6GW of clean electricity from Cambodia, Vietnam and Indonesia.
Asean envisions a power grid by 2045, and climate finance has the potential to address the unique challenges of financing such a large-scale, multi-country initiative, said Mr Beni Suryadi, acting executive director at the Asean Centre for Energy based in Indonesia.
Several key challenges make traditional financing for the Asean power grid difficult. One is cross-border investment risks, since the giant grid will involve multiple countries with different regulatory frameworks and tariffs.
Another is the high upfront capital required, especially for building the grid and transmission infrastructure. The resulting long payback periods can put off traditional investors, who seek quicker returns, noted Mr Beni.
Climate finance can loosen these gridlocks. These funds often come in the form of concessional loans with low interest rates, grants, or guarantees which lower the financial risks for private investors. When forms of finance like green bonds, blended finance and funding from the World Bank or the Asian Development Bank are injected into a mega-project first, the risks are lowered for private investors to participate.
Blended finance refers to bringing together monies from the public sector, the multilateral development banks, philanthropies and the private sector.
“This is where climate finance can step in – by bridging these gaps, mitigating risks, and enabling investments that otherwise might not materialise,” he added.
As a wealthier developing country, Singapore would not be a recipient of the US$1.3 trillion, and instead would contribute voluntarily to climate finance. But the island-state would be a beneficiary, nonetheless, of the Asean power grid, which would enable it to import low-carbon and renewable electricity to reduce its carbon emissions.
Singapore’s National Climate Change Secretariat (NCCS) said the Asean power grid would maximise the region’s diverse renewable energy potential by matching renewable resource-rich areas with those that need to buy clean energy.
“By doing so, it can reduce the region’s dependence on fossil fuels, increase resilience against fluctuations in global energy markets and make progress towards our decarbonisation targets,” the NCCS spokesperson added.
But while the Asean power grid is undoubtedly a worthy project, directing climate finance to it would not be straightforward, as it would be considered an electricity transmission project, said Mr Beni.
Whether transmission projects are considered to be green and contribute to reducing carbon emissions is still a question to be settled.
“At the moment, climate finance for transmission infrastructure projects is still nascent, while the needs are huge,” he added.
South-east Asia: Between the devil and the deep blue sea
South-east Asia is in a tricky position when it comes to receiving climate finance as stipulated by COP29. On the one hand, Myanmar, the Philippines, Thailand, Vietnam and Cambodia were, until 2019, among the 20 countries most exposed to climate risks, according to the Global Climate Risk Index, which is published by non-profit organisation Germanwatch.
But South-east Asia is expected to continue its fast economic growth, accompanied by more greenhouse gas emissions, noted Dr Kim Jeong Won, a senior research fellow at ESI.
This growth has reclassified many Asean nations as middle-income countries, reducing their eligibility for development financing, she added.
Among the developing nations, the least developed countries and small island developing states are recognised as having the greatest need for support.
Given the competition for funding, a significant gap already exists between the required investments and actual finance that the countries have received. For example, only 9.7 per cent of investments from the UN’s Green Climate Fund – the world’s largest fund of its kind – has been channelled to South-east Asia.
Similarly, only 6.3 per cent of investments from the UN’s Adaptation Fund has been allocated to Asean countries, said Dr Kim.
She added: “South-east Asian countries are expected to compete for limited bilateral and multilateral public funding with other low-income developing countries.”
If they want to attract a greater share of private funding, it is vital that countries develop more innovative finance models and attractive climate-related projects, she noted.
Ms Lau Xin Yi, sustainable finance lead for South-east Asia at the Carbon Trust consultancy, is looking at a newer type of finance tool called climate transition bonds.
The proceeds from these bonds can be used for a wider range of decarbonisation projects, including those in hard-to-abate sectors such as steel, cement and petrochemicals.
Despite guidelines to prevent greenwashing, Ms Lau noted that about 90 per cent of the transition bonds issued globally has been dominated by Japan’s issuances.
“Climate transition bonds can help South-east Asia unlock more capital needed for its low-carbon transition. More capital will be channelled towards clean technologies, but how transition is achieved will vary across sectors and regions,” said Ms Lau.
More incentives to protect Asean forests
A bright spot at COP29 was an agreement on carbon trading, achieved after nearly 10 years of negotiations.
Carbon trading is governed under a segment of the Paris Agreement known as Article 6, which was finalised at COP29. This means countries can trade carbon credits in two ways – either under a UN-managed carbon programme or through bilateral agreements.
Singapore is currently collaborating with more than 20 countries in carbon markets, including the Philippines, Vietnam and Cambodia.
With Article 6 in place, NCCS said countries that do not have their own national registry to transfer credits can also now use an international registry or receive support from the UN to create their own system.
“This reduces the barriers to entry, encouraging more countries to start engaging in carbon markets cooperation, including with Singapore.”
Mr Anshari Rahman, director of policy and analytics at Temasek-backed investment platform GenZero, said that carbon markets can unlock financing for deserving and untapped technology, and nature-based solutions in the region.
South-east Asia, which is home to the world’s third-largest tropical forest basin after the Amazon and the Congo, would have more incentives to protect it, if it were to receive carbon credits arising from nature-based projects.
Mr Olivier Levallois, founder of Hamerkop Climate Impacts, said some examples are a peat swamp conservation project in Indonesia’s Tanjung Puting National Park, and a carbon forestry programme in Timor-Leste that also benefits small-scale farmers.
Singapore has also mandated that carbon project developers must contribute 5 per cent of their share of proceeds from carbon credits towards the host country’s adaptation efforts. This is another way of raising climate finance.
“Considering Singapore’s position as a regional carbon trading hub, it should benefit from this early-stage excitement, with more project developers getting involved and capital flowing into carbon projects,” added Mr Levallois, who is also senior director at Chooose, a Norwegian company that helps airlines with their sustainable aviation fuel and carbon programmes.
Mr Anshari noted that progress on Article 6 at COP29 helped to shore up market confidence for carbon markets, which have been under scrutiny for years.
Mr Levallois said the next steps are to work towards carbon projects, set up regulatory frameworks and develop carbon monitoring methods. A crucial aspect of this process is to increase demand for credits.
“The market needs to have stronger demand signal, and it is unclear yet whether companies will suddenly trust these (Article 6) mechanisms and make funding available to address their climate impacts,” he added.
Mr Anshari said: “We are closely tracking the development of the infrastructure and tracking systems required to operationalise Article 6 decisions, and we expect to see meaningful progress in 2025 with the first few (carbon) projects to be registered under the (UN) by COP30 in Brazil.”
Paying up for climate
At COP29, nations set an ambitious goal to channel US$1.3 trillion annually by 2035 to developing countries to help them reduce carbon emissions and deal with the impacts of climate change.
The Straits Times breaks down the layers of finance needed to achieve this target based on insights from independent experts, who suggest raising US$1 trillion annually by 2030 as the first step.
1. Developed nations (US$80 billion to US$100 billion)
- Ideally in grants and easily accessible to developing nations.
2. Multilateral development banks (US$240 billion to US$300 billion)
- Funds and loans from international, publicly funded banks such as the World Bank and the Asian Development Bank.
- These first two sources could form the annual US$300 billion core amount committed to developing nations by 2035.
3. Voluntary contributors (US$30 billion to US$50 billion)
- Contributions from high carbon-emitting countries or wealthier nations, such as China, the oil-rich Gulf states, South Korea and Singapore.
4. Innovative sources (US$140 billion to US$160 billion)
- These include taxes on fossil fuels, shipping and aviation, as well as finance from carbon markets.
5. Private sector (US$450 billion to US$550 billion)
- The sector holds most of the world’s wealth. Governments and MDBs must create the right conditions to mobilise private finance, which could reach US$650 billion by 2035.
SOURCES: INDEPENDENT HIGH-LEVEL EXPERT GROUP ON CLIMATE FINANCE, UN CLIMATE SUMMIT NEWS