At the United Nations Climate Change Conference (COP27) held from 6 November until 20 November 2022, the Association of Southeast Asian Nations (ASEAN) issued a joint statement to reaffirm their pledges to addressing the climate emergency for the energy transition in the power sectors, as follows:

• Continuing to reduce energy intensity by 23.8% (based on 2005 levels) and expanding renewable energy (RE) to 14.2% of ASEAN total primary energy supply.
• Enhancing ASEAN regional climate actions in line with global climate development and integration efforts in dealing with climate-impacted energy sectors via Action Plan by the ASEAN Working Group on Climate Change (AWGCC).
• Cultivating cooperation and coordination across ASEAN member states, such as through the development of ASEAN Taxonomy for Sustainable Finance to safeguard the environment and accelerate the transition to a low-carbon economy.

The COP27 focused on the disparity in responses to climate change between developed and developing countries, as well as how to finance the energy transition to net-zero. One year after the announcement of the ambitious net-zero targets in ASEAN, developing countries put forth the energy security and the "just transition" argument.

The key messages from each member of the Association of Southeast Asian Nations (ASEAN) at the COP27 conference highlight the difficulties faced by many developing countries in meeting their climate obligations. The leaders of ASEAN estimated that achieving their nationally determined contributions (NDCs) prior to 2030 will require an investment of between US$ 5.8 and US$ 5.9 trillion. Consequently, the Southeast Asian region is facing a challenge in balancing their net-zero commitments with slow progress in decarbonization policies due to a lack of climate financing.

Key statements for climate commitments announced during COP27

A significant breakthrough was made at the end of the COP27 to assist vulnerable countries deal with the losses and damages caused by the impacts of climate change. The developed countries finally agreed to establish a specific "loss and damage" (L&D) fund to compensate developing and climate-vulnerable countries, with the L&D finance mechanism to be discussed at the new transitional committee meeting in March 2023. Apart from that, developed countries have agreed to provide funding for the Just Energy Transition Partnership (JETP) to help coal-dependent countries in transitioning to greener energy sources.

The JETP is a new funding model that will be offered through grants, low-interest loans, guarantees, and investments from the public and private sectors. To date, Indonesia and Vietnam are the region's only JETP recipients, signed agreements of US$ 20 billion by November 15, 2022, and US$ 15.5 billion by December 14, 2022, respectively. The JETP includes an ambitious pathway to reduce emissions from the power sector, a strengthened commitment to maximize the use of RE, and a strong climate commitment to phase out coal energy in the medium term. Over the next three to five years, JEPT recipients will mobilize the public and private funds provided by International Partners Group (IPG) member countries—G7 countries, Denmark, and Norway—as well as the Glasgow Financial Alliance for Net Zero (GFANZ) Working Group to accelerate energy transition and support their net-zero goals.

Furthermore, only four ASEAN countries updated their climate commitments at COP27 than a year ago. These countries updated their NDCs over the past two years, with Indonesia, Singapore, Thailand, and Vietnam providing the most recent updates around COP27. Singapore and Thailand both submitted stronger NDCs with higher absolute targets for emissions reduction, while Indonesia and Vietnam maintained the same targets in their updated NDCs. However, none of these NDCs can show significant progress toward meeting their climate pledge for emission reduction, as no information on greenhouse gas (GHG) mitigation potential is provided.

Rebalancing the energy trilemma and the ongoing energy crisis continue to be the major challenges in the ASEAN region. It is anticipated that fossil fuels will maintain an important role in meeting the region's growing energy demand in the near future. Therefore, the countries long for more financing support in renewable development and reduction of fossil fuels use.

Despite the financial constraints, all of the countries are continuously implementing carbon reduction initiatives. For instance, Malaysia has established the first carbon exchange that complies with sharia law for voluntary credits; Vietnam has emphasized its commitment to clean energy and renewable sources through its latest draft of the Power Development Plan VIII; the Philippines has allowed full foreign ownership in renewable energy projects; and Malaysia has launched the Corporate Green Power Programme (CGPP), which enables corporations to purchase green electricity through Corporate virtual power purchase agreements (VPPAs).

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.