ANALYSIS: COAL ENERGY Southeast Asia drives coal phase-out in power plants but socioeconomic impact looms

In a groundbreaking move, the Association of Southeast Asian Nations (ASEAN) Taxonomy Board (ATB) has issued an expanded regional taxonomy in March this year, specifically for the energy sector, outlining criteria for sustainable financing to phase out coal in power plants.

Considered a global first, the ASEAN’s move is deemed a critical first step towards meeting the region’s climate goals. But at what cost does this come, exactly?

Financing coal phase-outs

Coming out with the expanded ASEAN Taxonomy for Sustainable Finance, the ATB developed a set of criteria that took into account coal-fired power plants’ emissions intensity, absolute emissions reductions, and the reduction in the period of operations.

The ATB also identified the power plants in three categories: Tier 1 (Green or T1), Tier 2 (Amber, T2), and Tier 3 (Amber, T3). These are based on the target timeline for the coal phase-out, construction date, and technologies adopted, amongst others.

“Given the benefits of reducing emissions from coal power generation in a managed phase-out and the need for the ASEAN Taxonomy to respond to the diverse ASEAN member states’ circumstances to facilitate an orderly and just transition, the ATB has developed technical screening criteria for coal phase-out,” Noorrafidah Sulaiman, ATB chairperson, said of the science-based, inclusive method of classifying activities according to their contribution to the environment in the region.

She noted that as the inclusion of coal phase-out is novel, it can provide a powerful tool for the transition when executed correctly. The aim is to “promote inclusivity without compromising credibility and interoperability,” she added.

It could also advance dialogue within the international community for effective implementation.

“Having coal phase-out is a very important step towards meeting our climate goals, knowing the climate vulnerability that the region has,” Dr. Victor Nian, co-founder and CEO of the Centre for Strategic Energy and Resources, an independent think tank with a global headquarters in Singapore, told Asian Power

“But of course, it also has its implications because of our heavy dependence on it. That means we must find a viable solution to get ourselves out of coal,” Nian said.

He noted Southeast Asia will particularly benefit from coal phase-outs, considering the region’s vulnerability to sea level rises.

Phasing out coal without measures could jeopardize energy security and economic competitiveness

The ASEAN Taxonomy steers the region in the direction where there is a viable option for investments in the coal supply and value chain. However, Nian concedes that the move, whilst admirable, falls short of tackling social and economic issues, resulting from coal phase-outs.

The dependence of Southeast Asia’s on coal energy goes beyond its abundance in the region and its stability as a power source, Nian said.

Coal power represents a multi-billion industry for Southeast Asian countries, such as Indonesia, Malaysia, and Vietnam. It also employs hundreds of thousands of workers across the supply chain.

On top of this, Nian noted that current geopolitical tensions have driven markets back to coal for energy security.

Socio-economic implications

“From an economic and social point of view, these people will be the first ones that will be impacted, if we have a drastic coal phase-out,” Nian stated, adding that this will likely lead to a rippling effect that could also jeopardise jobs in the mining and transportation side amongst others.

“Coal is really the most abundant and reasonable energy resource in the region, and we have really been capitalising on coal to develop our economy. With Southeast Asia countries, and with most of us being developing countries, economic development will still be the first priority,” he stressed.

Nian said that as the Taxonomy is not designed to address these concerns, this will call for governments to come up with measures that will make the transition more sustainable on the socio-economic aspect. This is not to say, however, that the ATB cannot expand the Taxonomy anew to cover other solutions outside coal phaseouts “as soon as possible.”

“[The] ASEAN Taxonomy now needs to accelerate and look at all the options. We’re at the stage of coal phase-out, which will still need more clarity as to what that means and how we do that, but we still need to look at options and measures that need to be codified and come into the Taxonomy,” told Nian.

Nian added that whilst other options such as nuclear energy, carbon capture, utilisation, and sequestration (CCUS) have already been considered relevant and economically viable in the region, their inclusion in the Taxonomy remains to be seen.

He cautioned that phasing out coal without these measures could jeopardize energy security and economic competitiveness.

“In Southeast Asia, this can be quite a difficult situation for us to be in if coal-fired power plants can no longer be financed. But of course, this is an opportunity to rethink or reshape our future sustainable development plans — gradually moving out of coal, whilst looking at how we can leverage the Taxonomy in charting our way in the energy transition,” Nian concluded.