Southeast Asia’s green energy transition hampered by significant decline in climate development finance

Southeast Asia’s green energy transition hangs in the balance following a significant contraction in climate development finance to the region, a new Lowy Institute report reveals.

The annual Southeast Asia Aid Map shows total official development finance to Southeast Asia fell to a new low of US$26 billion in 2022.

Climate development finance declined by a troubling 15 per cent on the previous year. Despite a drop in spending on fossil fuel projects, investments in renewable energy have also been declining.

The downward trajectory is far from the scale-up required to support Southeast Asia’s considerable energy needs and transition to resilient low carbon development.

Southeast Asia is one of the most economically dynamic regions in the world and key to efforts to limit global warming to 1.5°C. The Asian Development Bank estimates the region will need about US$210 billion in climate finance each year to meet its renewable energy transition needs.

But the Southeast Asia Aid Map finds an average annual disbursement of just US$8.1 billion to the region between 2015 and 2022.

China is the largest provider of renewable energy financing to the region. But there are concerns about the ecological and financial problems associated with Beijing’s long-standing investments in hydropower projects, particularly in Laos. The latter is engulfed in an acute debt crisis, with China by far its largest creditor.

Overall, there has been a sharp decline in new Chinese development financing: disbursements of US$3 billion in 2022 were a third of what the country spent on development projects across the region eight years ago.

But Beijing’s ongoing involvement in 24 out of 34 of the region’s infrastructure megaprojects means it’s likely to remain the dominant infrastructure financier.

The new edition of the Southeast Asia Aid Map compiles millions of data points from 2015 to 2022.

The Map encompasses more than 120,000 projects, by 107 development partners, totalling US$255 billion, across 11 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Vietnam.

KEY FINDINGS

• After a pandemic-related surge in support, total official development finance to the region fell to a new low of US$26 billion in 2022.
• There has been a sharp decline in new Chinese development financing, though ongoing projects mean Beijing looks set to remain the dominant regional infrastructure financier.
• Traditional development partners collectively continue to dominate total financing, accounting for nearly 90 per cent of total official development finance disbursements to Southeast Asia in 2022.
• The Asian Development Bank and Japan played the most substantive roles in supporting crisis management and recovery.
• Climate development finance dropped 15 per cent in 2022 despite increased policy emphasis from the international community, leaving the region’s green transition at risk.
• More than 40 per cent of official development finance incorporates gender equality as a significant objective. The Asian Development Bank, Australia, and the United States are the top funders for projects with gender equality as their principal objective.
• Despite a political premium placed on “ASEAN centrality”, relatively little development support is directed through ASEAN rather than bilateral and other multilateral channels.
• Intra-regional development financing and assistance between ASEAN member states is growing, but from a low base. Thailand does the most (85 per cent), followed by Vietnam (12 per cent).

ABOUT THE SOUTHEAST ASIA AID MAP

The Southeast Asia Aid Map is a comprehensive database tracking official development finance (ODF) flows in Southeast Asia. The 2024 edition of the Southeast Asia Aid Map encompasses the period from 2015 to 2022. It includes data on more than 120,000 projects carried out by 107 development partners, totalling US$255 billion. The research covers all 11 Southeast Asian nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste, and Vietnam. The project aims to increase coordination, improve accountability, and strengthen decision-making and policy debate on aid, development, and geoeconomic competition in the region.

MEDIA CONTACT
Andrew Griffits
Head of Media and Communications
media@lowyinstitute.org