ADB, Indonesia, the Philippines Launch Partnership to Set Up Energy Transition Mechanism
Asian Development Bank (ADB) President Masatsugu Asakawa, Indonesian Finance Minister Sri Mulyani Indrawati, and Philippine Finance Secretary Carlos G. Dominguez announced yesterday at COP26 the launch of a new partnership to establish an Energy Transition Mechanism (ETM) in Indonesia and the Philippines.
The ETM Southeast Asia Partnership is the first of its kind in Asia and the Pacific and aims to help accelerate Southeast Asia’s clean energy transition.
The partnership was endorsed by senior cabinet-level officials from Denmark, the United Kingdom, and the United States, as well as leading global financial institutions and philanthropies.
Vice-Minister for International Affairs at the Ministry of Finance of Japan Masato Kanda also delivered a video message at the launch, in which he announced Japan’s Ministry of Finance was committing a grant of $25 million to ETM, the first seed financing for the mechanism.
“ETM can usher in a transformation in the battle against climate change in Asia and the Pacific,” said Mr. Asakawa. “Indonesia and the Philippines have the potential to be pioneers in the process of removing coal from our region’s energy mix, making a substantial contribution to the reduction of global greenhouse gas emissions, and shifting their economies to a low-carbon growth path.”
“ETM is an ambitious plan that will upgrade Indonesia’s energy infrastructure and accelerate the clean energy transition toward net-zero emissions in a just and affordable manner,” said Ms. Indrawati.
“A clean energy transition in the Philippines will create jobs, promote national growth, and lower global emissions," said Mr. Dominguez. “ETM has the potential to accelerate the retirement of coal plants by at least 10 to 15 years on average.”
Under the partnership with Indonesia and the Philippines, ADB will work with government stakeholders to pilot ETM by jointly conducting a thorough feasibility study focusing on the optimal business model for each pilot country; bringing together concessional resources from donor governments and philanthropies, in close coordination with global climate change-focused funds; and leveraging large amounts of commercial capital to trigger a decisive shift toward decarbonization.
Energy demand in Asia is set to double by 2030, and Southeast Asia is one of the regions continuing to build new coal-fired capacity. Some 67% of Indonesia's electricity and 57% of the Philippines' power generation comes from coal. Indonesia has committed to reducing emissions by 29% by 2030 and achieving net-zero emissions by 2060. The Government of the Philippines recently announced plans to place a moratorium on new coal-fired power plants.
ETM is a transformative, blended-finance approach that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity. The mechanism will comprise two multibillion-dollar funds: one devoted to early retirement or repurposing of coal-fired power plants on an accelerated timeline, and the other focused on new clean energy investments in generation, storage, and grid upgrades. It is envisioned that multilateral banks, private institutional investors, philanthropic contributions, and long-term investors will provide capital for ETM.
ADB will support the national governments to establish enabling policies and business conditions to improve the program's governance, carbon reduction, and just transition goals. During the 2- to 3-year pilot phase, ETM will raise the financial resources required to accelerate the retirement of five to seven coal plants in Indonesia and the Philippines, while facilitating investment in alternative clean energy options within these countries.
During the design of ETM, ADB and its partners will form an advisory group with nongovernment organizations and civil society groups to prioritize a just transition to clean energy. Technical assistance will be provided for reskilling and the livelihood development of affected workers and communities.
A full scale-up of ETM in Indonesia, the Philippines, and possibly Viet Nam—aiming to retire 50% of the coal fleet, which is approximately 30 gigawatts, over the next 10 to 15 years—could cut 200 million tons of carbon dioxide emissions per year, the equivalent of taking 61 million cars off the road. As it grows, ETM has the potential to become the largest carbon reduction program in the world.
A pre-feasibility study has been completed and a full feasibility study is underway to finalize the financial structure of ETM, identify candidate coal plants for inclusion in the pilot program, and design just transition activities.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.
This article was first published by ADB on 3 November 2021.