Australia Strives to become the Next Green Energy Superpower in ASEAN

Key Takeaways

• Strategic Reorientation Towards Clean Energy Diplomacy: Australia’s foreign policy prioritizes green energy integration, showcasing proactive leadership in regional climate initiatives, particularly in Southeast Asia, bolstering its strategic positioning.

• Risk Perception and Regulatory Challenges: Investors, especially Australian, express concerns over economic governance and legal structures in Southeast Asia, requiring prioritization of thorough due diligence and regulatory compliance, which is imperative for success in ASEAN’s diverse business landscapes.

• Investment in Green Skills: ASEAN’s renewable energy transition underscores the demand for skilled labor in clean technologies, enabling Australian firms to benefit by investing in workforce development and educational partnerships, aiding regional decarbonization efforts. 

  
  

Australian Prime Minister Anthony Albanese hosted the 2024 ASEAN-Australia Special Summit in Melbourne from March 4th to 6th, 2024, with the primary aim of bolstering collaboration between Australia and the Association of Southeast Asian Nations (ASEAN) under the theme ‘A Partnership for the Future.’

The Summit deliberations revolved around pivotal sectors and themes outlined in Australia’s Southeast Asia Economic Strategy towards 2040, reinforcing the importance of improving economic relations and diversifying supply chains between Australia and ASEAN. 

The Green Agenda Down Under

Building on a longstanding 50-year history of mutual cooperation, the three-day Summit gathered emerging leaders and experts to promote cooperation in economic development, climate action, clean energy, and maritime affairs. 

Given Southeast Asia’s (SEA) status as one of the world’s fastest-growing regions, characterized by favorable demographics and economic openness, it is poised to remain a primary driver of global economic expansion through 2040 and beyond. 

Projections indicate SEA’s ascendance as the world’s fourth-largest economy by 2040, trailing only the United States, China, and India, with an expected compound annual growth rate of 4% from 2022 to 2040.

Moreover, Australia’s geographic proximity enables it to strategically seize opportunities and assume a central role in the ongoing economic acceleration by investing in ASEAN’s extensive infrastructure investment requirements and promoting the transition to sustainable energy sources. For instance, the establishment of a $2 billion Southeast Asia Investment Financing Facility serves as a tangible step in this direction. This facility, managed by Export Finance Australia, will provide loans, guarantees, equity, and insurance for projects that support the region’s clean energy transition and infrastructure development.

Since its establishment in 2020, the Mekong-Australia Partnership (MAP) has been instrumental in tackling significant climate change risks due to the subregion’s diverse ecosystems and varied environmental landscapes.

Increasing temperatures, extreme weather phenomena, and ecological disruptions present profound challenges to the Mekong subregion (comprising Cambodia, Laos, Myanmar, Thailand, and Vietnam).

The MAP targets the aforementioned challenges by strengthening the environmental and economic resilience of the Mekong subregion, cultivating leadership and skills, and promoting trade and investment. 

Additionally, the Climate and Clean Energy Window, backed by a A$10 million (USD 6.51 million) funding allocation, was also revealed during the Summit. It will sustain multi-year programs aimed at advancing climate and clean energy initiatives, with a focus on technical capacity building.

The initiative will offer sustained funding for multi-year climate and clean energy programs, facilitating knowledge exchange and collaboration between Australia and ASEAN nations.

These efforts are grounded in the shared dedication of both Australia and ASEAN to tackling climate change, especially given their historical reliance on fossil fuels for energy generation. As SEA grapples with the increasing energy demand (projected to double by 2050) there will be an increasing demand for clean energy alternatives as ASEAN nations strive to meet ambitious net-zero and emissions reduction objectives

Analysis

Australia’s strategic reorientation towards elevating climate concerns within its policy framework, both domestically and regionally, exemplifies a noteworthy and forward-looking endeavor. The integration of green energy transition objectives into holistic policy formulation and strategic planning, transcending conventional energy sector boundaries, signifies a pivotal diplomatic achievement in the ASEAN-Australia partnership. Australia’s renewed focus on ASEAN as a key pillar of its foreign policy agenda reflects a comprehensive effort essential for maximizing current and emerging opportunities.

While Australia has maintained steady economic growth, many ASEAN nations have experienced more rapid development. Despite Australia positioning ASEAN as its second-largest trading partner after China, the economic importance of Australia to ASEAN in terms of trade is relatively diminished, constituting only 3.4% in 2022. 

Failure to succeed in this endeavor could jeopardize Australia’s position, especially as ASEAN economies grow in comparison to Australia’s, while competitors like China intensify their trade promotion and investment activities in the region.

Therefore, the recent Summit highlights Australia’s reaffirmed strategic importance to a diverse range of dynamic and geopolitically significant nations, emphasizing the necessity for Australia’s active presence in a region that strongly embraces multilateralism and the concept of “ASEAN Centrality.” This notion highlights ASEAN’s pivotal role as the primary regional platform for addressing shared challenges and engaging with external powers. While ASEAN’s sustained economic progress has significant implications for Australia’s prosperity and security, Australia faces notable challenges in its efforts to transition to green energy within SEA. For instance, Australian investors still perceive a challenging risk-return trade-off in the region. According to Australia’s Department of Foreign Affairs and Trade (DFAT), they indicated that this sentiment arises from Australian investors’ apprehensions about economic governance, regulatory frameworks, and legal recourse mechanisms in Southeast Asia, which are considered high-risk.

Additionally, Australia’s deepening ties with ASEAN faces headwinds stemming from divergent perceptions among the Southeast Asian bloc’s members regarding Canberra’s strategic relevance. This disconnect is underscored by the latest “State of Southeast Asia 2024” survey from the ISEAS-Yusof Ishak Institute’s ASEAN Studies Centre, which ranks Australia a relatively middling 7th out of 11 existing partners in terms of strategic salience, with a modest mean score of 5.51.

The survey results confirm the notion that as ASEAN expands and gains global prominence, Australia may encounter increasing challenges in asserting its presence and influence, despite its extensive history of bilateral and multilateral engagement in the region.

However, it is important to recognize that Australia did not achieve a leading position in a region where dominant economic and security powers, such as the United States and China, vie for influence. Australia could not realistically aspire to become the primary economic or strategic power in an evolving geopolitical rivalry between China and the United States. Nevertheless, Australia’s influence has declined, albeit to a limited extent.

Despite Australia’s diminished influence in the region, its prudent diplomacy and methodical economic integration with ASEAN showcase its strategic foresight aimed at revitalizing its role and image in the region. This highlights an important message for Australian businesses as the Albanese administration enacts its fresh engagement strategies and green initiatives in ASEAN.

For instance, Australia’s recent announcement of an A$6.9 million Energy Cooperation Package under the Aus4ASEAN Futures Initiative exemplifies this foresight, presenting an opportunity for ASEAN nations to benefit from Australian expertise.

This initiative aims to strengthen ASEAN-led regional energy policy and planning by transferring technology, building capacity, and improving environmental management practices. It also supports key institutions like the ASEAN Centre for Energy and the ASEAN Centre for Climate Change in Brunei Darussalam.

Implications

• Mekong-Australia Partnership (MAP):

  
  
  
  

  Over the past four years, the MAP has achieved significant progress in several areas, especially in water cooperation, fish migration, fiscal reforms, eco-development, rice innovation, women empowerment, and renewable energy push.

Opportunities:

• During the Summit, Australia’s Minister for Foreign Affairs, Penny Wong, unveiled a pledge to invest an additional $222.5 million over the next five years in the next phase of the MAP aimed at strengthening the resilience and prosperity of the Mekong subregion in Southeast Asia. 

• For Australian businesses, this signals a potential emerging market with growth prospects as increased investment in the MAP presents an enhanced opportunity to build upon previous successes, focusing on investments like improving water security capabilities and addressing shared climate change challenges in the Mekong subregion.

• Climate investments in the Mekong catalyze growth in sustainable technologies beyond the subregion, focusing on renewable energy, climate resilience, disaster-risk management, ecosystem protection, and resource efficiency to respond to regional demand.

• Green investments in Southeast Asia are estimated to reach A$4 trillion (USD 2.64 trillion) by 2030 and potentially rise to A$15 trillion (USD 9.9 trillion) by 2050.

Risks & Challenges:

Although the MAP seeks to enhance Australia’s engagement within the Mekong subregion, it encounters numerous obstacles and risks: 

• The Mekong subregion exhibits an undercurrent of political turbulence and authoritarian retrenchment, despite outward stability:

  
  
  
  

  • Thailand: The Move Forward Party (MFP) won the 2023 general election with a platform that included reform of the lese-majeste laws and royal household finances, but conservative senators and MPs, wary of the proposed reforms, sided against the MFP leader Pita Limjaroenrat becoming prime minister. This paved the way for an alternative coalition government formed by Pheu Thai and conservative factions.

  
  

  • Myanmar: The February 2021 military coup has sparked widespread armed resistance, aligning with ethnic minority groups opposing the military, leading to a protracted conflict. While the junta retains significant military strength, its control is increasingly untenable, with growing threats even in major cities.

  
  

  • Laos: Rumors of former Lao Prime Minister Phankham Viphavanh’s premature resignation in mid-December 2022 materialized in January 2023, with the National Assembly electing Sonexay Siphandone, from a prominent political family, as his successor—a move interpreted as acknowledging leadership failures amidst economic strains and political instability.

  
  

  • Cambodia: After three decades in power, Cambodian Prime Minister Hun Sen declared he would step down following his Cambodian People’s Party’s (CPP) landslide victory in July 2023 elections marred by opposition suppression, ushering in a dynastic succession by appointing his son Hun Manet as the next premier. Despite international criticism of the polls being neither free nor fair, and concerns over consolidating power within his family akin to North Korea’s dynastic politics, Hun Sen defended the move as necessary for maintaining peace and avoiding bloodshed.

  
  

  • Vietnam: The communist regime under Nguyen Phu Trong has consolidated control through an anti-corruption purge that sidelined senior leaders, undermining collective leadership norms. Trong has strengthened the Communist Party of Vietnam’s (CPV) role in governance, particularly through anti-graft measures, while tightening ideological control, but his centralization of power raises concerns over potential inefficiencies, succession risks, and a departure from traditional party norms.

  
  

• Local economies of the Mekong subregion continue to grapple with macroeconomic instability, further compounded by external pressures like global downturns and geopolitical tensions:

  
  
  
  

  • Thailand: Thailand’s economy grew only 1.9% in 2022, significantly lagging behind other Southeast Asian nations, exacerbated by high household debt and a middle-income trap marked by low productivity, poor education, and a workforce ill-equipped for value-added services. Prime Minister Srettha Thavisin has labeled the situation a crisis and proposed controversial measures like cash handouts and casino legalization amidst disagreements with the central bank, while the World Bank highlights severe educational deficiencies hindering Thailand’s competitiveness in the digital economy.

• Myanmar: Myanmar has been severely impacted economically since the 2021 military coup, with nearly half the population in poverty, modest 2-3% growth in 2023 undermined by low demand, high prices, currency shortages affecting businesses, and sanctions restricting the junta’s global financial access. Despite resilience in the garment export sector, the regime’s policies like unfavorable exchange rates, price caps, and decreased social spending, coupled with environmental disasters like Cyclone Mocha, humanitarian crises, and sustained conflict, make robust economic recovery unlikely under military rule.

• Laos: Laos’s government, under the Lao People’s Revolutionary Party’s control since 1975, has struggled with economic woes, including sluggish growth below 3% in 2022, rising debt from Chinese projects impacting affordability, and ineffective measures against inflation and currency devaluation. Despite a services sector boost from tourism and logistics, the economy faces macroeconomic instability with a depreciating currency, double-digit inflation in 2023, monsoon delays, financing challenges, and being categorized by the  International Monetary Fund (IMF) as in debt distress.

• Cambodia: Cambodia’s economy is projected to experience robust growth of 5.8% in 2024 and 6.0% in 2025, driven by a tourism resurgence and strong manufacturing prospects, building on its 5.0% growth in 2023 supported by tourism recovery and steady non-garment manufacturing. However, potential global downturns, rising private debt, energy price fluctuations, climate vulnerabilities, and challenges from graduating from Least Developed Country status in 2027 pose risks that require enhancing global integration, diversification, value-added production, sustainable infrastructure, human capital investment, and domestic resource mobilization.

• Vietnam: Vietnam’s economy faced challenges in 2023, missing initial growth projections of 6-7% due to declining global and Chinese demand for exports, leading to a revised forecast of around 5% and a 5.7% export decrease, offset partially by a 50% tourism surge but impacted by slow 1% industrial growth, electricity supply issues, sluggish FDI, real estate problems, and missed opportunities like Intel’s expansion. Despite enhancing US ties, addressing energy concerns, training, infrastructure and domestic reforms boosting the private sector and productivity will be crucial for achieving the 6-6.5% growth target in 2024 amid potential global headwinds.

Climate and Clean Energy Window:

The Climate and Clean Energy Window will feature a flexible funding mechanism that allows for tailored financial support and resource allocation to cater to the specific needs and requests of ASEAN countries in their transition towards clean energy and climate initiatives.

This flexible funding approach acknowledges that different ASEAN countries may have varying requirements, priorities, and opportunities when it comes to adopting clean energy solutions. It enables the funding entity to provide customized assistance to effectively address the unique challenges and circumstances faced by each partner country.

Moreover, the mechanism underscores the importance of government-to-government partnerships in facilitating and supporting these endeavors, recognizing the complexities involved in the clean energy transition while also highlighting the opportunities in the region.

Opportunities:

• The technical capacity building initiative offers Australian businesses and investors opportunities to engage in project engineering, design, construction, advisory services, and technology provision. 

• While initially supported by a A$10 million (USD 6.51 million) investment, the Climate and Clean Energy Window is strategically aligned with the ASEAN Strategy for Carbon Neutrality. 

• This overarching regional strategy holds the potential to catalyze a staggering influx of green investments ranging from USD 3.7 to USD 6.7 trillion across the ASEAN region. 

• Such substantial investments in sustainable and low-carbon initiatives could unlock a remarkable opportunity, creating between 49 and 66 million additional employment opportunities within the region.
  

Risks & Challenges

• For technical capacity building to succeed, Australia faces a significant challenge in effectively addressing the shortage of skilled labor in the region.
  

• Australia and ASEAN nations face a significant labor gap in developing the skilled workforce required to transition to low-carbon economies. As these countries pursue ambitious decarbonization targets, a scarcity of technical expertise in renewable energy, energy efficiency, sustainable manufacturing, and other green industries could hamper the momentum.
  

• This is a pressing concern as 38% of workers in the region are employed in industries that are vulnerable to climate extremes and economic transition impacts.

• Australia and ASEAN counterparts must ​​thoroughly evaluate labor supply and demand across the green energy sector, both domestically and regionally. They need to identify areas with worker shortages, oversupply, or skill mismatches to cultivate “critical mass.” 

• Using these findings, they can then design and implement policies to up-skill and retrain workers, ensuring they have the capabilities required for jobs in the burgeoning green economy.