30 days Series 20 by Zhang Kaihui N A V I G A T I N G T H E N E T ZERO TRANSITION SPOTLIGHT ON SOUTHEAST ASIA, JAPAN AND THE REPUBLIC OF KOREA 2023 Economies demanding or driving change? Without change, lower income countries will take more than a century to reach the same level of climate resilience as richer countries. Those vulnerable countries are increasingly undertaking mitigation efforts. Data from the University of Notre Dame’s Global Adaptation Initiative highlights mixed fates, ranking countries based on climate change vulnerability and readiness for 2021. CLIMATE CHANGE RESILIENCE RANKING C L I M A T E C H A N G E PERFORMANCE INDEX ‘There is no one-size-fits-all for foreign investment, but there are two constant must-haves to maximise the chance of success. One is bringing global experience. The second is embracing communities and local knowledge.’ Michael Lawson, KWM Partner in Charge, Singapore Country (Income group) Vunerability (food, water, health, ecosystem, habitat, infrastructure) Readiness (economic, governance, social) 2023 YoY Vietnam (lower middle) 3 Philippines (lower middle) 1 Indonesia (lower middle) 1 Japan (upper) 5 Singapore (upper) Republic of Korea (upper) Total rankings: 185 (Notre Dame Global Adaptation Initiative; ‘1’ being least vulnerable, most ready) Total rankings: 63 (mitigation efforts across emissions, renewable energy, climate policy) 128 93 40 121 135 11 103 102 26 62 13 50 59 1 N/A 51 6 60 INTRODUCTION HEAD OF ESG STRATEGY, AUSTRALIA CLAIRE ROGERS PARTNER, JAPAN YOSHIKI TSURUMAKI INTERNATIONAL PARTNER, CHINA BOHYOUNG KIM PARTNER IN CHARGE, SINGAPORE MICHAEL LAWSON In 2023, we look to scaling efforts in Southeast Asia, Japan and the Republic of Korea – here’s why… We are fast approaching the first milestone to limit temperature rises under the Paris Agreement and avoid the worst climate impacts: ‘peak emissions’ by 2025. The reality of the ground we need to cover to reach global decarbonisation targets is driving policies, investment and innovation. To do this effectively and within the desired timeframes it’s critical that we embrace collaboration by working together, sharing knowledge and simply connecting people. In 2022 we paired with the Australian China Business Council (ACBC) to explore the opportunities that could come from cross-border collaboration between Australia and China in our Climate Report. This year we look to Asia’s east. We share insights from our people across the region, combined with those of pre-eminent local law firms who, like us, are helping clients on their net zero journey. Specifically, we look at policy settings in Singapore, Indonesia, Philippines, Vietnam, the Republic of Korea and Japan. All fall within the World Bank’s East Asia & Pacific region and demonstrate the challenges and opportunities seen globally: a mix of developed nations that rank high for climate readiness and are relatively familiar for multinationals and investors, and rapidly growing and urbanising nations that are among the most climate-vulnerable in the world. The importance of conversations and collaboration Conversations were key to our 2022 KWM-ACBC Climate Report. We spoke with Chinese investors working with local communities to build solar farms in regional Australia. We talked about sponge cities proliferating across China and experts leading similar initiatives in Australia sharing their knowledge. We highlighted Australia’s deep research in areas like seaweed-based feed to reduce meat industry emissions. These discussions continue among colleagues and clients. Similarly, this report is designed for conversations, not bookshelves. We look to Singapore’s incentive scheme to ‘green’ buildings, Indonesia’s offshore floating solar plant, ecotowns in the Philippines, the energy trade opportunities between Vietnam and Australia, in the Republic of Korea hydrogen cities and how Japan has opened public trading for carbon credits. The private sector is moving and will play a vital role in accelerating change. Reach out to your local KWM expert for insights on the challenges and opportunities ahead. What are you seeing? Visit the KWM global ESG page for insights on global regulatory settings, business responses and trends. OUR REGIONAL ESG LEADERS NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 2 3 Electricity and heat 32% Other fuel combustion 1% Transport 12% Manufacturing and construction 12% Land-use change and forestry 10% Agriculture 8% Aviation & Shipping 6% Industry 7% Building 5% Waste 4% Energy production 3% -200 - 200 400 600 800 1,000 1,200 1,400 1,600 Indonesia Japan Republic of Korea Vietnam Philippines Singapore E M I S S I O N S P E R SECTOR - 2020* Electricity and heat Transport Manufacturing Building Industry Aviation & Shipping Agriculture Other fuel combustion Energy production Waste Land-use change and forestry Electricity and heat Transport Manufacturing Building Industry Aviation & Shipping Agriculture Other fuel combustion Energy production Waste Land-use change and forestry *Countries in Guide (2020) E M I S S I O N S P E R C O U N T R Y - 2 0 2 0 Million tonnes of carbon dioxide equivalent Million tonnes of CO2eq E M I S S I O N T R E N D S O V E R T H E D E C A D E F R O M 2 0 1 0 Overall emissions remained stubbornly high in the decade to 2020 for countries covered in this guide, before showing signs of a decline. While emissions for some (like the Philippines and Vietnam) rose dramatically with economic growth, elsewhere they fell (as in Japan off the back of increased renewables use and a slowing economy). Key insights in order of emissions levels: • Indonesia – overall decline in emissions driven by land use and forestry initiatives • Japan – the most sustained falls in emissions since 2010 including due to a range of ‘green’ initiatives • Republic of Korea – overall emissions steadily rose for much of the decade before starting to dip from 2019, on the back of falling electricity and heat emissions • Vietnam – emissions from the electricity and heat sector tripled over the decade with the growing economy; along with prosperity-related increases in industry and manufacturing and construction • The Philippines – a more than doubling of emissions across industrial activities and electricity & heat and a near doubling in the building sector sent emissions up by almost 40% over the decade; electricity & heat growing to 1/3 of all emissions • Singapore – emissions steadily rose for most of the decade largely due to the aviation & shipping sector (generating approximately ¾ of emissions) Source: https://ourworldindata.org/co2-and-greenhouse-gas-emissions Source: https://ourworldindata.org/co2-and-greenhouse-gas-emissions NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 4 5 Source: ASIFMA, Upscaling carbon markets across APAC. Carbon markets in motion CCM VCM Carbon Levy Indonesia Japan Republic of Korea Singapore In force Under development Under consideration not yet contemplated In our country chapters, we look at initiatives to encourage the transition to a net zero economy – across energy transition, carbon markets, financing, transport, housing and buildings and agriculture. Here is a brief snapshot. Energy transition The International Energy Association’s (IEA) calls the climate challenge essentially an energy challenge. Scaling clean energy investment is key. Southeast Asia is expected to have the second-highest energy demand growth until 2050 under IEA estimates (only India ranks higher). Vietnam and Indonesia entered Just Energy Transition Partnerships in 2022, bringing global support to transition away from coal power. In Indonesia, international help (including from World Bank initiatives like the Sustainable Landscape Management Program) is needed to reach the upper end of targeted emissions cuts of 32% to 43% by 2030. Almost half of emissions come from deforestation and fires. For the Philippines, hydro and geothermal power feature heavily. The nation is focused on the job opportunities the transition will bring around 189,000 direct jobs in 2021 alone. Singapore has put clean hydrogen at the heart of its decarbonisation strategy and has entered transition-related partnerships with Australia, the UK and France. Japan and the Republic of Korea are similarly densely populated with geography ill-suited to renewables such as solar and wind that dominate elsewhere. Like Singapore, their energy mix will feature clean hydrogen (set to account for nearly 40% of global hydrogen imports combined by 2050). Offshore wind and nuclear will also meet the challenge of decarbonising fossil-heavy industrials. The nations will attract more than US$175bn in combined energy investments by 2050 under IEA estimates. Carbon markets Carbon markets will play a crucial role in mobilising funds and incentivising decarbonisation activities. Progress and initiatives vary. For Singapore, ambitions extend to becoming a global hub for carbon credit trading. Singapore, Indonesia, the Republic of Korea and Japan have carbon markets and levies / taxes in various stages – see the summary from the Asia Securities Industry & Financial Markets Association (ASIFMA) below. The Philippines has no explicit carbon pricing mechanisms, but one is on the cards under a suite of new low-carbon legislation that is pending. Vietnam is planning to pilot a voluntary emissions trading scheme from 2026, initially covering steel, cement and thermal power. Implementation is expected from 2028. A national crediting mechanism is due in 2026. ‘Mobilizing the private sector is also instrumental to achieve progress towards our collective climate ambition.’ US Secretary of the Treasury Janet L. Yellen, Statement on the World Bank Development Committee, October 2023 Financing Finance is the unavoidable metric and driver common to every country. Investment in clean energy in emerging and developing economies must grow more than threefold by 2030 to get on track for net zero emissions by 2050. Developing nations may need more than US$1t a year to make significant progress. To increase investor confidence and certainty, sustainable finance taxonomies that are widely understood and applied are essential. We outline positive moves across the region, most notably via the ASEAN Taxonomy Board’s recently released Taxonomy for Sustainable Finance. Transport Among the biggest emitting sectors is transport – and all the covered countries have initiatives to electrify and / or move to cleaner fuels including biodiesel blends and green hydrogen. Singapore has a ‘car-lite’ vision, including by phasing out internal combustion vehicles within 15 years and having ‘EV-ready towns’. Indonesia plans to have 13 million electric motorbikes on roads by 2030 under a national strategy that is in progress, as part of wider electrification and biofuel plans to address high road transport emissions. The Philippines will undergo a massive transport system expansion and has set targets for biodiesel blends, EVs and charging stations. Vietnam’s young EV market is set to grow to 3.5m by 2040 and initiatives stretch to buses, airfield vehicles, waterways, railways and ports. The Republic of Korea is set to become a leading global supplier of eco-friendly cars, and at home wants at least half of all vehicles on roads by 2040 battery-powered or fuelled by hydrogen. Japan has a heavy focus on hydrogen fuel-cell cars, buses and fuelling stations. Shipping and aviation are in the early stages of research and demonstration projects. Housing and buildings Singapore has prioritised the ‘greening’ of buildings via a scheme to boost the energy performance of existing buildings and accelerate green tech in new ones. Indonesia has enacted new standards to boost the green performance of public housing. The Philippines is prioritising climate-resilience in housing in response to intense natural disaster risks. A code encourages green building but is not mandatory. Vietnam has a relatively small number of green buildings – but is showing signs of interest in enhancing policies as urbanisation grows. Cities are taking steps to become sustainable and smart. The Republic of Korea has ‘zero energy’ targets for new buildings and incentives to remodel existing buildings. Japan has a net zero energy target for new constructions (half by 2030) and is incentivising the development of next-generation solar cells. Agriculture Singapore is aiming to meet a third of nutritional needs via locally produced food by 2030 – addressing food security concerns. Urban farming is key. Indonesia’s plans to turn its forests from a source of over 40% of country emissions (via deforestation and fires) into a net carbon sink by 2030. The Philippines is similarly prioritising forest cover in a bid to reduce deforestation, as well as encouraging climate-resilient agricultural practices. Vietnam is embracing innovation and initiatives to modernise its agriculture sector ahead of expected growth, including making it more environmentally friendly. A high-tech focused partnership with Australia tackles challenges like food productivity and climate resilience. The Republic of Korea is turning to sewerage infrastructure and rainwater runoff to address severe flood risks. Environmental practice policies including payments encouraging organic production are updated every five years and there is a need for them to go further. Japan aims to cut industrial food waste by 1/5 in the next 6 years, and have the sector run on zero carbon emissions by 2050. WHAT IS HAPPENING ACROSS THE REGION? NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 6 7 J A PA N + AUSTRALIA Partnership on decarbonisation through technology Decarbonisation, R&D on clean hydrogen, CCUS, carbon recycling, clean fuel, ammonia, iron ore energy efficiency and LNG I N D O N E S I A + U S , J A PA N , C A N A D A , D E N M A R K , F R A N C E , G E R M A N Y, I TA LY, N O R WA Y, U K , E U Just Energy Transition Partnership (JETP) should provide Indonesia with US$10 billion Power-sector emissions affordable loans, grants, equity investments Jan 2022 Oct 2022 J A PA N + E U Green Alliance Sustainable energy & finance, environmental protection & regulatory cooperation REPUBLIC OF KOREA EXPORTIMPORT BANK + GLOBAL GREEN GROWTH INSTITUTE MOU to support developing countries climate change responses Green investments in developing countries JAPAN + UAE MOC on Hydrogen Hydrogen & supply chains R E P U B L I C O F K O R E A + GERMANY Energy Partnership Accelerate decarbonisation, renewables & green hydrogen S I N G A P O R E + AUSTRALIA Green Economy Agreement Trade & investment, carbon markets, clean energy and green & transition finance Apr 2021 Dec 2019 J A PA N + ASEAN Asia Energy Transition Initiative Energy transition in Asia May 2021 R E P U B L I C O F K O R E A + AUSTRALIA Low and Zero Emissions Technology Partnership Emerging technologies, trade systems, hydrogen (supply, power generation, EVs), low emissions steel and iron ore, critical minerals Oct 2021 I N D O N E S I A AND JAPAN Memorandum of Cooperation Decarbonisation technologies - hydrogen, ammonia & CCUS Jun 2021 S I N G A P O R E + A U S T R A L I A Initiative on Low Emissions Technology for Maritime and Port Operations Low emissions fuels and technologies - clean hydrogen Nov 2021 J A PA N + INDONESIA Cooperation Agreement on Decarbonisation Technologies Decarbonisation technology - hydrogen, ammonia and CCS J A PA N + AUSTRALIA Clean Hydrogen Trade Program Hydrogen exports Jan 2022 Mar 2022 S I N G A P O R E + FRANCE Digital and Green Partnership Smart transport, smart cities and agrifood technologies S I N G A P O R E + I N D O N E S I A MOU: Understanding Cooperation on Climate Change and Sustainability Carbon credit projects, CCS, renewable energy solutions INTERNATIONAL COLLABORATION As we look to other pockets of Asia in this guide, it is worth reflecting on the rise of international collaboration efforts propelling the region towards decarbonisation. For further details on each arrangement, please refer to the end of each country chapter. Recent global partnerships demonstrate the growth and opportunity areas necessary for a clean transition. When global leaders and stakeholders meet for COP28 (the 28th UN Climate Change Conference of Parties) in Dubai, United Arab Emirates for almost a fortnight from 30 November 2023, they will focus on fast-tracking efforts across four priorities: the energy transition; climate finance; nature, people, lives and livelihoods; and ensuring inclusivity. Yet regardless of priorities, across every COP there is one constant: collaboration. Working together is key to net zero efforts generally, both at COP and beyond. In our 2022 KWM-ACBC Climate Challenge report, we looked at the opportunities that could come from collaborating across Australia and China. ‘It is our collective responsibility to deliver for many across the globe who are imparting their trust upon us. Together, let us turn pledges into projects and let us turn ambition into action. Let us unite, act and deliver.’ Dr Sultan Ahmed Al Jaber COP28 President-Designate UAE Special Envoy for Climate Change, Oct 2023 NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 8 9 Multilateral and government organisations back green projects… a region-wide selection • UN Green Climate Fund – approximately 228 projects with US$48.3 billion in total value; finance from developed to developing countries; headquartered in Songdo, Republic of Korea • European Investment Bank – opened its Southeast Asia and Pacific office in late 2022 with priorities including climate and sustainable infrastructure projects; around €2.6bn of projects in pipeline at the time • Asian Development Bank – projects supported including the Philippines’ Romblon solar-PV mini-grid and Vietnam's wind power projects to generate 422 gigawatthours of electricity and avoid an average of 162,430 tons of CO2 emissions annually • International Labour Organisation – funding to support the creation of green jobs in the Philippines, including by greening enterprises • Japan International Cooperation Agency – initiatives including hydropower projects in the Philippines (Laguna, Ifugao and Isabela) • Export Finance Australia - US$32 million ($41 million) loan to build onshore wind farms in the Quang Tri province of Vietnam with a total capacity of 144MW Oct 2023 Jul 2023 Aug 2023 Sep 2022 S I N G A P O R E + UK Singapore Financial Dialogue - Cooperation in Sustainable Finance and FinTech Transition finance and sustainability disclosures V I E T N A M + A U S T R A L I A Green Economy Program Sustainable business collaboration May 2023 I N D O N E S I A AND NORWAY MoU Partnership in Support of Indonesia’s Efforts to Reduce GHG Emissions from Forestry and Other Land Use Sustainable forest management, forest rehabilitation and land use policies Dec 2022 V I E T N A M + E U Just Energy Partnership Funding Accelerate peaking of GHG emissions and transition to clean energy I N D O N E S I A + UK Extension of the Indonesia-UK Cooperation Program Towards Indonesia's Low Carbon Energy Transition Support for achieving Indonesia's Net Zero Emission target R E P U B L I C O F K O R E A + P H I L I P P I N E S Partnership Agreement for Air Quality in Philippines Air quality monitoring and improve initiatives R E P U B L I C O F KOREA + UK Joint statement of cooperation on energy transition Renewables (including offshore wind) and nuclear power Apr 2023 R E P U B L I C O F KOREA + EU Green Partnership Green transition, climate and sustainable finance and facilitating transitions in third world countries Jan 2023 R E P U B L I C O F KOREA + UAE Strengthening Strategic Partnership Conventional and clean energy, nuclear energy, hydrogen NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 10 11 REGIONAL HIGHLIGHTS INDONESIA Opportunities as a leading source of nickel for EV batteries REPUBLIC OF KOREA Set to become leading global supplier of eco-friendly cars JAPAN Securing clean hydrogen imports as a key decarbonisation strategy along with local nuclear and offshore wind VIETNAM Opportunities as a leading global manufacturer of solar PV and potentially green hydrogen SINGAPORE Ambitions to become a global hub for carbon trading, ESG finance & lowcarbon fuel trading THE PHILIPPINES Dramatic emissions cuts and a focus on climate resilience in housing and buildings ASEAN Taxonomy Board Taxonomy for Sustainable Finance (to improve investor confidence and certainty) CHAPTER CHAPTER CHAPTER CHAPTER CHAPTER CHAPTER CONTENTS p 50 p 62 p 14 p 26 p 38 p 76 Vietnam Singapore Indonesia The Philippines Republic of Korea Japan 1 2 3 4 5 6 In 2023, we look to scaling efforts in Southeast Asia, Japan and Republic of Korea - here are some leading examples of each country's net zero ambitions. NAVIGATING THE NET ZERO TRANSITION | INTRODUCTION 12 13 SINGAPORE Energy Trading Geography Electrification Natural Disasters Energy & Food Security OPPORTUNITIES CHALLENGES Investment Green Finance Carbon Markets Population of 5.6 Million Net zero by 2050 1 Climate change resilience ranking GHG emissions 39.8 Million tonnes The net zero transition presents significant opportunities for Singapore, with its export-oriented, innovation-hungry, open economy. Yet it also carries significant challenges. Singapore is managing water and food scarcity, and rising sea levels threaten its low-lying landmass. At the same time as limiting the negative impacts of climate change, Singapore must meet the high energy demands of its manufacturing sector which accounts for 2.1% of the world's total merchandise trade (approximately US$1.36b in 2022). Among Singapore’s strengths is its role in global energy markets. Singapore has the potential to leverage its status as a regional trading hub in the renewable energy space. The population-dense nation (among the world’s highest, with 7,688 people per km²) has another key strength: the government’s willingness to meet climate challenges with proactive policies to welcome investment and innovation. Singapore has had national climate targets for almost 15 years. It exceeded its 2009 pledge to cut emissions by 16% below ‘Business-AsUsual’ levels by 2020: the cuts amounted to 32%. Singapore has set ambitious energy targets for 2030, including improved energy efficiency, increased solar PV capacity and a 36% reduction in emissions intensity. C H A P T E R 1 NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 14 15 ENERGY TRANSITION CHALLENGES Hydrogen regional connections energy efficiency offshore wind Imports will bring access to cleaner and cost-effective energy sources generated beyond its borders. Singapore is prioritising renewable energy imports and developing a diversified portfolio of import partnerships with a regional grid and trading platform. Low-carbon hydrogen will help to decarbonise the sector under Singapore’s National Hydrogen Strategy. This includes collaborating with stakeholders to establish a robust hydrogen supply chain and investing in necessary infrastructure. A hydrogen import terminal will support Singapore’s aim to incorporate hydrogen into its net-zero electricity supply mix by 2050, meeting up to half of the nation’s electricity needs. Singapore plans to build the terminal in the mid-2030s (along with other hydrogen infrastructure) and have it operational by 2040. Solar deployment and energy storage systems will help to manage solar intermittency. Singapore is exploring innovative deployment options and advanced solar photovoltaic technologies. Urban solar generation forms part of this strategy. Singapore is investing in research into cost-effective and efficient solar power generation in the urban environment, including on public housing and water reservoirs. Low-carbon supply alternatives, such as carbon capture, utilisation and storage, geothermal, biomethane, nuclear fission small modular reactors and nuclear fusion technologies, are under consideration to allow Singapore to quickly adopt promising technologies when they become viable. A multi-layered grid is planned, to manage the growth of distributed energy resources (DERs) and enhance grid reliability. This will involve the development of advanced control and communication systems, as well as physical infrastructure enhancements, to oversee and control DERs at both transmission and distribution levels. OPPORTUNITIES Singapore has limited renewable energy capabilities due to resource constraints. Land mass is limited, and average wind speed is lower than that needed to operate wind turbines. The resulting reliance on imports feeds into its efforts to build a green hydrogen supply chain and invest in urban solar power, storage, energy efficiency and grid effectiveness. However, critical uncertainties remain around battery storage systems and lowcarbon energy technologies such as hydrogen. The pace of digital technology advancements in the power sector depends on the affordability of supporting infrastructure. Efforts are underway to establish the country as a prominent Liquefied Natural Gas (LNG) trading hub in the world despite Singapore not producing any LNG. This would position Singapore as a regional leader in this transitional fuel and give it a platform to similarly act as a hub for clean fuels like green hydrogen. The liberalisation of its gas market and emphasis on transparency have placed it ahead of other Asia Pacific nations, despite liquidity challenges. Shining a light on crops The SolarLand 2 (SL2) is the largest ground-mounted utilityscale solar farm in Singapore. Covering 116,000 square meters at Changi Business Park and less than two years’ old, SL2 has over 35,000 solar panels. The project is expected to generate 23.9 GWh electricity and supply enough clean energy to power 3,365 households. A community urban farming initiative will plant suitable crops below the solar arrays, in time. NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 16 17 C A R B O N M A R K E T S Although Singapore is prioritising mitigation, it aims to leverage carbon markets to address residual and hard-to-abate carbon emissions - and become a global hub. Singapore has a mandated carbon tax and a voluntary carbon market. But its carbon exchanges are the stand-out. The initiatives enable the global exchange of carbon credits and will help its pursuit of becoming a carbon services global hub by 2030. A carbon tax was introduced in 2019. Around 50 industrial facilities were subject to the tax in 2023. To support its net zero target, Singapore will increase the carbon tax with a view to reaching S$50-80/tCO2 e by 2030, this will strengthen the price signal and impetus for businesses and individuals to reduce their carbon footprint in line with national climate goals. From 2024, high-quality international carbon credits can replace up to 5% of emissions covered by the tax, with the potential for further increases in the future. The voluntary carbon market holds significant growth potential, with global demand projected to increase significantly by 2030 and 2050. The development of international carbon markets is backed by Singapore, which is committed to facilitating negotiations and developing local capabilities and services. Singapore has two international carbon exchanges. The AirCarbon Exchange and Climate Impact X are world-leading and support its goal of achieving global hub status. Public and private sector initiatives GenZero is Temasek Holdings’ investment platform for decarbonisation and climate change mitigation. It invests in opportunities from early-stage companies and solutions to more mature ones that are ready to scale. GenZero has three investment focus areas: i. technology-based solutions that deliver deep carbonisation impact through climate-driven technologies ii. nature-based solutions that help protect and restore our natural ecosystems to general climate impact while benefitting local iii. communities and biodiversity, and iv. carbon ecosystem enablers which refer to companies and solutions that support the development of an effective, efficient and credible carbon ecosystem. Singapore has committed US$10 million in new funds to invest in low-carbon technology, aiming to support the development and adoption of sustainable solutions. The investment will contribute to Singapore's efforts in decarbonization and advancing its position as a hub for green innovation and clean technologies. How a ‘traffic light’ system will steer activities to go green Green: activities that contribute substantially to climate change mitigation consistent with a net zero outcome or are on a pathway to net zero by 2050. Amber: transition activities, including those transitioning towards green within a certain time frame, or enabling significant emissions reductions in the short term. Red: harmful activities not currently compatible with a net zero trajectory. FINANCING Singapore will also promote innovative and credible green and transition financing solutions and markets to support decarbonisation efforts and climate risk mitigation. Singapore will continue to promote consistent, comparable and reliable climate data and disclosures. This is to guide decision making by financial market participants, engage key financial institutions to foster sound environmental risk management practices and deepen climate scenario analysis and stress testing to identify climate-related financial risks. A green and transition taxonomy is critical. The Monetary Authority of Singapore aims to contribute to local and regional taxonomy efforts and global initiatives to improve the compatibility of taxonomy frameworks. The Green Finance Industry Taskforce convened by the Monetary Authority of Singapore has launched three public consultations. A traffic light classification system adopted by the Green Finance Industry Taskforce differentiates an activity's contribution to climate change mitigation. Disclosure and reporting requirements is also key. The Monetary Authority of Singapore has been working with the Singapore Exchange and other government agencies to set out a roadmap for key financial institutions and listed companies to make International Sustainability Standards Board (ISSB)-aligned disclosures on a risk-proportionate basis. A code of conduct on disclosing how transition risks are factored into data products and ESG ratings is in progress. The Monetary Authority of Singapore is working with the finance industry to co-create the code. Global platforms for trading carbon credits Singapore’s first international carbon credit exchange, AirCarbon Exchange (ACX), was established in 2019. Since then more than 16MtCO2 e have traded and there are more than 200 active trading members across 30+ countries. ACX operates as a voluntary market for carbon credits, using blockchain technology to streamline transactions and ensure efficiency. The exchange offers seven types of tokenized carbon credits. The exchange is expanding its international presence through partnerships, including collaborations to develop carbon credit markets in Indonesia and the UAE. Another global marketplace for carbon credits, Climate Impact X (CIX), launched in May 2021. CIX focuses on Natural Climate Solutions projects. Using blockchain, it leverages satellite monitoring, connecting an ecosystem of partners and machine learning to the enhance transparency, integrity and quality of carbon credits. A public-private partnership involving DBS Bank, Singapore Exchange, Standard Chartered and Temasek, CIX has three platforms and aims to facilitate larger-scale trading with standardised contracts. Sylvera, a UK-based carbon credit rating agency, provides third-party ratings for CIX. NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 18 19 S T E A L , S H A R E , T A K E R I S K S : W O R L D B A N K ’ S B I D T O SCALE PRIVATE FINANCE ‘We need the scale, resources and ingenuity of the private sector.’ World Bank president Ajay Banga The World Bank provided almost US$40bn in climate finance in 2023 – a record high, amounting to 41% of all of its financing. In the five years to 2023, it cut 230m tonnes of carbon emissions annually. One of its arms, the IFC has mobilised US$162b in private sector investments from US$5.6b of shareholder capital. Yet it wants to move faster and it wants the private sector to join and take more risks - to look beyond ‘algorithms and expertise’. In October 2023 the World Bank revealed its new playbook, based on a poverty-free ‘livable planet’ vision. Five of its eight global challenges are linked to net zero efforts: Adaptation and Mitigation; Energy Access; Food and Nutrition Security; Water Security and Access; and Protecting Biodiversity and Nature. When it comes to good ideas, World Bank president Ajay Banga said they should ‘steal shamelessly – and share seamlessly’ – along with those moving the needle, including the private sector. In 2024 it will release usable data from its Global Emerging Markets Risk Database, to encourage risk taking & investing. New financial tools to enable US$157b in additional lending capacity over the next decade include a hybrid capital instrument and portfolio guarantee mechanism. Banga has singled out for focus: • Sound, transparent voluntary carbon markets: ensuring credit integrity, avoiding greenwashing via validation (showing the value of monetising & protecting natural resources) • Spending better: repurposing US$6t from the economic costs of fertiliser runoff, unnecessary air pollution & overfishing every year to incentivise sustainable practices • Working with credit rating agencies: unlocking capital and pricing via a better understanding of the World Bank’s work. Banga also established a Private Sector Investment Lab comprising 15 world leading CEOs, including from banks and asset managers. The key is making projects bankable, with a focus on scaling transition finance and increasing renewable energy. Prudential Chair Shriti Vadera is co-chair, members include: • Macquarie ‒ Shemara Wikramanayake, CEO • Standard Chartered Group ‒ Bill Winters, Chief Executive • Temasek ‒ Dilhan Pillay Sandrasegara, CEO • HSBC Holdings ‒ Noel Quinn, CEO • Mitsubishi UFJ Financial Group ‒ Hironori Kamezawa, CEO • AXA ‒ Thomas Buberl, CEO • BlackRock ‒ Larry Fink, CEO. TRANSPORT Singapore is promoting the adoption of electric vehicles (EVs) by expanding charging infrastructure, providing grants and incentives, and supporting research and development in technology. The government is also looking at holistic ways to reduce transport emissions, including a ‘car-lite’ vision, implementing a congestion pricing scheme and policies to reduce private vehicle ownership. Legislative reforms have bolstered the support for the switch to EVs in Singapore. The Electric Vehicles Charging Act 2022 of Singapore, passed on 30 November 2022, aims to reduce the carbon emissions of road transport in Singapore by: i. promoting the safe use of EV chargers through the regulation of supply ii. expanding the network of accessible charging points through infrastructure development measures, and iii. ensuring the safe undertaking of regulated activities, and the reliability of the network of charging points and provision of EV charging services. Strong government support, including investing in extensive charging infrastructure development and implementing grants, is aimed at increasing the number of EVs on the roads. Singapore aims to phase out internal combustion engine vehicles by 2040 and is making significant progress in promoting EV adoption and establishing a robust EV ecosystem. EVs NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 20 21 Incentivising the ‘greening’ of new buildings Green Mark Platinum S$25/tCO2 e Funding cap S$600,000 or up to 50% of qualifying cost (whichever is lower) Green Mark Super Low Energy S$35/tCO2 e Funding cap S$900,000 or up to 50% of qualifying cost (whichever is lower) Green Mark Zero Energy S$45/tCO2 e Funding cap S$1,200,000 or up to 50% of qualifying cost (whichever is lower) The higher a building's rating, the higher its funding entitlement Aims to raise the energy performance of existing buildings: 80% of buildings 'green' by 2030 Grant support to building owners to attain higher energy performance (lower upfront capital costs for energy retrofits) Public sector procurement: New public sector buildings and major retrofitting projects must achieve the highest Green Mark Platinum Award. Under the GreenGov.SG initiative, all new and existing buildings (upon major retrofit) are to achieve Green Mark Platinum Super Low Energy Standards or equivalent, where feasible. The Housing & Development Board uses recycled aggregates in non-structural concrete and the National Environment Agency is testing treated Incineration Bottom Ash as an alternative material in road construction. S$63 million Green Mark Incentive Scheme for Existing Buildings (available until 31 March 2027 or until fully committed - entitlement began 30 June 2022; a similar scheme for new buildings has already committed S$20mn in funding) H O U S I N G A N D B U I L D I N G S Various programs and policies encourage the private sector to adopt sustainable building designs and green technologies, including mandated minimum standards for larger buildings. The ‘green’ transformation of the building sector is also driven by the public sector that is leading by example, including via creative solar initiatives. Sustainable - construction in the private sector Incentive schemes and legislative regulations encourage the adoption of sustainable building designs. First, the ‘sticks’. The Building Control (Environmental Sustainability) Regulations 2008 sets minimum environmental sustainability standards for new buildings and existing buildings that undergo major retrofitting. This applies to: i. New buildings with a gross floor area of 2000m² or more, first submitted for planning permission between 15 April 2008 to 30 November 2021. ii. New buildings with a gross floor area of 5000m² or more, first submitted for planning permission from 1 December 2021 onwards. Building developments sold under the Government Land Sales Programme in selected strategic areas are subject to higher Green Mark - the building rating system. Second, the ‘carrots’. The Building & Construction Authority’s Green Mark Incentive Schemes are a local rating system that assesses a building's environmental impact and performance, including energy and water efficiency, indoor environmental quality and lifecycle impacts. Cool buildings Innovative cooling systems and net-positive energy performance feature in landmark energy efficient buildings like the Zero Energy Building (ZEB) at BCA Braddell Campus and the NUS School of Design and Environment 4 building. The ZEB is a key infrastructure for driving Singapore's building energy efficiency, providing a live demonstration platform and showcasing innovative technologies. In public housing, the Housing and Development Board uses smart technologies, like ‘Smart Fans’, to improve energy efficiency. Solar programs: Efforts to increase the use of solar power across the urban environment to achieve 1.5GWp of installed solar capacity by 2025 and 2GWp by 2030 include: High-rise public housing 2,700 solarized public housing blocks 8,400 additional blocks planned HDB SolarNova program Industrial estates Plans to install solar panels at almost 40 sites generating >82MWp over two years (expected) Government agency JTC champions sustainable industrial development Floating solar farms The PUB Tengeh Reservoir Floating Solar Farm uses a floating solar photovoltaic system with a capacity of 60MWp NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 22 23 KWM KEY CONTACTS - SINGAPORE LOCAL COUNSEL KEY CONTACT - TSMP LAW CORPORATION AGRICULTURE Singapore’s relatively small landmass, urban density and water scarcity highlight its vulnerability to climate impacts on food supplies. The government is adopting an opportunity lens, looking to transform the agricultural industry in response to the challenges. Its ambitious ‘30 by 30’ goal is to produce 30% of the nation’s nutritional needs by 2030, on 1% of land. Technology and innovation are central to this ambition. Urban farming research (including climate-controlled vertical methods) and water supplies are among key focus areas in the transition to sustainable agriculture. Water supplies: Demand for water is expected to double by 2060 in line with economic growth. Limited land for water collection and storage means Singapore faces water scarcity, despite its abundant rainfall given its position on the equatorial rain belt. The ‘Four National Taps’ is Singapore’s diversified water supply system. It includes local catchment water, imported water, NEWater (reclaimed water) and desalinated water. Developing Sustainable Urban Farming: The National University of Singapore’s Research Centre on Sustainable Urban Farming has researched urban farming practices to improve food security since 2022. The centre grows food plants in controlled environments that cut the dependency on factors like farmland, weather and water supply. ‘Previous agricultural revolutions tapped on the domestication of animals, mechanisation, and the use of fertiliser to feed the world’s population. We are now at the cusp of the fourth agricultural revolution. With climate change posing challenges to the production of food, the industry needs to adopt technology to overcome the challenges and produce more, in a sustainable manner.’ Minister for Sustainability and the Environment Grace Fu, Oct 2022 DELIVERING GROWING BENEFITS - GROGRACE GroGrace is an urban farm launched by the Urban Farming Partners Singapore. The 650sqm farm is one of the beneficiaries of the Singapore Food Agency's S$50m Agriculture Productivity Fund. Set across four growing floors, GroGrace is about four times more productive than conventional indoor farms with its ability to produce 70kg of leafy greens per square metre. The farm is designed to be more energy efficient. One way it does this is through the harvesting of rainwater to facilitate the plants' growing process. The farm will also serve as a training centre for future upscaled facilities utilising patented Dutch horticulture technologies. INTERNATIONAL COLLABORATION The UK & Singapore agreed on the need to cooperate in sustainable finance as part of an annual financial dialogue in 2023. This includes supporting the development of global sustainability disclosure standards. France & Singapore signed the France-Singapore Digital and Green Partnership in 2022 and agreed to develop a workplan comprising cooperative projects with clear and tangible outcomes in various sectors, such as smart transport, smart cities and agri-food technologies that harness digital and green technologies. Australia & Singapore signed a landmark Green Economy Agreement in late 2022, flagging seven priority areas including trade & investment, carbon markets, clean energy and green & transition finance. This will strengthen ties & support new green growth sectors across the region. Australia & Singapore signed the Initiative on Low Emissions Technology for Maritime and Port Operations in November 2021 – an AU$30m partnership to accelerate the development and deployment of low emissions fuels and technologies, like clean hydrogen, in maritime and port operations. PARTNER, SINGAPORE DAVID PHUA SPECIAL COUNSEL, SINGAPORE ESTHER YEE PARTNER IN CHARGE, SINGAPORE MICHAEL LAWSON PARTNER, SINGAPORE JUNE HO PARTNER, SINGAPORE NICOLA YEOMANS NAVIGATING THE NET ZERO TRANSITION | SINGAPORE - CHAPTER 1 24 25 C H A P T E R 2 INDONESIA Renewable Energy Geography Critical Minerals Natural Disasters Hydrogen Energy & Food Security Investment OPPORTUNITIES CHALLENGES Indonesia is at a critical juncture in shaping its energy future. The archipelago nation faces the challenge of boosting energy supply by ensuring universal electricity access for its people by 2040, while cutting carbon emissions to reach its net zero target by 2060. Indonesia is one of the fastest growing economies globally, reducing poverty levels across its population of almost 280m. Now, climate change threatens its diverse ecosystem. Communities are vulnerable to flooding, rising sea levels and heatwaves. Indonesia has an ambitious target of net zero by 2060. The government’s eagerness to transition away from fossil fuels, towards renewable energy and low-carbon hydrogen, led it to ask the International Energy Agency to develop a path to net zero. That path – the Energy Sector Roadmap released in late 2022 - highlights the challenges and opportunities for Indonesia. Indonesia leads the world in coal exports and oil imports, yet it has enviable assets to help the transition to renewables. The abundance of natural resources presents investment and innovation opportunities, including in solar, wind and geothermal power. This will have to happen: the government’s Announced Pledges Scenario projects an expansion of the total energy supply and a 20% decrease in energy sector CO2 emissions by 2040. The shift to renewables in Java and Bali highlights the path forward for Indonesia. The ‘greening’ of buildings and vehicles, and the electrification of industrials are also focus areas. The government controls and manages all natural resources, including renewable energy resources, in accordance with the Indonesian Constitution. A series of regulations and policies steer Indonesia's transition towards renewable energy. These serve as guidelines and a roadmap for government initiatives and monitoring, private sector investments, and licensing in the renewable energy sector. Population of 275.5 Million Net zero by 2060 102 Climate change resilience ranking GHG emissions 2.05 Billion tonnes NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 26 27 ENERGY TRANSITION Industrials (manufacturing, food processing & construction) have higher energy demands than the global average, contributing over 40% of final energy consumption and 50% of CO2 emissions in Indonesia. The sector is expected to grow by approximately 50% by 2030 and 300% by 2060 under the Master Plan of National Industry Development, including substantial growth in the chemicals sub-sector. Steel and ammonia production is high in Indonesia – ranking second and twentieth globally for stainless and crude steel, respectively. Ammonia production serves various industrial applications. The emissions intensity makes it a critically important candidate for decarbonisation – yet it’s among the harder to abate sectors. CHALLENGES Solar Geothermal Electrification Hydrogen OPPORTUNITIES Indonesia’s energy transition will happen as it manages the persistent rises in electricity demand associated with its development. The government has introduced a range of policies to address the challenge, including banning new coal-fired power stations, with certain exemptions. Commitments to cut reliance on fossil fuels and reduce emissions are also motivated by conditions built into international support, including financial aid from the United States and Japan. Annual increase in electricity demand (avg) over next 40yrs >4% Per capita electricity demand <1,000 kWh in 2021 to >4,400 kWh in 2060 to Electrification is a key focus, with much of the energy coming from renewable sources. Hydrogen is projected to play a role too, with its production by 2060 requiring electricity approximately equal to the country's current total electricity demand. Any renewables generators intending to develop a project in Indonesia must pay close attention to the regulations and internal procurement guidelines of the government-owned power distributor, Perusahaan Listrik Negara (PLN). Initial discussions with PLN are also imperative for the preparation of a project. PLN, as the main provider for the transmission, distribution and retail sale of electricity in Indonesia, is one of the key players in the renewables industry, acting as both supplier and purchaser of electricity. Solar, geothermal, hydro, wind, biomass or biogas power are expected to attract investment following a new pricing system. Introduced in late 2022, it replaces the tariff regime that put a price on renewable projects based on 85-100% of the average local generation costs – competing with lower-cost fossil fuel plants. The new regime applies maximum benchmark prices based on the type and size of the power plant. In addition, the government provides fiscal incentives for renewable energy projects such as income tax facilities, import facilities, land and property facilities, geothermal development support, and/or financing support or guarantee facilities through state-owned enterprises assigned by the government.1 Carbon Capture Storage (CCS) / Carbon Capture Utilization and Storage (CCUS) is expected to help reach Indonesia’s net zero emission target. The government, through the Ministry of Energy and Mineral Resources, has issued Minister of Energy and Mineral Resources Regulation Number 2 of 2023 concerning Implementation of CCS, as well as ACCUs in Upstream Oil and Gas Business Activities. This regulation covers, among other things, the monetisation of CCU/CCUS projects through carbon trading. Currently, 15 CCS/CCUS projects in Indonesia are in the study or preparation phase. Most of these projects aim to be operational before 2030. The total CO2 injection potential between 2030 and 2035 is estimated to range from 25m to 68m tons. 1 Presidential Regulation No. 112 of 2022 on the Acceleration of Renewable Energy Development for Electricity Supply. Java and Bali show the way forward with solar The scaling up of renewables in the Java-Bali power system has significantly cut GHG emissions, improved air quality and created job opportunities in the renewable energy sector. This serves as an example to other regions. Both Java and Bali, as with the country as a whole, were heavily reliant on coal-fired power plants. A combination of policy reforms, feed-in tariffs and streamlined licensing procedures led to a growth in solar and wind power installations. Collaboration between the government, utility companies and the private sector also fostered a positive investment environment, attracting domestic and international funding. Solar power capacity increased from 18MW in 2017 to 470MW in 2020, while wind power capacity rose from 30MW to 185MW in the same period. Efforts to address intermittency issues included the integration of advanced technologies like energy storage systems and demand response mechanisms, ensuring better grid stability. The power plants floating offshore Resting on top of the Cirata reservoir, about 100km from Java, is the largest floating solar power plant in Southeast Asia – and among the biggest in the world. Due for completion towards the end of 2023, the project introduces a spread of solar panels to the dam, which is already the source of hydro-electric power. The new solar plant is not only a breakthrough for the archipelago nation – where traditional grids are difficult – but it showcases the opportunities available for others facing similar conditions. It is expected to provide 145MW of power. NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 28 29 CARBON MARKETS Indonesia introduced its much-anticipated carbon exchange, known as IDXCarbon, on September 26, 2023. IDXCarbon is administered and operated by PT Bursa Efek Indonesia,2 the same entity responsible for overseeing the Indonesian Stock Exchange (IDX), under the regulatory oversight of the Financial Services Authority (Otoritas Jasa Keuangan or OJK). IDXCarbon currently serves as a trading platform for both emissions trading and offset trading. Indonesia is in the process of developing both the mandatory or compliance market and the voluntary market, with the compliance market initially planned for implementation in the energy sector before expanding to other sectors. The initial phase of a mandatory carbon trading scheme for coal-fired power plants was launched in 2023. This aims to cut Indonesia's coal dependence and promote renewable energy. The scheme sets emissions quotas and requires power plants exceeding these quotas to buy carbon credits. • In the first phase, 99 coal-fired plants owned by 42 different business entities connected to the state-owned power grids are covered, with a potential reduction of 36m tonnes of CO2 emissions by 2030. Based on publicly available information, 55 of these are owned by PLN group, with others owned by independent power producers. This initiative aligns with Indonesia's policy objectives and contributes to the broader development of carbon markets in Southeast Asia and internationally. Other sectors can participate in carbon trading Energy, waste, industrial process and product usage, agriculture forestry and other land usage (AFOLU) are among project sectors listed in the Carbon Economic Value Regulation3 as capable of generating carbon credits, and/or such other sectors as may be applicable with the development of science and technology. • Emissions reductions generated from these projects can be registered and verified through a national certification referred to as Sertifikat Pengurangan Emisi Gas Emisi Rumah Kaca or SPE-GRK for offset trading, or they can secure technical approval for emissions ceiling for business actors (Persetujuan Teknis Batas Atas Emisi bagi Pelaku Usaha or PTBAE-PU) for emissions trading. • Whether a project can obtain SPE-GRK or PTBAU-PU will depend on whether there is a maximum emission ceiling determined by the relevant government authority. PTBAUPU is applicable for projects that have a maximum emission ceiling, for example emission reduction from CFPPs. FINANCING From US$20 billion (2016-2020) to US$20 billion (2016-2020) >50% of total energy investment Could come from private funds The government’s pledges anticipate that renewable energy and networks will account for approximately one quarter of annual investment. Private funds could finance more than half of total energy investment, with debt and off-balance sheet financing tripling to support significant investments in solar PV and wind generation. Accelerating the energy transition in Indonesia requires investment of up to US$1t by 2060 for renewable energy generation and transmission. Public finance to mobilise private funding Public finance plays a strategic role in mobilising private funds for investments in the government’s pledges. Public finance is used to attract higher levels of private investment by responding to market signals and government policies. • Public financial institutions play a crucial role in attracting investments in high-risk areas, mitigating risks and encouraging private sector participation in sustainable development. • State-owned enterprises contribute by funding infrastructure and supporting clean energy transitions, addressing technological and social implications. • Development finance institutions give vital support to improving financial performance of state-owned enterprises like PLN, facilitating the phase-out of coal and enabling the transition to clean energy. Government actions that could boost private funding The IEA has identified government actions that could attract more funds: 1. Clarify tariffs: Provide clear / predictable revenue streams for renewable electricity projects. Transparent tariff structures enhance private capital appeal by reducing risk. 2. Implement multi-stage procurement programs: Introduce procurement programs offering long-term visibility for investors and financiers. This will combine with concessional funds and technical assistance from development finance institutions to mitigate risks. 3. Introduce competitive mechanisms: Competitive mechanisms (for example, auctions to assign generation capacity) to encourage competition and reduce renewable project costs. 4. Create an investment-friendly environment: Implement supportive policies, regulations and incentives to attract international investment in the renewable energy market. Indonesia’s call for investors At the B20 Investment Forum 2022 held in November 2022, the President of Indonesia highlighted the potential for renewable energy in Indonesia, offering opportunities to investors to collaborate with Indonesia to build a green economy. Several MoUs, worth over USD 5b, were signed during the forum. These agreements have the potential to support the achievement of net zero emissions. One of the notable agreements is a strategic alliance agreement between an Indonesian company and German companies to collaborate on renewable energy projects in Indonesia, including waste power plants. In the first phase, the parties aim to establish an intermediate waste-to-energy processing facility in Jakarta, capable of processing 2,000 metric tons of waste daily, generating 42MW of electricity. 2 ‘Indonesian Govt Supports EV Charging Application’, Ministry of Energy and Mineral Resources Press Release No. 045.Pers/04/SJI/2021, dated February 1, 2021. 3 PT Bursa Efek Indonesia (BEI) had been licensed by the OJK through the issuance of OJK Decree No. KEP-77/D.04/2023 dated September 18, 2023. For a detailed elaboration on IDXCarbon, refer to https://idxcarbon.co.id/id. NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 30 31 2 MILLION electric cars (9%) 13 MILLION electric motorbikes (12%) TRANSPORT Transport accounts for a third of Indonesia’s final energy consumption and 40% of CO2 emissions. Most – 90% - comes from road transport (cars and trucks). The nation’s growth in prosperity has seen transportation energy consumption increase by 70% since 2010 (currently approximately 2,150 PJ). Government incentives aim to increase the share of EVs by 2060 across two/three-wheeler motorbikes, buses and light commercial vehicles. To accelerate electromobility, the Presidential Regulation on the Acceleration of the Battery Electric Vehicle Program sets targets for lowcarbon emission vehicles in local production. Two/three-wheeler motorbikes and buses are expected to electrify rapidly. Electrification of Transport & Low Emissions Fuel Switching Biofuels and electrification will accelerate the decarbonisation of transport, bringing down the sector’s use of oil from nearly 90% to 20% by 2060. Biofuels initially displace oil in the existing vehicle fleet, with electricity gaining prominence and accounting for 50% of road transport energy demand by 2060. EV adoption improves fuel economy by 14% in 2030 and 76% in 2060. • For heavy transport, incentives encourage biodiesel blending and fuel efficiency improvements. • In aviation, Indonesia aims to reduce oil reliance via sustainable aviation fuels. • In maritime shipping, alternative energy sources such as clean hydrogen, ammonia and biodiesel blending diversifies fuel consumption. Electromobility Policies: A focus on EVs ...on the road by 2030 under by 2030 under Indonesia’s National Energy Grand Strategy, currently being prepared4 4 ‘Indonesian Govt Supports EV Charging Application’, Ministry of Energy and Mineral Resources Press Release No. 045.Pers/04/SJI/2021, dated February 1, 2021. Aimed to comprise 20% of domestic car production by 2025 and 30% by 2035. PLN must collaborate with stateowned and private enterprises to develop EV charging infrastructure. The Provision of Electric Charging Infrastructure for BatteryBased Electric Motor Vehicles establishes regulations for charging infrastructure types and electricity charging tariffs. The government established the Indonesia Battery Corporation (partnership between four stateowned companies) to support the development of the domestic EV battery industry. Indonesia has the largest reserves of nickel, a lithium-ion battery component. This presents export opportunities. Low-carbon emission vehicles Charging infrastructure Batteries NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 32 33 H O U S I N G A N D B U I L D I N G S AGRICULTURE Enhancing building envelopes and implementing zero carbonready building energy codes, to reduce energy demand and emissions, are among measures the government plans to implement. Retrofitting existing buildings and reforming building energy codes are essential for enhancing energy efficiency. Green buildings. The government and the Ministry of Public Works and Public Housing have enacted regulations governing the technical standards applicable for green building. These will be mandatory for buildings within the criteria set out under the Ministry of Public Works and Public Housing Regulation on Green Building Performance Assessment.5 These standards focus on: • achieving significant, measurable improvements in saving energy, water and other resources… • through the application of green building principles at each stage of implementation… • in accordance with their respective functions and classifications. The green building principles include reducing the use of land, materials, water, natural resources and human resources, reusing resources and using recycled resources. The green building concept is currently being applied to the development of the National Capital City, Indonesia’s new capital, located in East Kalimantan. A dramatic turn-around for Indonesia’s agriculture forestry and other land use could come in the next decade: the sector could go from contributing more than half (56%) of the nation’s GHG emissions, to absorbing emissions as a carbon sink. With international support to boost investment and technology, this could happen as soon as 2030. Without support it would take an additional 20 years. The Long-Term Strategy for Low Carbon and Climate Resilience 2050 sets out ambitions and suggests technologies to achieve them, including: of final energy consumption of emissions of the nation’s electricity 23% 9% 75% 5 Government Regulation No. 16 of 2021 on the Implementing Regulation of Law No. 28 of 2002 on Buildings; Ministry of Public Works and Public Housing Regulation No. 21 of 2021 on Green Building Performance Assessment. Low-emission rice varieties and water-saving rice cultivation systems Improve crop productivity and cropping intensity Optimise the use of idle land Reduce food waste The strategy focuses heavily on climate adaptation in the agriculture sector through plans to: Use of manure for biogas and improvements in livestock feed and management practices Reduction in the use of synthetic fertiliser NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 34 35 INTERNATIONAL COLLABORATION KWM KEY CONTACTS - INDONESIA PARTNER, SINGAPORE NICOLA YEOMANS HEAD OF PROJECTS, HONG KONG SAR SAM FARRANDS PARTNER, SINGAPORE JAKE ROBSON PARTNER, CHINA MOLLY SU UK & Indonesia signed an extension of the Indonesia-UK Cooperation Program Towards Indonesia's Low Carbon Energy Transition in August 2023. The UK boosted support for achieving Indonesia's Net Zero Emission target and the program runs until 2027; including GBP6.5mn (IDR135bn) to maintain and improve initiatives. US & Indonesia entered a Memorandum of Understanding (MoU) for the Indonesia-United States Clean Energy Working Group in May 2023. This includes cooperation on super grids and/or smart grids, reducing use of diesel generators, small modular reactor (SMR) technology, cybersecurity, digitalisation, and CCUS and storage. Businesses were invited to collaborate. Norway & Indonesia signed an MoU in September 2022. The Partnership in Support of Indonesia’s Efforts to Reduce Greenhouse Gas Emissions from Forestry and Other Land Use Collaboration includes areas such as sustainable forest management, forest rehabilitation, knowledge exchange and land use policies. Australia & Indonesia signed a Climate and Infrastructure Partnership in June 2022. This establishes an AU$50 million fund to unlock investment into climate and clean energy-focused Indonesian small and medium-sized enterprises. Singapore & Indonesia entered a Memorandum of Understanding Cooperation on Climate Change and Sustainability in March 2022. The partnership covers research, technical exchanges, and financing solutions for carbon credit projects, carbon capture and storage, and development of renewable energy solutions to support regional decarbonisation. Japan & Indonesia signed a Memorandum of Cooperation in January 2022, aimed at developing and deploying decarbonisation technologies such as hydrogen, ammonia and CCUS for a ‘realistic’ transition. The Just Energy Transition Partnership from 2022 should provide Indonesia with US$10b from 2022 (including from the US, Japan, Canada, Denmark, France, Germany, Italy, Norway, UK, EU). LOCAL COUNSEL KEY CONTACT - SSEK LAW FIRM PARTNER, INDONESIA IRA A EDDYMURTHY NAVIGATING THE NET ZERO TRANSITION | INDONESIA - CHAPTER 2 36 37 C H A P T E R 3 T H E PHILIPPINES Geothermal Power, Wind Natural Disasters Renewable Investments Energy & Food Security EVs Poverty Forestry OPPORTUNITIES CHALLENGES The Philippines is among the world’s most vulnerable countries to climate change. Increases in the frequency and intensity of typhoons, changes in rainfall patterns, rising sea levels and increasing temperatures all pose a serious threat to the archipelago nation’s ecosystems and its 115 million+ population. This makes poverty-reduction efforts even harder. This vulnerability is why adaptive measures feature heavily in the National Climate Change Action Plan 2011-2028 (NCCAP). The NCCAP also has mitigation measures and the Philippines has set an emissions-reduction target under the Paris Agreement. This is despite the fact that its share of global CO2 emissions is minuscule in comparison to developed economies, like the vast majority of developing economies. The government has developed innovative policies to combine investment incentives with green growth, in a bid to leverage the energy transition to tackle climate change and poverty together. This includes ‘green jobs’, tax deductions for training and tax-free equipment imports. The nation’s shift to clean and efficient energy technologies is likely to generate an additional 95,023 jobs in the first year of the 2020-2040 Philippine Energy Plan. Population of 115.6 Million Net zero by - 135 Climate change resilience ranking GHG emissions 269.9 Million tonnes NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 38 39 ENERGY TRANSITION CHALLENGES Geothermal Energy efficiency Nuclear energy The Philippines has made significant efforts to increase the uptake of renewable energy, backed by other Southeast Asian countries and entities. In its commitment to cut coal use, the government enforced a moratorium on building new coal-fired power plants effective in October 2020 which continues to be in effect under the present administration. Tax breaks and feed-in tariffs introduced more than 15 years ago incentivise renewable energy development and use. The Renewable Energy Act, which sets out the measures, also introduced a Renewable Energy Trust Fund to finance research and support development. More recently, the complex permitting process was streamlined via an online platform introduced in 2019 under the Energy Virtual One-Stop Shop Act (EVOSS Act). The Feed-in Tariff (FiT) policy is credited as the main reason renewable installations increased between 2014 and 2019. Solar, wind, biomass, ocean technology and run-of-river (ROR) hydropower are among technologies covered. The FiT gives fixed payments per kilowatt hour of electricity produced from renewable energy resources (excluding generation for own use). Priority connection to the main grid is another benefit. Hydro and geothermal power provide most of the renewable energy today, and are expected to remain the highest sources by 2030. Wind power is targeted to become the third largest source of renewable capacity by 2030, requiring significant investment to take it from 427MW in 2019 to 2378MW. Solar power increased by 958MW of capacity between 2011 and 2019 – the most of all renewable energy sources. The Asian Development Bank (ADB) has supported the Romblon solar-PV mini-grid and the Malalison mini-grid with pay-as-you-go smart metering. OPPORTUNITIES The Philippines’ energy sector is the nation’s largest contributor of GHG emissions, with fossil fuels sourcing approximately 87% of energy consumption. The energy transition in the Philippines is complicated by the nation’s rapid urbanisation and energy security challenges. The share of renewable energy fell slightly in the decade to 2019, due to a dramatic increase in coal power generation. Despite this, the Philippines has set ambitious renewable energy targets including reaching 50% of energy supply by 2040. Substantive hurdles include a complex permitting process and grid interconnection issues. Wind behind sails of foreign investors Copenhagen Infrastructure New Markets Fund became the first foreign firm allowed to have 100% foreign interest in Philippine wind energy in March 2023, when it signed offshore wind service contracts with the Department of Energy. The agreement covers three offshore wind projects that are expected to offset 2.9m tonnes in CO2 emissions a year and generate energy sufficient to power 1m households. Waters offshore Camarines Norte and Camarines Sur, Northern Samar, and Pangasinan and La Union will house the 2000MW (combined) wind farms. The off-grid solar power switching on homes More than 1.2 million households had no electricity access as at 2020. This off-grid prevalence is where renewable energy holds a transformative power. The PV Mainstreaming Program, supported by the European Union’s Access to Sustainable Energy Programme, connected more than 5000 homes with a Solar Home Systems (SHS). The SHS comprises of a 50-watt peak solar panel, a 24Ah battery, four LED bulbs, a transistor radio, flashlight and mobile phone charging cables. The program is ongoing. Pursuant to the country’s goal of total electrification by 2028, the National Electrification Commission, in Technical Advisory No. 12 series of 2023 (September 6, 2023), requested that electric cooperatives submit a list of potential barangays / beneficiaries with the number of households for PV Mainstreaming / SHS on or before October 6, 2023. 57 Offshore wind service contracts in total 3 wholly foreign owned (2000MW) NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 40 41 CARBON MARKETS FINANCING The Philippines has no explicit carbon pricing mechanisms. This may change under the pending Low Carbon Economy Act which will introduce a new domestic cap-and-trade system. However there is no timeline for when this carbon pricing mechanism is expected to become operational. In the meantime, fuel excise taxes on petroleum products serve as an indirect form of carbon pricing. A sustainable finance taxonomy was introduced by the government in 2021. The Sustainable Finance Guiding Principles seek to give investors and other market participants a ‘common understanding’ of which activities are considered sustainable, improving clarity and certainty. This principles-based framework follows the approach of other Southeast Asian taxonomies. The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is steering banks towards sustainability by implementing the Sustainable Finance Framework. Pursuant to this, banks are expected to integrate sustainability principles into their investments. Multilateral and bilateral financing for climate change related initiatives tend to focus on mitigation efforts rather than adaptation measures. This funding bias is despite the desperate need to address adaptation: for example, the World Bank estimates annual losses from typhoons alone to reach 1.2% of the country’s GDP, potentially 4.6% in the most extreme case. There are some examples of adaptation focused investments. • The UNFCCC’s Green Climate Fund granted US$10m to the development of Multi-Hazard Impact Based Forecasting and Early Warning Systems. • The Philippine People’s Survival Fund was established by the Philippine government to support community adaptation programs, such as the installation of buffers and gabions along the Mamcas and Piyanga rivers to protect riverine communities from flood events. The government has taken several measures to encourage green investment, including: • Stimulating investments via the Energy Efficiency and Conservation Act in 2019. • Allowing 100% foreign ownership of large-scale geothermal energy projects since 2020. • Allowing 100% foreign ownership of renewable energy projects since December 15, 2022. • Establishing the Renewable Energy Trust Fund. • Extending up to 80% of the total renewable energy project cost for private entities and up to 90% for public entities, under the Land Bank’s Renewable and Efficient Alternative Energy Financing Program. The ADB included the Philippines as one of the pilot countries in its Energy Transition Mechanism, a program launched in 2021. The program aims to use concessional and commercial capital to accelerate the retirement or repurposing of fossil fuel plants and replace them with clean energy alternatives. The ADB is currently engaged in a full feasibility study in the Philippines and is working extensively with the government to prepare an investment plan under the Climate Investment Funds Accelerating Coal Transition Program. Adaptation finance emerging Mitigation finance dominated by power Investment needed between 2020 and 2040 to meet clean energy targets Share of the power sector US$153 BILLION 79% NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 42 43 Biodiesel A biodiesel blend target of 20% by 2030 is part of the NCCAP. Biofuel producers are offered tax breaks, duty-free importation of equipment and machinery, and exemptions from wastewater charges amongst other incentives. Electric vehicles attract incentives including a 30% discount for EV owners on vehicle registration and inspection fees for 8 years under the 2022 Electric Vehicle Industry Development Act (EVIDA Act). The import duty rates on electric vehicles, parts, and components are temporarily reduced to 0%, 1%, or 3% (from 3%, 20%, or 30%) until March 1, 2028. Long term (2035-2040) Philippine Comprehensive Roadmap The Philippine Comprehensive Roadmap for the Electric Vehicle Industry sets… a conservative target of… 852,100 EVs on roads 20,400 charging stations an ambitious target of… 2,001,600 EVs on roads 39,800 charging stations. TRANSPORT Electric vehicles Rapid population and urbanisation growth has increased transport sector emissions. The Philippine government is aiming to improve efficiency by increasing the uptake of alternative fuels and expanding mass transport systems. HOUSING AND BUILDINGS Ecotowns are municipalities located within key biodiversity areas that are also highly vulnerable to climate change due to geography and high poverty rate. There are more than 30 demonstration sites across the country (36 by late 2023). These are distinct from similar projects in other countries that focus on mitigation, such as low carbon-footprint buildings. Ecotowns undertake vulnerability and natural resource assessments, aiming for ‘above-sound’ hazard analyses. The Climate Adaptation Support Service (CASS) is linked. This provides income to those most in need within key biodiversity areas. CASS beneficiaries living in a forest zone may have to participate in reforestation efforts and those in coastal communities may be asked to ensure their household waste does not end up in protected marine areas. crop diversification mitigate environmental impacts and protect ecosystems efficiently use land, energy, water and food minimise waste outputs create sustainable jobs. In 2021 Typhoon Rai tore through various regions of the country, affecting almost two million people and leaving thousands displaced. Many residential buildings desperately need climate-proofing. Ecologically stable and economically resilient towns ‘ecotowns’ are the NCCAP’s response to the lack of climate resilient residential buildings in The Philippines. Ecotowns for adaptation Ecotowns focus on adaptation measures including… Ecotowns are designed to… construction of landslide protection facilities installation of shelters for heat waves ...by 2040 NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 44 45 of GDP 18% of the working population 1/3 ECOTOWN SITES BATANES U P P E R A N D L O W E R MARIKINA C A M A R I N E S SUR E A S T E R N SAMAR ROMBLON S U R I G A O D E L NORTE PALAWAN D A V A O ORIENTAL BOHOL The agriculture sector is extremely sensitive to the impacts of climate change with the majority of damage caused by typhoons, followed by droughts and then floods. Dam and irrigation infrastructure throughout the country is not yet climate resilient. There is a concentration of climate-vulnerable dams and irrigation infrastructure in Luzon, where 60% of the country’s irrigated rice is produced. If this infrastructure fails, food security would likely take a significant hit. The government’s Climate Adaptation Support Service provides income in exchange for mitigation and adaptation efforts to those most in need within key biodiversity areas. The Adapting Philippine Agriculture to Climate Change Project (APA) In response to the serious threats climate change poses to the Philippines' agriculture sector the government has partnered with the UNFCCC’s Green Climate Fund on an adaptation project. The APA is primarily focused on improving institutional capacities through the provision of localised climate information services and through the adoption of climate-resilient agriculture practices, such as the planting of drought resistant seeds and use of organic fertilisers. The government grants tax and other incentives under the 2022 Strategic Investment Priority Plan to food security related products and services that are critical to competitively ensure food security or in support of green/organic agriculture. AGRICULTURE NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 46 47 KWM KEY CONTACTS - THE PHILIPPINES LOCAL COUNSEL KEY CONTACT - SYCIP SALAZAR HERNANDEZ & GATMAITAN PARTNER, THE PHILIPPINES JOSE FLORANTE M. PAMFILO INTERNATIONAL COLLABORATION The Republic of Korea & The Philippines entered the Partnership Agreement for Air Quality in the Philippines in August 2023. Officially between the Korea International Cooperation Agency and the Philippine Space Agency, the agreement aims to enhance air quality monitoring in the Philippines. International organisations and nations supporting the Philippines on projects include: • Asian Development Bank projects supported include the Romblon solar-PV mini-grid and the Malalison mini-grid with pay-as-you-go metering • The UNFCCC’s Green Climate Fund supports numerous projects • The International Labour Organisation supports the creation of green jobs • The Japan International Cooperation Agency has supported projects including hydropower in Laguna, Ifugao and Isabela • The European Union backed a PV Mainstreaming project via its Access to Sustainable Energy Programme PARTNER, HONG KONG SAR RICHARD MAZZOCHI PARTNER, SINGAPORE NICOLA YEOMANS REGISTERED FOREIGN LAWYER (ENGLAND & WALES), HONG KONG SAR CLAIRE POTTER PARTNER, SINGAPORE DAVID PHUA The 2010-2020 the Philippine National REDD+ Strategy with the UNFCCC sought to prepare forestlands managers across the country to assume responsibility in implementing REDD+ programs. Biofuel products are incentivised by the Philippine government via tax breaks for producers, duty-free imports of equipment and machinery, and exemptions from wastewater charges under the Renewable Energy Act of 2008 and the Biofuels Act of 2006. The National Greening Program (NGP) aimed to plant 1.5 billion trees in 1.5 million hectares of lands of the public domain from 2011 to 2016. By the end of 2015, Executive Order No. 193, series of 2015 was issued to expand the coverage of the NGP (the Enhanced NGP) to rehabilitate all the remaining unproductive, denuded and degraded forestlands by 2028. The Department of Environment and Natural Resources Administrative Order No. 2021- 43 provides the Guidelines on the Establishment of the Carbon Accounting, Verification, and Certification System for Forest Carbon Projects (CAVCS Guidelines). This supports investments in activities that sequester carbon dioxide and avoid emissions from forest degradation. The Philippine government made reforestation a key priority in response to high emissions from the sector, adopting a UNFCCC forestry emissions reduction program (REDD++). A new 2022-2031 strategy is in development. This must address data indicating that the natural forest cover only slightly increased – by 3.03% from 2015 to 2020 - suggesting more is needed. B A T S , T U R T L E S A N D T H E QUIRINO FOREST Within one decade, more than 12,530 hectares of forest cover was destroyed in the municipalities of Maddela and Nagtipunan. Located in the Quirino Provence of North Luzon, this negatively affected agricultural productivity. The REDD+ Quirino Forest Carbon Project aims to change this. Completion is due in 2029, 20 years after it started. The Project aims to reforest the areas bordering the national park and improve the livelihood of the local community through the establishment of agroforestry. The region has already seen increases in habitat for at least five globally threatened species including the Philippine pygmy fruit bat and the Cantor’s giant softshell turtle. NAVIGATING THE NET ZERO TRANSITION | THE PHILIPPINES - CHAPTER 3 48 49 VIETNAM C H A P T E R 4 Economic Growth Green Finance Availability Renewable Energy Geography Critical Minerals Natural Disasters Electric Vehicles Energy & Food Security OPPORTUNITIES CHALLENGES Vietnam is among the fastest growing markets in ASEAN. Strategically located in the centre of Southeast Asia, its GDP, foreign direct investment and middle-income population have all grown over the past decade. Vietnam’s share of annual global emissions is relatively small - approximately 0.88% in 2021 - for a population of almost 100 million, or roughly 1.2% of the world’s people. The country is severely affected by climate change. With 3,260 km long coastline, many low-lying cities and river delta regions, Vietnam ranks first in the world for exposure to flooding alongside Bangladesh. The World Bank estimates Vietnam lost around US$10 billion in 2020 due to climate impacts. Without appropriate adaption and mitigation measures, climate change could cost Vietnam around 12% to 14.5% of GDP annually by 2050 according to their estimates. The Prime Minister approved measures to implement Vietnam’s commitment to achieving net zero emissions by 2050. Vietnam aims to unconditionally reduce 15.8% of total GHG emissions by 2030, and conditionally reduce its contribution by 43.5% of total GHG emissions by 2030 compared to BAU under the updated 2022 Nationally Determined Contribution (NDC). Population of 95.2 Million Net zero by 2050 93 Climate change resilience ranking GHG emissions 570.3 Million tonnes NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 50 51 ENERGY TRANSITION Heavy reliance on fossil fuels has seen electricity and heat generation account for the vast majority of Vietnam’s emissions. Electricity consumption has surged alongside its rapid economic development and population growth. In the decade to 2020 consumption more than doubled - from 89.94 TWh to 225.95 TWh. Clear government policies and incentives will play an important role in the pathway to decarbonisation for Vietnam, as one of the most coal-dependent countries globally. The government and Prime Minister Pham Minh Chinh are focused on increasing the share of renewable energy and improving energy efficiency to reduce emissions. More than 70% of targeted GHG emissions reduction by 2030 is planned to come from electricity and heat generation. Vietnam’s coal exit strategy includes: • no new coal-fired power projects after 2030 and the phasing out coal power capacity after 2035 (under The National Strategy on Climate Change up to 2050, in line with commitments as a signatory to the COP26 global pledge). • converting all coal-fired power plants to alternative fuels or retiring them by 2050 under the Power Development Plan 8 (PDP8) released on 15 May 2023. • reducing domestic coal production to 33 million mt / year by 2050 and coal imports to 50 million mt in 2045 under the National Energy Masterplan, from 41 million – 47 million mt/year in 2030 and 85 million mt in 2035 respectively. Integrating the power grid to transmit renewable energy sources has lagged the construction of projects, as in many other countries. This limits the output of clean electricity and is a disincentive to investors. The high initial capital investment required to reduce GHG emissions is not matched by the limited domestic market demand for energy-saving technology and renewable energy. Gas will play a transitional role, with natural gas production targets rising from 5.5 billion-15 billion CU (‘Carbon Units’) m/year by 2030 to 10 billion-15 billion cu m/year by 2050. Bankability issues in connection with the model power purchase agreements (PPA) for renewable projects are the key concern for sponsors and financiers which may impede the ability to procure international project finance for large-scale renewable projects. The direct PPA (or corporate PPA) program has not been put in place. EVN and its subsidiaries are still playing as monopoly offtakers in the market. The attractive feed-in tariffs (FiTs) are no longer available to solar and wind power projects that have failed to achieve the commercial operation dates by the relevant deadline prescribed by the Prime Minister. Heavy reliance on fossil fuels Integrating the power grid to transmit Solar Energy efficiency renewable energy Offshore wind Hydrogen Hydro Solar presents enormous opportunities in Vietnam, both as: • the world’s third largest manufacturer of solar PV modules, and • one of the fastest growing solar power markets in the world. In 2020, capacity increased by over 10 megawatts - more than all ASEAN countries combined. OPPORTUNITIES Offshore wind also has potential across Vietnam’s 3000+km coastline. Under PDP8 the total planned capacity for offshore wind development is 6,000MW by 2030 and will reach up to 91,500MW by 2050. Hydro, solar, wind and biomass power are set to provide 48% of Vietnam’s installed capacity by 2030, rising to approximately 63% in 2050, under the ambitious PDP8. This significantly increases the National Strategy goal of a 33% share by 2030 and a quantum leap from the 15.3% recorded in 2020. CHALLENGES Trading ideas in Hanoi Over four days in March 2023, The Australian Energy Trade Mission explored trade and investment opportunities in Vietnam. From grid operation, energy storage solutions and virtual power plants, to green certification system and decarbonisation technology, the opportunities are wide-ranging. This continues Australia's history of working with Vietnam to develop its economy. One recent example is the 2021 US$32m ($41m) loan provided by Export Finance Australia as part of a green syndicated finance facility to build onshore wind farms in Vietnam. The loan facility will enable the development, construction and operation of three wind farms with a total capacity of 144MW located in the Quang Tri province in the central highlands of Vietnam. The projects will generate 422 gigawatt-hours of electricity and avoid an average of 162,430 tons of CO2 emissions annually. ‘[Australia is] one of Vietnam’s strongest energy partners, having supported the first ever 500KV transmission line connecting northern power sources to the central and southern regions back in the early 1990s.’ Australia’s Ambassador to Vietnam, HR Andrew Goledzinowski NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 52 53 C A R B O N M A R K E T S Vietnam’s carbon pricing efforts includes a carbon tax that is limited in scope and – perhaps more significantly – a new carbon market from 2025 and a commitment to cross-border collaboration. Hopes for an expanded carbon tax Vietnam has not adopted carbon taxation but is applying environmental protection tax with respect to certain fuels such as gas and diesel. The government is working on a roadmap to apply carbon tax by way of either including in environmental protection tax or introducing as a separate tax. Regulated emissions trading scheme – pilot from 2025 Vietnam plans to establish and trial the Carbon Trade Exchange (CTX) from 2025 with full operation expected by 2028. The establishment and implementation of the carbon market is provided for in amendments to the Law on Protection of the Environment and Decree No. 06/2022/ND-CP. Certify eligible carbon credits and determine GHG emission quotas for CTX trading How the auction, transfer, borrowing and return of GHG emission quotas works The Ministry of Natural Resources and Environment (MONRE) Guidance on the use of carbon credits By 2027, Vietnam hopes to: • have formulated carbon credit management regulations, GHG emission quota exchange and carbon credits, and operation rules for the CTX • experimented with carbon exchange and offsetting mechanisms in key sectors, and • provided guidance on the operation of the CTX and offsetting mechanisms in accordance with domestic law an international law to which Vietnam is a signatory.6 The MONRE and the Ministry of Finance have joined forces with the Southeast Asian Energy Transition Partnership (ETP) to create a pilot CTX simulation tool and learn-by-doing platform for key stakeholders to raise their awareness of carbon pricing. The key findings and lessons learnt from this project will feed into concrete policy recommendations for the government to roll out the CTX by 2027. Cross border collaboration: Singapore, Australia back Vietnam’s efforts Singapore and Vietnam signed a Memorandum of Understanding (MOU) on Carbon Credits Collaboration in October 2022. This includes the development of ‘modalities and procedures to enable the transfer of correspondingly adjusted carbon credits that are generated’. The MOU was made under Article 6 of the Paris Agreement and was the first MOU signed between Singapore and an ASEAN member State. Australia will inject AU$3.3mn and leverage over AU$3.7mn in private sector investment and resources to improve the environment in Vietnam for carbon market projects. The deal is part of Australia’s Department of Foreign Affairs and Trade (DFAT) Business Partnerships Platform and supports six new multistakeholder partnerships. 6 Decree No. 06/2022/ND-CP on Mitigation of Green House Gas Emissions and Protection of Ozone Layer. NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 54 55 6.8% GDP per year / cumulative US$368b 2022 – 2040 Investments needed to successfully pursue a resilient and net zero development pathway AU$105 million committed by Australia in June 2023 To increase Vietnam’s uptake of clean energy, clean energy infrastructure and update mining law to attract foreign investment to develop critical minerals resources Source: World Bank, Australian Prime Minister Anthony Albanese 6.8% GDP AU$105 MILLION Improving settings for foreign investment International financial sources must supplement government incentives that encourage private investment and increase public funding (eg through a carbon tax) for Vietnam to satisfy its financing needs. Settings that would make it more attractive for investors include: • Stress testing climate-related risks. About 55% of loans made by banks in Vietnam went to businesses and people in climatevulnerable regions. The government should consider assessing climate-related risks on the banking sector through stress testing to inform future green finance policies, in line with World Bank advice. • Consistent and reliable taxonomy. Vietnam’s membership of the ASEAN Taxonomy might buffer investor uncertainty around sustainable investments (eg green bonds) and mitigate greenwashing risk. Vietnam is also developing a national taxonomy that is expected to align with the EU Taxonomy. The Just Energy Transition Partnership (JETP) raising billions The government and the International Partners Group (IPG) made a political declaration on 14 December 2022 to establish the JETP. This is expected to encourage more foreign investment. • The partnership will mobilise an initial amount of at least US$15.5bn over the next three to five years. • This is split 50:50 between public sector finance raised by IPG members (EU, UK, USA, Japan, Germany, France, Italy, Canada, Denmark and Norway) and private finance facilitated by Glasgow Financial Alliance for Net Zero Working Group members. FINANCING ASEAN’s sustainable finance taxonomy – and the need for labels The ASEAN Taxonomy Board released the second version of its Taxonomy for Sustainable Finance in early 2023, following consultations. This provides a roadmap for member nations to follow, giving investors critical guidance on attracting sustainable finance to reach goals. For more on the landmark 209-page guide, see the ASEAN Taxonomy update on KWM Pulse. ‘[The JETP is] a long-term, ambitious partnership to support Viet Nam’s lowemission and climate resilient development, as well as support Viet Nam to accelerate the just transition and decarbonisation of the electricity system, and develop new economic opportunities to support Viet Nam’s transition towards net zero future.’ European Commission, Political Declaration, Dec 2022 Green Banking Development Scheme. Launched by the State Bank of Vietnam (SBV) in 2018, the scheme promotes green finance and encourages credit institutions to incorporate environmental and social risks into their credit decision-making processes. Legal framework roadmap. Vietnam is ‘actively implementing a roadmap for an improved legal framework for better attracting green finance and green technology; and encouraging green production and investment’, Vietnam’s Deputy Prime Minister affirmed at the 53rd World Economic Forum in January 2023. As mentioned above, establishing a national taxonomy is crucial. Need for internal procedures, external expertise. The lack of internal procedures for and expertise on green finance assessment is a key challenge for many domestic banks. Government policy and incentives will need to play a role to help the financial sector overcome these barriers. Former head of the Banking Strategy Institute Pham Xuan Hoe has called for a professional institution to manage and ‘ensure the effective implementation’ of in-bound green funds. Vietnam’s green finance sector is still in its infancy. Domestic financial institutions are in the early stages of understanding green bonds and other capital market instruments. But there is significant potential to increase green finance and use the financial sector to direct capital to ‘greener’ and sustainable investments. Developing domestic finance and investment as a proportion of total financing provided by Vietnamese banks in 2020 5% CLIMATE FINANCING NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 56 57 TRANSPORT HOUSING AND BUILDINGS Action towards green movement Vietnam has an action plan to develop a green transport sector by 2050. This involves developing modes of transport, facilities, equipment and infrastructure operated 100% through electricity or green energy. Approved on 22 July 2022, the Action Program for Transition to Green Energy and Mitigation of Carbon Dioxide and Methane Emissions from Transportation for 2022-2030 (Transportation Action Program) sets specific targets for roadways, railways, inland waterways, shipping, aviation and urban traffic. Vietnam plans to modernise its urban areas with a focus on the green economy and the digital economy. The Vietnam Urban Green Growth Development Plan 2030 outlines 5 pillars for a sustainable city: quality, energy consumption, resource conversation, health and safety, environmental impact. Electric vehicle (EV) market should see dramatic growth. Vietnam’s EV market is still in its infancy. But EV sales are expected to increase from a few thousand cars in 2022 to 1 million by 2028, reaching 3.5 million by 2040. Growth is anticipated due to: • Government incentives including lowering taxes on imports and reducing a portion of registration fees for electric vehicle owners. • Development of charging infrastructure and enhancements in the manufacturing, assembly, import and use of EVs, under the Transportation Action Program. Accelerating EV sales at home & abroad Vietnamese-founded private automotive company VinFast has projected it will sell between 40,000 and 50,000 electric vehicles in 2023. The leading electric car manufacturer ‘promises to bring affordable and luxury electric cars with powerful engines’ to market. Exports to North America and Europe have contributed to the almost seven-fold increase in sales since 2022, when the company’s only market was Vietnam. According to chairman and founder Pham Nhat Vuong, the company expects to break even by the end of 2024 ‘if things go as planned’. The company has received a funding pledge of US$2.5 billion from its parent company Vingroup and Vuong. VinFast currently has a plant in Vietnam and plans to open a second plant in North Carolina in 2025. Australia – through Export Finance Australia and the Australian Climate Finance Partnership – provided VinFast US$50 million in support to increase production of public electric buses and establish Vietnam’s first national electric vehicle charging network in 2022. NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 58 59 KWM KEY CONTACTS - VIETNAM LOCAL COUNSEL KEY CONTACT - FRASERS LAW FIRM HEAD OF TAX, VIETNAM PHAN XUAN QUI INTERNATIONAL COLLABORATION PARTNER, HONG KONG SAR KATHERINE KE Agriculture, forestry, and fishing sector contribution to GDP in 2022 Agriculture sector annual growth - a record over the recent years 11.9% OF TOTAL GDP 3.36% MILLION The agriculture sector is Vietnam’s third highest GHG emitting sector – and a sector Vietnam aims to grow. Vietnam has ambitions to be in the top 15 agricultural developed countries and the top 10 in agricultural processing technology by 2030. Innovation is needed to cut overall methane emissions by at least 30% below 2020 levels by 2030 – a commitment made at COP26 – and to address the impacts of climate change on the sector. The Mekong River Delta’s food production systems are unsustainable and increasingly at risk. By 2050, Vietnam is expected to have a modern, efficient and environmentally friendly agricultural sector. The updated NDC has set specific goals for the agriculture sector, from the development of biogas to the modernisation of watering and fertilising perennial plants. • The Climate Strategy identifies ways the agriculture sector can adapt to climate change and sets objectives and tasks for the sector as a high-emitting industry. • The National Strategy on Green Growth (Green Growth Strategy)7 maps out foundations for re-organising production to further develop agriculture while improving climate change resilience in the region. The Green Growth Strategy was approved by the Prime Minister in October 2021. The Australian Centre for International Agriculture Research (ACIAR) has a 29-year running program of research collaboration with Vietnam. The 2022-23 research program will see 25 ACIARsupported projects in Vietnam. In June 2022, ACIAR and Vietnam reaffirmed a commitment to developing research into climate change, especially: • drought-tolerant cropping systems in the Mekong River Delta and the Central Highlands, and • saline-cropping systems for the Mekong River Delta. AGRICULTURE High-tech innovation to transform Vietnam’s agriculture sector ‘Deeper, stronger ties between our innovation systems is a key goal for our strategic partnership with Australia… innovation – particularly when it is jointly developed and implemented – can transform our society and deliver economic, social and environmental sustainability.’ Bui The Duy, Vietnam Vice Minister of Science and Technology The Australian Government is boosting innovation in Vietnam's agriculture sector via technology investments. Under the 10-year, AU$33.5mn Aus4Innovation program, Australia is offering Innovation Partnership Grants (AU$2mn in total) to fund tech-based innovation in Vietnam’s agriculture sector. The goal is to support projects that tackle challenges in agriculture, like boosting production and processing productivity, using resources more efficiently, developing markets (domestic and export) and addressing climate change adaptation and resilience. Managed and implemented by CSIRO, and delivered in strategic partnership with Vietnam’s Ministry of Science and Technology, the Aus4Innovation program has previously supported three funding rounds, with a total of 12 projects funded, with all projects delivering successful results. The partnership promotes cross-border collaboration and sharing skills and resources to bring economic, social and environmental benefits. Vietnam & Australia established the landmark Green Economy Program in October 2023 to strengthen business partnerships. The program aims to equip Australian businesses with the knowledge, capabilities and networks to catalyse sustainable business collaboration with Vietnam. EU & Vietnam were among members of the Just Energy Transition Partnerships entered in December 2022 as part of COP27. This will support Vietnam to accelerate its transition away from fossil fuels to clean energy. PARTNER, SINGAPORE AMANDA LEES PARTNER IN CHARGE, SINGAPORE MICHAEL LAWSON PARTNER, SINGAPORE JAKE ROBSON 7 Decree No. 06/2022/ND-CP on Mitigation of Green House Gas Emissions and Protection of Ozone Layer. NAVIGATING THE NET ZERO TRANSITION | VIETNAM - CHAPTER 4 60 61 R E P U B L I C O F KOREA C H A P T E R 5 Hydrogen Geography Green Cities Natural Disasters Investment Energy Security Green Finance Carbon Markets OPPORTUNITIES CHALLENGES Among the largest economies in the world by GDP and a powerful member of the G20, The Republic of Korea has developed a strong industrial sector in recent decades. Yet without urgent action to transition to a more sustainable economy, it could lose 3.73% of annual GDP by 2050. Climate change threatens devastating impacts to its 51.6 million population. By 2050, heatwaves are expected to last 1,563% longer, ocean acidification will reduce fishing potential and destructive flooding could affect an estimated 420,000 people. Urgent investment in a low-carbon future could limit economic costs to 1.15% by 2050. Renewable energy sources can also help the Republic of Korea to achieve energy security, given it imports almost all of its coal. The government has committed to carbon neutrality by 2050. This ambitious goal faces challenges from the country’s energy-intensive manufacturing sectors, growing population and reliance on exports. But the government's extensive efforts include plans to establish ‘hydrogen cities’ and transform industrials under its Green New Deal. The Republic of Korea is finalising the next iteration of its strategies, under its legally-binding National Plan for Carbon Neutrality and Green Growth (2023-2042). Population of 51.6 Million Net zero by 2050 6 Climate change resilience ranking GHG emissions 659.4 Million tonnes NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 62 63 ENERGY TRANSITION The electricity and heat generation sector is the Republic of Korea’s highest emitting sector due to the dominance of fossil fuels in the energy mix. Since signing the Global Coal to Clean Power Transition Statement at COP26, the Republic of Korea has tightened its coal-exit strategy ‘to dramatically phase down coal-fired power generation while ramping up renewable power’. Coal power will reduce to less than a third of generation by 2030with 28 coal-fired power plants decommissioned by 2036.The complete phase-down of coal is planned by 2050, under the national roadmap to achieve net-zero by 2050. Natural gas ‘will continue to play a greater role in the future’, and is included in the Korean Green Taxonomy (K-Taxonomy). Sustainable growth and enhancing quality of life are key energy transition objectives, as set out in the 3rd National Master Plan for Energy (3rd Energy Master Plan). CHALLENGES Hydrogen CCUS Nuclear energy Floating offshore wind Energy efficiency The Republic of Korea is aiming to have roughly a third of all energy generated by renewable energy sources by 2040 under its third Energy Master Plan – a dramatic almost five-fold increase from 7.6% in 2017. Stable electricity supply and demand to strengthen energy security are a top priority in the 10th Basic Plan for Long-Term Electricity. Currently, renewable energy accounts for just 8% of the power generation mix, followed by nuclear at 27%, gas at 29% and coal at 34%. But by 2036, the share of renewable power generation is expected to increase to 30.6%. A significant scale-up in investment in clean energy sources is needed for the Republic of Korea to reach its targets. Renewables aside, the Republic of Korea is among nations prioritising clean hydrogen technology in a bid to ‘take the lead in spearheading the global hydrogen economy’. Renewable energy certificates are the primary driver of renewable capacity installation. The renewable portfolio standard (RPS) scheme was introduced in 2012 to replace the feed-in tariff program. The RPS requires large-scale power generators or integrated energy operators with an installed power capacity of 500 MW or more to procure a government-mandated percentage of electricity from renewable sources via certificates. The annual RPS mandate increased to 12.5% in 2022, with an ambition of 25% by 2030. • The Northeast Asia Super Grid project seeks to connect power grids with neighbouring countries such as Japan, China, Mongolia and Russia. This project appears to have stalled since the last research report was published in July 2019. • Community projects in farming areas (residents) and industrial complexes are supported via loans to those that elect to participate in community benefit sharing for renewable energy projects. OPPORTUNITIES • Solar PV and wind power will dominate due to strong policy backing and widespread availability. This is despite the Republic of Korea having one of the highest costs of building solar and wind projects in the world due to market distortion from subsidies (like the RPS), its mountainous landscape and smaller average project size. • Transmission and distribution capacity infrastructure investment is critical to support the uptake of renewable energy. Going up the supply chain Local companies are among key leaders in renewables supply chains globally – particularly in wind and solar. • Hanwha Q CELLS has led the manufacture of solar PV modules for 18 consecutive quarters in both the US residential and commercial markets. Hanwha Q CELLS plans to invest more than US$2.5 billion, making it the largest investment into US solar to date. • CS Wind Corporation is a key player in the global market for wind turbine towers. In August 2022, CS Wind and Vestas announced a joint venture to establish a power generation production corporation in the Republic of Korea to respond to increasing renewable energy demand in East Asia and the development of the domestic offshore wind market. ‘[B]eing left behind in the transition could mean losing a competitive edge in the global value chain.’ The Republic of Korea government NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 64 65 • Hydrogen: The local economy is expected to generate up to 43t won from hydrogen by 2040. By 2030 it anticipates producing 1.9 million tonnes of clean hydrogen a year domestically and importing 1.96 million tonnes per year. The nation’s hydrogen roadmap includes setting up ‘hydrogen cities’ and a new hydrogen certification system (from 2024). • The establishment of a hydrogen value chain is key - from production and storage, to transport and utilisation. • Hydrogen vehicles and fuel cell technologies will form the backbone of the hydrogen economy. • The government will (under the first draft of the National Plan for Carbon Neutrality and Green Growth) demonstrate key technologies, establish necessary infrastructure, diversify hydrogen transportation and expand utilisation such as through the construction of hydrogen cities and clusters. When opportunity strikes: Clean hydrogen investments by key domestic players Major companies have jumped at the opportunity to become pioneers in this emerging sector. Five of the nation's biggest companies have committed over 40 trillion won in investment into hydrogen infrastructure by 2030. In July 2022, the Korea H2 Business Summit (a council established by key players such as Hyundai Motor, SK and POSCO) set up a fund worth 500 billion won over 10 years to: • Establish domestic and overseas hydrogen production • Distribution and storage infrastructure, and • Invest in developing core hydrogen technology. Among projects under way are the development of green hydrogen and ammonia plants in the UAE and Malaysia, with plans to import the fuel produced from 2027. Other investments include: • POSCO: 121 trillion won investment in projects by 2030 to develop EV batteries and hydrogen. In Australia, POSCO was allocated land in Port Hedland, WA, with ‘plans to use hydrogen [power] to make high-quality pellets of iron ore…that when used in electric-powered steel furnaces removes highly polluting coal from the process’. • SK Group: 18.5 trillion won investment by 2025 to set up its hydrogen value chain. • Hanwha Group: 1.2 trillion won investment by 2025 to develop its green hydrogen ecosystem. • Lotte Chemical: 10 trillion won investment by 2030 into battery materials and hydrogen. • Hyosung Group: 1 trillion won investment to build green hydrogen production facilities in Sinan, Korea. • Korea Zinc: 8.4 trillion won investment to 2028 in renewable energy and hydrogen projects. In May 2022 Ark Energy Corporation Pty Ltd (the Australian subsidiary of Korea Zinc) acquired 100% interest in Epuron Holdings Pty Ltd, with goals to ‘develop a new green energy corridor' from Australia to the Republic of Korea. • GS Group: 21 trillion won investment by 2026 to expand its clean energy businesses (eg small modular reactors to hydrogen). • Han-Ho Hydrogen Consortium: MOU to build a green energy export hub in Queensland signed 2022, to produce 1m tonnes green ammonia a year for export to Korea by 2032. Consortium includes Hanwha Impact, SK Gas, Korea Zinc and its Australian-based subsidiary Ark Energy. CARBON MARKETS The Republic of Korea’s key market-based solution is its carbon price. The Emissions Trading Scheme (K-ETS) launched in 2015, covering 74% of national GHG emissions. Suboptimal performance led the government to cancel auction plans for 3.7 million permits in early 2023. Sectors covered (waste, domestic aviation, transport, buildings, industry and power) capture 684 of the Republic of Korea’s largest emitters. Effective reduction measures, better allocation methods, enhanced market functions and linkage and collaboration with international carbon markets are among improvements set out in the 3rd Basic Plan for the K-ETS (2019). More changes are expected when the K-ETS cap is updated to align with the Republic of Korea’s more ambitious NDC 2030 target (4th Basic Plan for 2026-2030, in progress). AU$13.01 AU$125.75 AU$96.75 AU$51.25 The Republic of Korea carbon price (KAU spot) European Union (EUA spot) UK (UKA Futures) New Zealand NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 66 67 Green transition of infrastructure turning public facilities into zero-energy buildings, restoring natural and urban ecosystem and building a management system for clean and safe water FINANCING Low-carbon and decentralised energy building a smart grid, promoting renewable energy usage and expanding the supply of electric and hydrogen vehicles Innovation in the green industry sector Carbon neutrality projects promoting prospective businesses to lead the green industry and laying the foundation for green innovation via the R&D and financial sectors promoting investment (added in Green New Deal 2.0 to achieve the 2030 NDC targets) There are two key aspects to green investment in the Republic of Korea: the government’s own funding of green projects via its Green New Deal, and the attraction of private investment including via the setting of a national, non-binding sustainable finance taxonomy – ‘K-Taxonomy’ - in April 2021. Public investment: Korean Green New Deal The updated Green New Deal 2.0 provides 61 trillion won (up from 42.7 trillion won) by 2025 across four core pillars of investment, creating more than 600,000 jobs. They are: Boosting private investment, quashing greenwashing: K-Taxonomy The K-Taxonomy aims to give investor and stakeholder clarity and confidence on what qualifies as a ‘green’ economic activity – therefore boosting investment. To achieve ‘green’ status, an activity must satisfy all three principles: 1. Contribute to at least one of six environmental goals. 2. Do not cause any serious environmental damage at the detriment of the other environmental goals while achieving the target environmental goal/s. 3. Do not violate laws and regulations related to human rights, labour, safety, anti-corruption and cultural property destruction. The K-Taxonomy classifies green economic activities that contribute to achieving 6 environmental goals: 1. greenhouse gas reduction 2. adaption to climate change 3. sustainable water conservation 4. recycling 5. pollution prevention and management, and 6. biodiversity. A pilot that ran from April to November 2022 saw six banks and companies issue green bonds totalling 640 billion won for projects including renewable energy generation and zero-emission vehicle infrastructure. The K-Taxonomy Guideline (Guideline) further helps interpretation – in turn, promoting capital flows towards green projects, industry and technologies, and tackling greenwashing. In February 2023 the Ministry of Environment announced several financial incentives to promote the growth of green industries, including expanding support for greenhouse gas reduction facilities to 138.8 billion won in 2023, almost tripling the budget for official development assistance projects to 12.4 billion won in 2023 for international environmental cooperation, and amplifying open-call projects to reduce international greenhouse gas emissions. GREEN SECTOR TRANSITION SECTOR Carbon neutrality and environmental protection. Comprises 64 green economic activities. 1. Greenhouse gas reduction 2. Adaption to climate change 3. Water 4. Circular economy (eg recycling and using methane gas) 5. Pollution prevention and treatment 6. Biodiversity. Intermediary step towards carbon neutrality. Fossil fuels included temporarily until 2030; LNG and mixed-gas energy production until 2035 (extension pending). 1. Greenhouse gas reduction activities at the small and midsize enterprise level 2. Energy production based on LNG and mixed gas 3. LNG-based hydrogen (blue hydrogen) production 4. Eco-friendly ship transportation NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 68 69 US$400 BILLION Estimate to transition the transport sector to net-zero (excludes infrastructure or fleet replacement) TRANSPORT The Republic of Korea is poised to become among world leaders in ‘green’ car manufacture and supply. During the first half of 2023, the country’s green car export value rose to US$12.4 billion (from US$35.7 billion total automobile exports - a record high) – making eco-friendly cars, whether EV, hybrid, plug-in or hydrogen, account for 25% of car exports. Passenger cars Vans and buses Trucks Increase subsidised EVs by approximately 31% (215,000 units), 1.4 million won to manufacturers to increase low-emission vehicle supply (Hyundai, Kia, Ssangyong, Renault, GM Korea, Mercedes Benz, BMW, Volkswagen, Toyota and Honda), 200,000 won for charging infrastructure for EV manufacturers that have installed a minimum of 100 fast chargers over the past 3 years. Preferential treatment (support for 3 million won) for manufacturers if they submit a certified ‘traction battery safety test’ report. 12 million won and an increase in the units of from 40,000 to 50,000, plus additional 30% of the grant amount (up from 10%) to vulnerable groups and small business owners. Green technology: charging ahead with EV batteries Three out of five of the world’s biggest EV battery manufacturers are from the Republic of Korea – LG Energy Solution Ltd, Samsung SDI Co Ltd and SK On. Together, they control approximately 25% of the global EV battery market share. In April 2023, they announced a plan to jointly invest 20 trillion won to 2030 to develop advanced battery technologies, along with the government. The trio are also in the process of establishing billion-dollar manufacturing plants in the US to qualify for the US$369 billion of subsidies under the Inflation Reduction Act. In 2019, the Republic of Korea was the 6th largest supplier of good imports to the US - vehicles was at the top at an estimated US$21 billion. Local companies of the Republic of Korea are also partnering with Chinese corporates on battery materials plant projects worth at least $5.1 trillion won. The Republic of Korea has among the highest proliferation of hydrogen fuel cell vehicles: out of the 15,000 new fuel cell cars that hit the road in 2022, two-thirds were in the Republic of Korea. Yet it also has ambitious short-term targets to increase EVs (including cars, buses and freight vehicles) on roads, including by installing 45,000 charging stations by 2025. An EV subsidy scheme has resulted in the Ministry of Environment facilitating the supply of over 402,000 EVs. Key subsidies for 2023 include: NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 70 71 H O U S I N G A N D B U I L D I N G S AGRICULTURE Zero-energy new buildings and ‘green’ retrofitting for old buildings are key priorities for the Republic of Korea. • Newly constructed buildings will be ‘zero-energy buildings that self-sufficiently generate their energy needs’ from 2030. This is expected to increase zero-energy buildings from 2,950 in 2022 to 47,000 by 2030. • This expands existing Building Energy Management System (BEMS) requirements to use various equipment (eg lighting, heating and cooling, ventilation and outlets) to reduce building energy consumption and enhancing energy efficiencies. • Old private buildings with green remodelling from government support will increase from 73,000 cases in 2022 to 1.6 million cases by 2030. • Rooftop solar panels will attract 244.7 billion won under the government’s PV system rebate scheme and other small renewable energy systems. • Public facilities take first priority in the Green New Deal, focusing on improving energy efficiency. A minimum of 2,890 school buildings will have solar panels installed and eco-friendly insulation by 2025. These projects will be funded both by government finance and public-private partnership via the Build-Transfer-Lease model. Agriculture accounts for less than 5% of emissions in the Republic of Korea and an even smaller proportion of its GDP. Climate measures are focused largely on research and development towards adaptation. The private sector drives incentives towards sustainable farming, as retailers set targets that trickle up the supply chain. There is a national framework for the sustainable development of the agricultural sector under which 5-year plans are set. This has included targets for sustainable innovation. But the OECD has called for more investment and support towards adaptation and incentives to help farmers to adopt climate-resilient systems. The OECD has also called for sustainable water use. One key government measure is in the Renewable Energy 3020 Plan, via solar PV in rural areas. Active participation from the nation’s farmers is required and long-term, low-interest loans enable them to combine PV installations with farming activities. Significantly, forest and land use acts as a carbon sink. The Republic of Korea is a signatory to the Glasgow Leaders’ Declaration on Forests and Land Use signed at COP26, committing to forest conservation, promotion of sustainable development and commodity production, improving rural livelihoods and incentivising sustainable agriculture. Green City: Songdo International Business District The City of Incheon, the third most populous city in the Republic of Korea, has been championing an eco-friendly transformation. Disposable products are not used in the city, and green infrastructure, clean energy and EVs will be boosted by 2025. Located within the city, Songdo International Business District (SIBD) was purpose-built on 1,500 acres of reclaimed tidal flats using US$35 billion in funding raised since 2001. Green and smart initiatives include: 1. LED streetlights and walking lights, solar energy supplies, geothermal heating and cooling facilities and rainwater storage facilities 2. 20 million square feet of Leadership in Energy and Environment Design-certified (LEED-certified) space 3. 40% green space allocated, including a 40-hectare park 4. an automated, interconnected waste management system where '[a]ll waste is sucked directly from households through a network of underground tunnels' to automatic waste processing facilities 5. goal to be an integrated 15-minute city where citizens can satisfy 90% of daily activity by bike or public transport within 15 minutes 6. computers built into buildings and streets, and sensors monitor traffic flow and energy use 7. water pipes divert drinkable water away from being used in showers and toilets demonstrateattracting clean businesses such as clean biotechnology and bioengineering companies, and the Green Climate Fund. NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 72 73 The Philippines & the Republic of Korea entered the Partnership Agreement for Air Quality in The Philippines in August 2023. Officially between the Korea International Cooperation Agency and the Philippine Space Agency, the agreement aims to enhance air quality monitoring in the Philippines. The EU & the Republic of Korea entered the Green Partnership in 2023, strengthening bilateral cooperation and the exchange of best practices to further the green transition. Climate and sustainable finance is a core area. Both parties will become ‘major donors of climate finance’ and facilitate just transitions in third world countries. Australia and the Republic of Korea agreed to a Low and Zero Emissions Technology Partnership in 2021 to collaborate. Collaborate on existing and emerging low and zero emissions technologies and promote trade systems. Up to AU$100 million invested each. Early priorities include hydrogen (supply, power generation and fuel cell electric vehicles), low emissions steel and iron ore, carbon capture, use and storage, energy storage, solar and critical minerals supply chain. Germany & the Republic of Korea entered an Energy Partnership in 2019 to accelerate decarbonisation given shared challenges. This includes renewable integration, efficiency, storage and green hydrogen innovation. Initiatives with international organisations include: • Global Green Growth Institute: An MOU with the Export-Import Bank of the Republic of Korea in 2021 to 'expand the Republic of Korea Economic Development Co-operation Fund by scaling up green investments, including development finance, in fields such as renewable energy (solar and wind), green transportation, and the circular economy in developing countries'. • The UN's Green Climate Fund is headquartered in Songdo. The Republic of Korea's government has committed to supporting the fund on a regular basis, including 3.6bn won from 2023 to 2025. The fund acts as a financing vessel from developed to developing countries and has a current portfolio of 228 projects with US$48.3bn in total value. INTERNATIONAL COLLABORATION KWM KEY CONTACTS - THE REPUBLIC OF KOREA PARTNER, CHINA SEOKHO LEE PARTNER, CHINA JANET GU PARTNER, AUSTRALIA PAUL MCBRIDE PARTNER, CHINA BOHYOUNG KIM NAVIGATING THE NET ZERO TRANSITION | THE REPUBLIC OF KOREA - CHAPTER 5 74 75 JAPAN Population of 125.1 Million Net zero by 2050 13 Climate change resilience ranking GHG emissions 1.1 Billion tonnes Nuclear energy, Hydrogen, CCUS, Offshore Wind Geography Transport Natural Disasters Buildings Energy & Food Security Green Finance Agriculture Carbon Markets Forestry & Fisheries C H A P T E R 6 Japan is the third-largest economy in the world and among the world’s highest emitters. Home to approximately 126.5 million people, Japan consists of several thousand islands most of which are covered by mountains and surrounded by steep shorelines. The topography limits renewable energy development and Japan’s susceptibility to natural disasters such as typhoons and earthquakes has impacted nuclear generation following the 2011 Fukushima accident. Triggered by the Great East Japan Earthquake, this event tipped Japan’s economy into recession. A little over a decade on, Japan’s economy is showing signs of recovery – and investors are circling. For Japan, nuclear has re-emerged as a path to decarbonisation, along with the promise of green hydrogen, offshore wind and energy efficiency. Japan is also one of the world’s largest importers of natural gas and is likely to remain as a key part of Japan’s energy generation in the future. With this background, Japan’s nationally determined contribution under the Paris Agreement is an ambitious one: a 46% reduction in GHG emissions in 2030 from its 2013 levels and net zero by 2050. OPPORTUNITIES CHALLENGES NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 76 77 ENERGY TRANSITION Japan’s electricity and heat generation sector is heavily reliant on fossil fuels, accounting for nearly half of its emissions. Japan has limited potential for renewable energy development. As a result, Japan’s energy transformation is focused on hydrogen, carbon capture usage and storage (CCUS), nuclear, offshore floating wind generation and energy efficiency. CHALLENGES Hydrogen CCUS Nuclear energy Floating offshore wind Energy efficiency Hydrogen will play a crucial role in Japan’s energy transformation. Japan is a world leader in this space. Japan is focused on reducing the cost of hydrogen production to US$3/kg by 2030 and US$2/ kg by 2050. The Basic Hydrogen Strategy, Strategic Roadmap for Hydrogen and Fuel Cells and the Sixth Strategic Energy Plan are all geared towards this aim. • Raising annual hydrogen supply to six times the current level by 2040 is reported as a key goal • Japan’s Ministry of Economy, Trade and Industry (METI) has put forward JPY26bn in subsidies for the demonstration of hydrogen co-fired gas turbine technology, to incentivise growth in this area. OPPORTUNITIES CCUS is likely to play a major role in the decarbonisation of Japan’s energy supply, along with carbon recycling, due to the nation’s reliance on fossil fuels for energy. New gas and coal-fired power plants are to be constructed as ‘capture ready’ and inefficient coal-fired plants are to be phased out by 2030. By 2030 Japan is expecting to commercialise CCUS and carbon recycling technology for a number of chemicals, liquid fuels and concrete products. Some examples of Japanese innovations in this space include: • the successful commercialisation of carbon dioxide-absorbing concrete • the development of artificial photosynthesis technology separating hydrogen from water before combining the hydrogen with carbon dioxide, to produce plastic raw materials • the completion of carbon dioxide separation and recovery equipment for power and chemical plants. Nuclear power has returned as a focus after the 2011 Fukushima-prompted shutdown. Some nuclear power plants have come back online. Currently, just 10 out of 33 operable nuclear power reactors have received clearance to restart, accounting for less than 10% of Japan’s power. In its Sixth Strategic Energy Plan, the Japanese government makes it clear that the restatement of nuclear operations is premised on safety being the top priority. In terms of new nuclear plants, Japan is pursuing the development of fast reactors and small modular reactor technology. Floating offshore wind is a growth area and research and development in this space is expected to accelerate. In 2021 METI announced the Japanese government would provide up to JPY119.5bn to support R&D costs associated with offshore wind power generation. This is expected to help drive down the price of offshore wind floating bases, which could position Japan as a new global leader in this space. Energy efficiency subsidies have played a critical role for decades. Subsidies on offer as at November 2023 include: • energy efficient equipment in industry and business • energy management in SMEs: subsidies to support • commercial transport sector: support for energy efficiency demonstration projects • commercial and residential building: subsidies for energy efficiency investments. This will remain a key arm of the nation’s efforts to decarbonise. NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 78 79 J-Credits traded on Day 1 on the Tokyo Stock Exchange 627 CO2 TONNES 679 Japanese companies in the GX League JPY 150 TRILLION Public-private investment in decarbonisation planned over 10years CARBON MARKETS Three interrelated facets of carbon markets form the heart of Japan’s 2021 Green Growth Strategy to achieving Paris Agreement targets: voluntary carbon credit trading, carbon taxation and carbon border adjustment measures. Voluntary carbon credit trading Voluntary carbon credit trading is largely undertaken via the J-Credit Scheme, Japan’s most developed carbon trading mechanism. Under the J-Credit Scheme, the government certifies the amount of GHG emissions reduced or removed by sinks such as forests. Initially traded over the counter, J-Credits were added to the Tokyo Stock Exchange in September 2022 as part of a four-month trial. The government is considering expanding the scheme to new technologies such as hydrogen, ammonia and CCUS/carbon recycling. After a successful trial run, the Tokyo Stock Exchange announced that it plans to establish the Carbon Credit Market to begin trading around October 2023. Further, the GX League is scheduled to launch a voluntary emissions trading system by 2023 and realise full-scale operation by 2026. At a high level, it will serve as a framework for companies to invest towards reducing emissions and voluntarily start emissions trading. Carbon tax Discussions are underway within the Japanese government, as it looks to introduce a carbon levy on fossil fuel importers in 2028–29. There are existing energy taxes that apply a levy to imported or extracted fossil fuels, transportation fuels and electric power generation. Carbon border adjustment measures Carbon border adjustment measures are seen by Japan as a mechanism through which to prevent carbon leakage and provide other countries with ‘an incentive to implement more effective climate change countermeasures’. Japan is currently considering carbon border adjustment measures and is paying close attention to the discussions taking place in other nations, such as the US and the EU. The GX League: super-charging efforts by decarbonising corporates More than 550 Japanese companies that account for 40% of Japan’s emissions form part of the GX League. Set up in April 2022, the network is managed by a combination of government (METI), Nomura Research Institute and Hakuhodo (an advertising firm) officials. The member companies commit to lead supply chain decarbonisation, support the creation of green markets and follow a roadmap to carbon neutrality by 2050. A three-phase timeline includes a target of launching emissions trading system by 2026 and the auctioning of allowances in the 2030s. Under the roadmap, the plan is to realise over JPY150 trillion of public-private investment in decarbonisation initiatives over the next decade. NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 80 81 800,000 Hydrogen fuel cell vehicles 1,000 Hydrogen fuelling stations 1,200 Hydrogen fuel cell busses Green finance Green finance is steadily expanding. To further promote Japan’s green bond market and green finance more generally the Japanese government reformed its green bond and green loan and sustainability linked loan guidelines in 2020. FINANCING Transition finance Transition finance is encouraged and guided by industry-specific ‘roadmaps’ that assist financiers to determine whether a company’s strategy or project qualifies. The Basic Guidelines on Climate Transition Finance were released by METI in 2021. These establish a sustainable finance taxonomy and serve as reference for borrowers, financiers and other market participants. The iron and steel, chemical, power, gas, oil, pulp and paper, cement, automobile, international shipping, domestic marine transport and aviation sectors are covered. Useful case studies are provided on large Japanese companies as examples of what projects may qualify for transition finance. Innovation finance Innovation finance is provided by the Japanese government via the Green Innovation Fund. This supports the upscale of green technology. Key projects include offshore wind power generation, next-generation solar cell development and large-scale hydrogen supply chain establishment. The Japanese government is stimulating the economy to attract private investment into green, transition and innovation initiatives. TRANSPORT Automobiles Japan is aiming to introduce 800,000 hydrogen fuel cell vehicles, 1,200 hydrogen fuel cell busses and 1000 hydrogen fuelling stations by 2030. METI plans to allocate JPY300bn from the Green Innovation Fund for the development of hydrogen import and supply chain, in addition to JPY70bn to develop large-scale electrolyser projects for hydrogen production. Shipping Japan aims to start a demonstration project for zero-emission ships by 2025, to enable cross-border trade of clean energy. Japan’s Green Growth Strategy notes that shipping is likely to play a major role in the import and export of decarbonised fuels such as hydrogen. Aviation Japanese companies are potentially competitive players within the electrification of aircraft due to their extensive experience within the related battery and motor fields. In 2022 METI signed an agreement with Boeing to collaborate on researching and developing electric and hydrogen powered aircraft. 2030 hydrogen targets NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 82 83 PURE SALMON Japan’s need for clean, healthy and sustainable protein is tackled by global aquaculture company Pure Salmon. Japan is among the locations for its Recirculating Aquaculture Systems (RAS). RAS salmon farms are important for adaptation because they are ‘eco-friendly, water efficient, highly productive [and] not associated with adverse environmental impacts, such as habitat destruction, water pollution and eutrophication [and] biotic depletion’. Moreover, RAS compared to conventional aquaculture techniques is less likely to cause disease outbreaks or result in exotic species escape and parasite transmission. Pure Salmon has already started rolling out RAS salmon farms, including in Tsu City, Mie Prefecture, Japan. Acting for the Pure Salmon, cross-border teams from KWM’s Singapore, Japanese and Australian offices helped Pure Salmon to finance the Mie Prefecture farm. HOUSING AND BUILDINGS For over two decades the Japanese government has promoted net-zero energy houses and buildings The net-zero energy houses and buildings (ZEH/ZEB) initiatives focus on energy-saving renovations, the introduction of highperformance insulation materials, high-efficiency equipment, renewable energy and the promotion and use of wood in buildings. In response Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) released the 2021 Measures for achievement of Decarbonisation and Resilience with Innovation (MeaDRI). At a high level, the MeaDRI aims to completely decarbonise the entire supply chain of the agriculture, forestry and fisheries sectors by 2050 through the introduction of innovative technologies. This includes: • reducing the use of chemical pesticides and fertilisers • the utmost use of locally available resources • restoration of biodiversity • the dissemination of energy efficient and precision technologies. The J-Credit Scheme for trading carbon credits, Green Innovation Fund and the direct payments for environmentally friendly agriculture scheme all incentivise the ‘greening’ of Japan’s agriculture, forestry and fisheries sectors. Renewable energy in the form of next-generation solar cells used on domestic and commercial buildings is expected to increase. The Japanese government expects that the country’s mastery of the electronics sector will enable Japanese houses and buildings to make use of next-generation solar cells. Being thinner and lighter in weight, next-generation solar cells could provide a power source for buildings that currently are unable to hold solar cells, such as those with small load-bearing capacity or limited roof space. To incentivise research and development into next-generational solar cells, the Japanese government has committed up to JPY49.8bn and is seeking to achieve a power generation cost of JPY14/kWh or less by 2030. Renewable energy AGRICULTURE Global warming and the associated increase in natural disasters pose a serious threat to Japan’s agriculture, forestry and fisheries sectors. NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 84 85 INTERNATIONAL COLLABORATION Indonesia & Japan signed a Memorandum of Cooperation on Decarbonisation Technologies in January 2022, aimed at developing and deploying decarbonisation technologies such as hydrogen, ammonia and CCUS to realise a ‘realistic’ transition. Australia & Japan announced a clean hydrogen partnership in January 2022 towards a world-first shipment of liquid hydrogen. This provides trade opportunities for Australian businesses working on domestic hydrogen supply chain projects and is connected to the AU$150mn Australian Clean Hydrogen Trade Program. Australia & Japan entered a partnership on decarbonisation technologies in June 2021. In addition to clean hydrogen, other technologies include CCUS, carbon recycling, clean fuel ammonia, low emissions steel and iron ore and lower emissions LNG production. The EU & Japan established a Green Alliance in May 2021, aiming for climate neutrality by 2050. This prioritises sustainable energy, environmental protection, regulatory cooperation, research and sustainable finance. UAE & Japan signed a Memorandum of Cooperation on hydrogen in April 2021. The two will ‘seek to cooperate on matters such as exchanging information on hydrogen policy, constructing supply chains (including hydrogen production and transportation to Japan) and exchanging information toward developing regulations and standards’. Under the Asia Energy Transition Initiative, Japan has committed to providing US$10b to support the regional shift to renewables, energy efficiency and LNG. K W M K E Y C O N T A C T S - J A P A N PARTNER, JAPAN YOSHIKI TSURUMAKI ASSOCIATE, JAPAN CHISAKI KISHI PARTNER, AUSTRALIA ANDREW DESZCZ PARTNER, SINGAPORE JOHN SHUM NAVIGATING THE NET ZERO TRANSITION | JAPAN - CHAPTER 6 86 87 ACROSS THE REGION KEY COMMITMENTS Area Singapore Indonesia The Philippines Vietnam Republic of Korea Japan NET ZERO By 2050 By 2060 No target By 2050 By 2050 By 2050 EMISSION REDUCTIONS: GREENHOUSE GAS (GHG) 2030 – 60m MTCO2 e 8 Peak carbon emissions between 2025 and 2028 at around 65 MTCO2 e 2030 – 32%-43% (834 – 1,185m tonnes CO2 e) - BAU 2,869m 2023 – 31.89% (unconditional) -43.2% (conditional) compared to BAU 2.869 GtCO2 9 equivalent Peak carbon emissions in 2030 predicted to reach 1,244 MTCO2 e 2030 – 75% (2.7% unconditional) from 2020 - from agriculture, waste, industry, transport & energy Peak carbon emissions in 2030 2030 – 15.8% (unconditional) & 43.5% (conditional) from 2010 BAU 2050 – ~90% from BAU Peak carbon emissions in 2035 to around 603-692 MtCO2 e (excluding LULUCF10) 2030 – 40% from 2018 2018 – Peak carbon emissions 2030 – by 46% from 2013 BAU ENERGY 2030 – energy intensity to improve 36% (0.113 k kgCO2 e/ S$GDP) against 2005 baseline 2030 – solar deployment to >2 GWp to meet ~3% of electricity demand & generate electricity for 350,000 houses annually 2030 – Sector CO2 emissions peaking at 20% above 2021 levels, 20% lower by 2040 ~2040 – energy supply to increase & peak 2060 – total of CO2 emissions ~100Mt 2060 – Electricity provides half total consumption - lowemissions fuels = 1/5th 2025 – New & renewable energy = >23% (>31% in 2050) 1% reduction in energy intensity per year 2040 – reducing final energy demand by 24% from BAU10 - 3% pa decrease in energy intensity against a 2005 baseline (-2.2% pa 2005-2021) Integrate hydrogen & ammonia into roadmap plus harness 178GW of potential offshore wind 2030 – energy activities down 20-30% (against 2010 baseline) 2023 – Power generation reduced by 64.5 MTCO2 e 2040 – consumption 18.6% below BAU level Decrease energy imports & contribute to stable energy supply system Low-carbon power sources, managing electricity demand, increasing transmission/supply efficiency Generate 22-24% of energy needs from renewables (from 10% pre-Fukushima in 2011) 2030 – Decrease dependence on nuclear from 25% pre-2011 to 20-22% 2030 – Decrease energy generated from fossil fuel from 65% pre-2011 to 56% 2030 – Improve energy efficiency by 35% Promote hydrogen & energy storage HYDROGEN 2050 – Up to half of power needs11 To contribute to emissions reductions Emissions reduction targets via green hydrogen production (in tonnes of CO2 ): • 2021 – 2025: 198m • 2026 – 2030: 314m • 2031 – 2035: 475m • 2036 – 2040: 796m • 2041 – 2050: 956m • 2051 – 2060: 1,526m Agreement with Star Scientific (Australian) to develop green hydrogen as a fuel source 2030 – produce 11.49m tonnes of green hydrogen 2050 – produce 18.78m tonnes | of green hydrogen 2040 – targets12 include: • Supply - 5.26m tons per year • EV fuel cells - 6.2m (53% exported, 47% domestic) • Powered transport: • Cars: 2.75m • Buses: 40k • Taxis: 80k • Trucks: 30k • Fuelling stations: 1.2k • Fuel cell manufacturing: capacity 15GW (7GW exported) - ~2GW for homes & buildings • 2040 – 70% of CO2 - free Hydrogen Supply produced domestically 2030 – Production cost US$3/kg (2050 cost US$2/kg) 2030 – Powered transport: • Cars: 800k • Buses: 1.2k • Fuelling stations: 900 2040 – Annual supply to increase 6x - 2m to 12m tonnes All countries globally are at different stages of progress when it comes to establishing frameworks or strategic initiatives designed to achieve net zero. Here we have outlined a summary of key commitments and how they compare to one another. 8 Metric tons of carbon dioxide equivalent 9 Gigatonnes of carbon dioxide 10 Land use, land-use change and forestry 11 The Energy Efficiency Roadmap (2017-2040) 12 2019 Hydrogen Economy Roadmap NAVIGATING THE NET ZERO TRANSITION | ACROSS THE REGION KEY COMMITMENTS 88 89 KEY COMMITMENTS Area Singapore Indonesia The Philippines Vietnam Republic of Korea Japan CARBON CAPTURE, UTILISATION, AND STORAGE Low-carbon transition - carbon tax, business transformation, investing in technologies & international cooperation By 2030 – carbon tax rate rise to SGD 50-80/tCO2 e (USD 35-56/ tCO2 e) CCUS to contribute to emissions reductions Launched carbon credit trading market to reduce emissions Industries & power plants: • 2040 – CCUS capacity • ~1mn mt/yr • 2050 – 3-6mn mt/yr 2028 – domestic carbon market in operation & connected to others regionally & worldwide 2028 – factories & businesses to reduce carbon output, or purchase credits to offset. 2015 – launched Korea Emissions Trading Scheme to reduce emissions Carbon Capture Utilisation and Storage 2030 – annual CO2 storage target of 6-12 Mt CO2 pa 2030 – implement the country’s first full-scale CCUS supply chain 2050 – annual CO2 storage target of 120-140 Mt CO2 pa COAL, OIL & GAS Shift away from oil (46% in 2000 to 3% in 2021) and towards fossil gas (96% in 2021) for electricity generation 2050 – eliminate coal generation 2020 – Declared moratorium on new coal power plants 2030 – reduce methane emissions from oil & gas extraction, coal mining & fossil fuel consumption by 30% from 2020 levels LPG storage units - expand capacity of existing & construct new (domestic demand to reach 3.5–4.0m tons/year in 2025 & 4.5–5.0m tons/year in 2035) 2030 – natural gas 18.8% share of electricity production against a 2017 baseline 2030 – Inefficient coal-fired plants phased out - replaced with decarbonised thermal power using hydrogen, ammonia & carbon capture & storage 2030 – coal fired power generation to drop to 26% of energy mix New gas & coal-fired power plants constructed as ‘capture ready’ AGRICULTURE, FORESTRY AND FISHERIES9 2025 – 1st integrated waste & used water treatment facility 100% energy self-sufficient 2025 – desal process energy use to decrease from 3.5kWh/m3 to 2kWh/m3 (1kWh/m3 by 2030) 2030 – agriculture to meet 30% of nutritional needs via locally produced food 2030 – Water consumption of 130L per capita per day13 2030 – Recycling 70% of waste 2060 – Desal capacity 3x increase to meet 30% long term water needs14 Enhancing forest cover across the country a key priority 2028 – no net loss in natural forest cover Promote agricultural productivity, particularly on rice, corn, high-value crops, livestock, poultry, and fisheries15 2030 – GHG emissions reduced by 43% in the agriculture sector 2030 – reduce overall methane emissions from cultivation, animal husbandry, solid waste management, wastewater treatment by at least 30% below 2020 levels 2025 – rearrange sewerage infrastructure by separating foul sewage & rainwater runoff, enabling resilience with 30-year flood risks (30 priority areas identified 2030 – 20% reduction in industrial food waste (compared to 2016) 2050 – zero CO2 emissions from these sectors 2050 – 30% reduction in use of chemical fertiliser 2050 – 50% reduction in risk-weighted use of chemical pesticides TRANSPORT 2025: • 8 EV-ready towns • chargers at all public housing (Housing & Development Board ‘HDB’) carparks • new registrations of diesel cars & taxis to cease 2030: • 60k charging points (40k public carparks, 20k private premises) • new car & taxi registrations: cleaner-energy models only 2030 – 750k 4-wheel battery & 2.45m 2-wheel battery EVs on roads16 2030 – Biodiesel blend target of 20% – part of increased uptake of alternative fuels & expansion of mass transport systems 2040 – 852k EVs & 20.4k charging stations Overall target of 2m EVs & 39.8k charging stations Electricity & green energy used for: • buses & taxis: new from 2025, all by 2050 • vehicles: >50% by 2030 • vehicles operating in airfields: all by 2040 • inland waterway vehicles: all new by 2040 • vehicles & equipment in ports & navigation aids: all (or equivalent measures) by 2050 • inland railway, ports & wharves: all by 2050 2030 – Sector emissions down 25.9 MTCO2 e against 2016 baseline 2040 – 50% of vehicles are EV & hydrogen (8.3 and 2.9m respectively Mid-2030s – Government committed to comprehensive measures to make EVs account for all new passenger vehicles Promote electrification, biofuel & hydrogen fuel 13 The National Energy Masterplan 14 Public Utilities Board, ‘Our Water, Our Future’ (January 2018) 15 Philippine government 3-year agricultural development program (2023-2025) 16 Minister of Industry Decree No. 27/2020 on Specifications, Development of Roadmaps, and Provisions Regarding Domestic Component Standards for Domestic Battery Electric Vehicles. NAVIGATING THE NET ZERO TRANSITION | ACROSS THE REGION KEY COMMITMENTS 90 91 KEY COMMITMENTS Area Singapore Indonesia The Philippines Vietnam Republic of Korea Japan HOUSING AND BUILDINGS 2030 – 80% of buildings (by Gross Floor Area ‘GFA’) Super Low Energy 2030 – 80% of buildings (by GFA) are Green Mark standard 2030 – public authority (HDB) towns reduce energy consumption by 15% (by GFA) 2030 – carbon neutral schools are >20% 2030 – Schools net carbon emissions are reduced by twothirds 2040 – energy intensity of the building sector reduced 38% 2030 – average of all new constructions to be Net Zero Energy Buildings & Net Zero Energy Houses RENEWABLES 2025 – solar deployment to increase to >1.5 GWp (and >2 GWp by 2030) 2025 – 23% of total power – >5% biofuel & >5% geothermal 2040 – to surpass fossil fuels with share of fossil fuels decreasing to 22% (2060) 2030 – 35% of the total energy supply, increasing to 50% in 2040 2020 – 5% of commercial primary energies (~11% by 2050) 2025 – ethanol & vegetable oil output of 1.8m tonnes = 5% of gasoline & oil demand 2030 – • 15%-20% of primary energy consumption (80%-85% by 2050) • >47% of power generation (67%-71% by 2050) • two renewable energy hubs & export 5-10k MW of renewable energy • green hydrogen production of 100- 200k mt/year (10-20m mt/year by 2050) • 43% of national electricity production (from 35% in 2015) 2030 – renewable energy ratio (hydro, wind, solar & biomass) increase to >33% of total electricity production Renewable sources: 30-35% of energy generation by 2040, up from 7.6% in 2017 Next-gen solar cells: generation target of JPY14 per kWh or less by 2030 NAVIGATING THE NET ZERO TRANSITION | ACROSS THE REGION KEY COMMITMENTS 92 93 Disclaimer This publication has been prepared with the assistance of local counsel TSMP Law Corporation (Singapore), SSEK Law (Indonesia), SYCIP Salazar Hernandez & Gatmaitan (The Philippines) and Frasers Law (Vietnam). It is prepared for information only and does not constitute legal advice. CONTRIBUTORS Many people contributed to this publication – we are deeply grateful to them all. AIHUA LIA YEA PARK EMMA PATANE ELIZA SAVILLE GARY SMYTHE DAN CANTA SUNNY HUANG HYEJIN JEON (CINDY) CHISAKI KISHI KYRA LEE MANA SUGIMOTO ALESSIO TRIPODI KATIE WALSH NADIA WUST ANTHONY GEORGES MARIANA NAKAMURA DAMIEN WINDOW Singapore Indonesia The Philippines Vietnam TSMP LAW CORPORATION HEATHER CHONG SENIOR ASSOCIATE GOH MIN YI ASSOCIATE SSEK LAW ALDILLA S. SUWANA ASSOCIATE RAISYA MAJORY ASSOCIATE SYCIP SALAZAR HERNANDEZ & GATMAITAN CATHERINA M. FERNANDEZ SPECIAL COUNSEL FRASERS LAW FIRM PHAN XUAN QUI HEAD OF TAX DANG DINH DUC ASSOCIATE KWM LOCAL COUNSEL TAG Design team NAVIGATING THE NET ZERO TRANSITION | ACROSS THE REGION KEY COMMITMENTS 94 95 Asia Pacific | Europe | North America | Middle East King & Wood Mallesons refers to the network of firms which are members of the King & Wood Mallesons network. 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