Energy

Energy security and sustained growth: Analysis of the energy outlook and savings potential in the EAS region

Energy security and sustained growth: Analysis of the energy outlook and savings potential in the EAS region

Introduction

Sustained population and economic growth have almost doubled both primary and final energy demand in the East Asia Summit (EAS) region, and this rising energy demand is posing an increasing threat to energy security.1 Examination of potential energy saving is key to reducing energy demand and carbon dioxide (CO2) emissions, and findings can shed light on policy implications for decision making to ensure the region can enjoy economic growth without compromising energy security or causing environmental problems.

Energy security—the Cebu Declaration

Leaders from the Association of Southeast Asian Nation (ASEAN) member countries, as well as Australia, the People’s Republic of China (PRC), India, Japan, the Republic of Korea, and New Zealand, adopted the Cebu Declaration in 2007. The Cebu Declaration focuses on energy security rather than abatement on CO2 emissions, and the leaders agreed to promote energy efficiency, new renewable energy, and the clean use of coal. EAS economies need to address energy security and sustained growth further by looking not only at economic growth, but also at ecological and environmental sustainability.

ASEAN and East Asian countries are particularly dependent on imports of fossil fuels from the Middle East, making the region vulnerable to any disruptions in the supply of oil and gas that may arise due to political instability. This reliance on fossil fuels also has a substantial impact on increasing CO2 emissions, with the region accounting for about 70% of the global incremental growth in CO2 emissions from energy consumption during 1990–2005.

Similarly, EAS economies can further improve their energy efficiency and saving by utilizing renewable energy sources. A study by the Economic Research Institute for ASEAN and East Asia on energy saving potential shows that the alternative policy scenario through energy efficiency and saving could abate carbon emissions by 1,486 million metric tons of CO2 (MMt-C) in 2035 compared to the business as usual (BAU) scenario.

Key drivers of energy demand in the EAS region

There are four key drivers of energy consumption in the EAS region. They are population, gross domestic product (GDP), growth of the transportation sector as result of improved per capita GDP, and policies affecting the universal coverage of electricity access.

The total population in the EAS region was around 3.4 billion in 2012, around 49% of the world’s total. It is projected that the region’s population will increase at an average annual rate of 0.6%, reaching 3.91 billion in 2035. Population growth is generally assumed to be faster in developing countries, with the exceptions of the PRC and Thailand.

In 2012, total GDP in the EAS region was about $14.0 trillion (estimated in 2005 US dollar prices) and accounted for about 25% of global GDP. During 2012–2035, the region’s GDP is expected to grow at an average annual rate of about 4% and reach $34.6 trillion in 2035.

Growth in the transport sector is another primary driver of growth in energy consumption. By 2035, the number of road vehicles in the PRC and India is projected to increase to about 312 million and 139 million, respectively.

Currently, many households in developing countries lack access to electricity, but eliminating this problem has implications for increasing electricity demand in the future.

Rising energy demand in the EAS region

End-use demand

Total final energy demand in the 16 EAS countries is projected to grow at an average annual rate of 2.3%, reaching 5,405 million tons of oil equivalent (Mtoe) in 2035. Transport sector demand is projected to grow most rapidly as a result of motorization driven by increasing disposable income as the EAS economies grow (Figure 1).

Figure 1: Total final energy demand in the EAS region

Figure 1: Total final energy demand in the EAS region

Mtoe = million tons of oil equivalent.
Source: Author’s calculations.

Power generation demand in the EAS region

Power generation demand is projected to grow significantly by 2035. Coal demand in the EAS economies is mainly used in power generation to meet the increasing electricity demand. The share of coal-fired generation is projected to continue to be the largest and will remain about 60% of the total until 2035. The share of natural gas is projected to be relatively stable, while the nuclear share is forecast to increase to 10.5% by 2035, under the assumption that nuclear power plants in Japan will resume operation, and due to an increase in generating capacity in the PRC and the introduction of nuclear energy in Viet Nam. Most of the coal demand in the region is expected to be from Indonesia as it has an abundance of low-rank coal with low ash and low sulphur content that offers advantages in both price and environmental compliance.

Figure 2: Power generation demand in the EAS region

Figure 2: Power generation demand in the EAS region

TWh = terawatt-hour.
Source: Author’s calculations.

The emerging economies in the EAS region will continue to rely on coal to steer economic growth. Thus, the proliferation of more sustainable energy development, such as clean coal technologies, is urgently needed to mitigate negative effects on the environment as a result of rising CO2 and greenhouse gas emissions.

Primary energy demand

Total primary energy demand is projected to increase, with coal still having the largest share, although its share will decline from 52% in 2012 to 44.9% in 2035 (Figure 3). Among fossil sources of energy, natural gas is projected to show the fastest growth, while nuclear energy is also projected to increase at a rapid rate.

Figure 3: Primary energy demand in the EAS region

Figure 3: Primary energy demand in the EAS region

Mtoe = million tons of oil equivalent.
Source: Author’s calculations.

Total energy saving and CO2 emissions reduction potential in the EAS region

Alternative policy scenario

The alternative policy scenario (APS) takes into account all APS scenarios so that efficient thermal power generation, consumption of new and renewable energy and bio-fuels, and the introduction or higher utilization of nuclear energy are considered. The APS is required to calculate the energy saving potential through comparison with the BAU scenario. The results show that achieving energy efficiency in the EAS region could reduce the total primary energy supply from the BAU by as much as 1,140 Mtoe or 13.2% (Figure 4). In terms of the CO2 emissions reduction, it could reduce emissions in the BAU by 1,486 MMt-C or 23.8% in 2035 (Figure 5).

Figure 4: Total primary energy demand, BAU and APS

Figure 4: Total primary energy demand, BAU and APS

Source: Author’s calculations.

Figure 5: Total CO2 emissions, BAU and APS

Figure 5: Total CO2 emissions, BAU and APS

Source: Author’s calculations.

Policy implications and conclusion

Below are some highlighted policy implications that require both energy conservation and energy efficiency improvements.

Industry sector

The industry sector will be a major source of energy saving because it will still be the largest energy-consuming sector by 2035. There are several EEC action plans to be implemented, which include the replacement of existing facilities and equipment with more efficient ones. Thus, changing the industrial structure from heavy (energy intensive) to light (less energy intensive) industries would reduce energy consumption per unit of GDP output.

Transportation sector

Likewise, in the road transport sector, fuel economy can be improved by shifting from personal to mass transportation modes, and shifting to more efficient technologies, such as hybrid vehicles and cleaner alternative fuels.

Power generation and other sectors

Many emerging economies still use low-efficiency coal power plants. Thus, constructing new facilities or replacing existing facilities with more efficient generation technologies is key for energy efficiency and would have the additional benefit of reducing greenhouse gas emissions. In other sectors, it is important to use demand management systems, such as household energy management systems and building energy management systems, to improve energy efficiency through proper energy consumption monitoring.

Investment/financial schemes to support the EEC

Investing in environmental technology, such as clean coal technology, is considered costly, and attractive financial schemes, such as long-term loans, should be made available to reduce the upfront costs. It is recommended that low or near-zero taxes on more efficient appliances be implemented to promote the use of efficient appliances.

In conclusion, there is significant potential for countries in the EAS region to curb energy consumption and abate CO2 emissions by implementing policies across all sectors of the economy that encourage improvements in energy efficiency and conservation, and increase the use of lower emission technologies and fuels. Implementing energy efficiency and conservation will contribute to the region’s energy security, but will require commitment and investment. Two major paths can lead to energy saving. First, patterns and behaviors of energy consumption need to move toward greater energy conservation. Some countries face problems due to energy subsidies, which can distort the rational saving of energy. The second stream is energy efficiency, in which energy saving can be realized through investment in more efficient power plants, power equipment, and more efficient electric appliances.
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1 The East Asia Summit (EAS) region is composed of the 10 member countries of ASEAN: Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam; and six other countries, Australia, the PRC, India, Japan, the Republic of Korea, and New Zealand.

Han Phoumin

About the Author

Han Phoumin is an Energy Economist at the Economic Research Institute for ASEAN and East Asia (ERIA) in Jakarta, Indonesia.
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