Green finance deemed necessary to plug climate problems

Editor's note: In this weekly feature China Daily gives voice to Asia and its people. The stories presented come mainly from the Asia News Network (ANN), of which China Daily is among its 20 leading titles.

To the rest of the world, Pari Island may be just another of the thousands of islands that make up the vast Indonesian archipelago with some of them so tiny they do not have names.

But nonprofit Friends of the Earth Indonesia is fighting for more visibility for the plight of its 1,500 inhabitants, who are facing the loss of their homes and fishery livelihoods as sea levels rise.

The island was partially inundated an unprecedented 10 times last year by exceptionally high tides.

Island communities in Southeast Asia, like those on Pari, have long grappled with worsening climate impacts but often find it difficult to access the funds they need to become resilient against floods and typhoons. Countries in the region also need assistance to phase out coal.

But the recently concluded COP29 UN climate change conference could offer some hope, with developed countries agreeing to channel $300 billion a year to developing countries by 2035. The ultimate aim is to raise $1.3 trillion annually by 2035 for countries in need, through various forms of finance.

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The $300 billion core amount was still criticized as woefully insufficient by climate-vulnerable countries and civil society, who expected richer countries — considered the historical emitters — to commit more.

It is also uncertain how the amount will be raised. While developed countries will take the lead, the COP29 decision stated that the amount will come from "a wide variety of sources, public and private, bilateral and multilateral, including alternative sources".

Gao Xi, a research associate at the Energy Studies Institute, or ESI, under the National University of Singapore, said: "Most Southeast Asian countries are coastal, making them particularly vulnerable to threats such as typhoons, floods and droughts caused by climate change. Frequent extreme weather events often result in significant financial losses and social disruptions."

In 2024 alone, the Philippines was struck by six typhoons within a span of 30 days — between October and November — killing more than 170 people, displacing more than 214,000 people and causing damage worth about 470 million pesos ($8.1 million). While the archipelago is prone to tropical storms, such back-to-back typhoons within a month is unusual.

As most countries in Southeast Asia are still developing and have relatively weak economic foundations, climate finance is necessary for the region to take climate action, added Gao, with funds particularly needed for clean energy generation and low-carbon transport.

According to the International Energy Agency, the Association of Southeast Asian Nations area will need $21 billion in investments annually from 2026 to 2030 just to upgrade its energy infrastructure. To build resilience against climate impacts, the region needs $422 billion until 2030.

Tapping potential

The finance outcomes from the UN conference in Azerbaijan could benefit other developments in Southeast Asia, such as the future regional power grid and carbon trading, which can also benefit Singapore.

The funds pledged at COP29 could provide crucial support for accelerating the development of the ASEAN power grid.

One of the region's decades-long ambitions, the complex power interconnection will enable electricity trade across borders — for both energy security and access to greener energy.

The regional ambition made progress with the Laos-Thailand-Malaysia-Singapore electricity import pilot in 2022, which transmitted 100 megawatts of hydropower from Laos to Singapore, via Malaysia and Thailand. This was later extended to include another 100 MW from Malaysia's electricity grid in October 2024 but covers a mix of energy sources, including coal and natural gas.

ASEAN envisions a power grid by 2045 and climate finance has the potential to address the unique challenges of financing such a large-scale, multi-country initiative, said Beni Suryadi, acting executive director at the ASEAN Centre for Energy based in Indonesia.

Several key challenges make traditional financing for the ASEAN power grid difficult. One is cross-border investment risks, since the giant grid will involve multiple countries with different regulatory frameworks and tariffs.

Another is the high upfront capital required, especially for building the grid and transmission infrastructure. The resulting long payback periods can put off traditional investors, who seek quicker returns, Beni said.

Climate finance can alleviate these gridlocks, with these funds often coming in the form of concessional loans with low interest rates, grants, or guarantees which lower the financial risks for private investors, according to analysts.

When forms of finance like green bonds, blended finance and funding from the World Bank or the Asian Development Bank are injected into a mega-project first, the risks are lowered for private investors to participate.

Blended finance refers to bringing together monies from the public sector, the multilateral development banks, philanthropies and the private sector.

"This is where climate finance can step in — by bridging these gaps, mitigating risks, and enabling investments that otherwise might not materialize," he added.

Balancing act

Southeast Asia is in a tricky position when it comes to receiving climate finance as stipulated by COP29. On the one hand, Myanmar, the Philippines, Thailand, Vietnam and Cambodia were, until 2019, among the 20 countries most exposed to climate risks, according to the Global Climate Risk Index, which is published by nonprofit Germanwatch.

But Southeast Asia is expected to continue its fast economic growth, accompanied by more greenhouse gas emissions, said Kim Jeong Won, a senior research fellow at ESI.

This growth has reclassified many ASEAN nations as middle-income countries, reducing their eligibility for development financing, she added.

Among the developing nations, the least developed countries and small island developing states are recognized as having the greatest need for support.

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Given the competition for funding, a significant gap exists between the required investments and actual finance that the countries have received. For example, only 9.7 percent of investments from the UN's Green Climate Fund — the world's largest fund of its kind — has been channeled to Southeast Asia.

Similarly, only 6.3 percent of investments from the UN's Adaptation Fund has been allocated to ASEAN countries, Kim said.

She added, "Southeast Asian countries are expected to compete for limited bilateral and multilateral public funding with other low-income developing countries."

If they want to attract a greater share of private funding, it is vital that countries develop more innovative finance models and attractive climate-related projects, she said.