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UBP in the press 21.10.2022

No energy transition without Asia leadership

No energy transition without Asia leadership

South China Morning Post (09.2022) - The recent decision by China to suspend cooperation with the US on climate change comes at a very inopportune moment, given the increased realisation of the critical importance of Asia in the fight against climate change. If many commentators used to wonder if the region was a laggard in that area, the debate has now firmly moved on beyond that question.

It is fair to say that the awareness of the need for an energy transition has come later in Asia than in Europe. This was partly justified by the fact that Asia represents a lower share of historic emissions (i.e. the cumulative emissions produced since the beginning of the Industrial Revolution). Back at the origin of the climate negotiations, at the Earth summit of Rio de Janeiro in 1992, Asia as a continent was responsible for only 16.5% of historic emissions, while Europe[1] and the US accounted for a combined 61%. But 30 years of Asian industrial success and urbanisation have modified the landscape, and on the latest available data, Asia is now up to 31% while the old industrial nations are down to 46%. If we look in the distance, the share of emissions coming from Asia will probably continue to increase, underpinned in large parts by higher economic growth.

What is true of emissions looks increasingly true when we look at the potential solutions. For instance, solar energy is a stronger proposition now than 10 years ago. It is now competitive without subsidies in a number of countries. This progress is due to worldwide cost savings resulting from the development of Chinese solar companies, whose market share has now reached more than 80% in most areas of the supply chain[2]. Without those savings, solar energy producers would not be able to compete with fossil fuels on the cost side and the energy transition would be delayed.

Similarly, the top 10 producers of batteries for electric vehicles are all located in Asia (four in China and three in Japan and South Korea respectively). Much of the current surge in electric vehicle sales comes from their increased affordability. The battery representing a large share of the cost for those vehicles, the efficiency gains on the batteries (only slightly less spectacular than those made by the solar industry) have been a key factor in their current popularity.

Asian companies also play a leading, if not critical, role in wind energy, high-speed rail, bicycles, and many of the semiconductors that improve energy efficiency around the world. And this list could go on.

It is no wonder, then, that in the past, diplomats have tried to carve out an exception in times of political disagreements for the fight against climate change. We saw it at the COP26 in Glasgow, where, despite a tense geopolitical situation, the United States and China took the time to issue a joint declaration to remind the world that they were intending to deal with climate change “through cooperation in multilateral processes”[3]. We saw it again in June this year when the White House announced a two-year pause on any new solar import tariffs. The goal was to reassure solar installers and accelerate the solar roll-out by reducing uncertainties.

Also, Chinese battery producer BYD’s announcement in June that it will soon be working with Tesla is a further illustration of the level of interdependence. All other battery suppliers to Tesla are from Asia as well. The e-car giant is betting on China with a new plant next to its Shanghai Gigafactory, and expansion plans that could take the production levels in the country to 1 million vehicles per year.

In private markets, Asian start-ups are also rising through the ranks. Bloomberg NEF[4] recently released a study about “climate unicorns” (i.e. start-ups valued at 1 billion US dollars or more, and attacking a problem directly related to climate change). It estimates that 55 companies have reached that status. Of those, 13 were from Asia, making the region the most represented after North America, but ahead of Europe. The companies in that ranking were involved in areas such as EV manufacturing, clean power, or energy storage. Those unicorns could be the industrial giants of tomorrow, and seeing Asia positioned ahead of Europe in that ranking says a lot about the future potential growth path, and possible new listings on local exchanges.

It is thus logical that things are starting to move in the last (but not least important) area of climate action: commitment to the energy transition. It started at country level, with China making the welcome but unexpected commitment to carbon neutrality in September 2020. The speed picked up after that with Japan, South Korea and India all committing to a net zero target in the following 15 months.

The movement is also being confirmed on the ground by individual companies joining climate initiatives in ever-increasing numbers. The latest progress report from the Science-Based Target Initiative (SBTi) shows that 449 Asian companies had an approved science-based target at the end of last year, 20% of the global total, and ahead of North America[5], which had only 401 companies with a similar commitment. Looking more specifically at what SBTi calls the “high-impact companies” (i.e. the largest companies in terms of greenhouse gas emissions and market value) reveals that, after 70 such companies joined the SBTi between 2015 and 2019 on a cumulative basis, 60 additional Asian companies took that commitment in 2021 alone. This is a level of acceleration similar to what we have seen in Europe. The level of climate awareness among Asian executives is moving at an impressive speed. And so it should, as there is still a lot of ground to cover. The same SBTi report estimates that there are 884 high-impact companies in Asia, the most of any region, with the majority of them still not committed to an emissions reduction target.

All of those developments put Asia in a central position to help drive the energy transition. Seeing it as something that America and Europe can lead alone is no longer possible, which is why China’s decision to pull back from working with the US on climate issues is a significant setback for those worrying about the future consequences of climate change. The length of the suspension is not known yet, but the shorter will be the better given the urgency of climate action. For the key decision-makers in the region, this is an opportunity to continue to show leadership and move forward. A successful global energy transition cannot take place without Asia.


[1] Defined as the European Union and the United Kingdom combined

[2] Solar PV Global Supply Chains, an IEA special report, July 2022

[3] https://www.carbonbrief.org/china-briefing-11-november-2021-us-china-glasgow-declaration-calls-for-concrete-actions-xis-absence-at-cop26/

[4] More Climate Unicorns Are Set to Join the Herd in 2022, Bloomberg NEF, 28 June 2022

[5] North America is defined as the US and Canada in this report.

Mathieu Nègre Mathieu Nègre
Portfolio Manager Emerging Market Impact Equities

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