Update Country Report Maldives 21 Apr 2021

• Asian countries are increasingly devoting resources to climate change goals, following pledges on carbon neutrality and net-zero emissions unveiled in 2020. However, The Economist Intelligence Unit believes that longer-term goals for climate-change mitigation will be deprioritised in the short term as Asia focuses on its economic recovery following the coronavirus (Covid-19) pandemic.
• In addition, we expect deep discrepancies between climate-change rhetoric and implementation. This will particularly be the case as South and South-east Asia struggle to balance mitigating climate change with preserving economic growth.
• The pace of carbon-emission reduction will pick up after post-pandemic recoveries settle, and as national policies for environmentally friendly solutions regain prominence. The transition to clean-energy sources will help to decrease energy costs, although climate challenges for Asia will build over 2021-30.

The reappearance of climate-change mitigation on the global policy agenda follows years of international disruption that has diverted official focus away from environmental issues. Within Asia, the adoption of ambitious pledges to meet long-term climate change goals-such as the nationally determined contributions (NDCs) enshrined in the 2015 Paris Agreement-will require significant action over the next decade.

Much of this progress will rest on Asia's largest economies, namely Japan, South Korea, India and Indonesia (we have covered the pledges of Asia's largest carbon-emitter, China, separately). All of these markets have announced national climate strategies spanning the next two decades, including the use of renewable energy. In practice, however, we expect deep discrepancies between rhetoric and implementation, particularly as South and South-east Asia struggle to balance climate-change mitigation with economic growth.

The state of play in North-east Asia

In October 2020 Japan and South Korea both pledged to achieve carbon neutrality by 2050-commitments made just one month after China's announcement of that same goal by 2060. Despite this, Japan and South Korea have not significantly adjusted their NDC targets; Japan has left its commitments unchanged, while South Korea updated its NDC in December 2020 to target a 24.4% reduction in emissions from 2017 levels by 2030 (from the previous target of a 37% reduction by 2030 from business-as-usual levels in 2013). Less ambitious targeting indicates deepening awareness of economic and policy constraints that might limit stronger reductions in carbon emissions.

This does not suggest less attachment to these goals. South Korea's W73.4trn (US$62.2bn) Green New Deal policy, which was launched in July 2020, gives primacy to climate-friendly technologies in improving the country's infrastructure, diversifying its energy supply and promoting climate innovation (including through smart factories and incentives for research-and-development activities). Japan's own "green growth strategy", launched in December 2020, similarly aims to guide the country towards carbon neutrality by identifying 14 key industries for policy support; it includes a ¥2trn (US$18bn) green fund.

The state of play in South and South-east Asia

By contrast, the focus on climate change mitigation in South and South-east Asia has been more modest. Exemplifying this are the subregions' two largest polluters, India and Indonesia, which have made only modest progress towards national environmental goals. India, for example, has shied away from setting specific target dates to achieve carbon neutrality, although officials are reportedly discussing a timeframe extending into the late 2040s. Instead, it aims to install 175 GW of renewable energy capacity by 2022 (and 450 GW by 2030).

Indonesia's approach is even more conservative. Although it has floated the possibility of raising its Paris Agreement emissions reduction commitments to 41% of business-as-usual projections (from 29% under its current NDC), this remains contingent on international support, illustrating the government's recognition of its policy limitations. This contrast is more evident in countries' pandemic stimulus packages; according to Climate Policy Initiative, a think-tank, 53% and 31% of South Korea and India's respective relief efforts focus on "green recovery measures" such as investment in renewable energy or low-emission transport. By contrast, Indonesia has devoted only 4% of its stimulus package towards addressing climate change.

Contending with economic realities

Climate-change action will also be complicated by the fact that fossil fuels remain the predominant energy source in Asia. Even as more developed North-east Asian markets have begun to transition towards cleaner energy sources (such as solar, wind and hydropower), coal remains the dominant energy source across the region, particularly in developing markets. Statistics from the International Energy Agency indicate that coal accounted for 51% of Asia's energy supply in 2018; reducing that reliance will be a lengthy (and potentially costly) process.

The US Energy Information Administration forecasts that solar and wind power will be able to compete commercially with coal and natural gas within this decade. Despite this, upfront investment requirements for renewable energy projects are high, which risks deterring private-sector involvement without government policy support. This will preserve the necessity of government programmes to encourage renewable adoption, including tax incentives and long-term contract guarantees. Although the developed economies of North-east Asia have that capacity, this will be difficult for some countries in South and South-east Asia.

Another economic obstacle relates to variability. Compared with fossil fuels, electricity generation from renewable sources, including solar and wind, can be unstable, requiring renewable power plants to be supplemented by pumped hydropower or battery storage systems. The distribution of wind, solar and water resources also varies between regions; electricity generated in solar- or wind-rich regions usually requires long-distance transmission to more densely populated regions (as is the case in China). This raises the unit cost of electricity transmission, particularly for countries with expansive geographies and relatively weak existing infrastructure, including India and Indonesia.

Shifting to renewable energy sources also presents a commercial risk for fossil fuel exporters. China's clean energy pivot, for instance, is a significant long-term challenge for Australian coal producers, while EU moves to reduce palm oil imports on environmental grounds have already sparked contention with Indonesia and Malaysia.

The political will to press ahead

A final complication is that the urgency of climate mitigation is distorted by the time horizon of these events. National authorities may encounter political resistance to taking the policy and fiscal steps necessary to reduce carbon emissions, particularly as abstract long-term benefits are juxtaposed against near-term priorities, such as slower economic growth or pandemic-related disruption to employment. This temporal mismatch of costs and benefits will, as it has for much of the past decade, postpone the implementation of difficult measures to reduce reliance on dirty energy.

Tackling climate change and pursuing growth are not necessarily mutually exclusive options, however. Technology costs have fallen over the past decade, while investment in clean energy technology is increasingly seen as strategically valuable (such as in China). We nevertheless expect these developments to remain initially concentrated among developed Asian countries, where deeper fiscal resources (and strong track records of successful policy execution) will better equip policymakers to tackle these goals, and where domestic firms can profit from government support for these industries. By contrast, it will take longer for emerging markets in South and South-east Asia to catch up with these trends, even as some countries-such as Vietnam, Thailand and the Philippines-pursue these goals more forcefully than their neighbours. This will maintain divergence in national climate-change mitigation over the next decade, with the risk that concerns over "free-riding" will impede regional co-ordination.