By Rachel Ho, Asia Energy and Climate Finance Fellow, Market Forces. Ms Ho has a decade of experience in the private industrial and technology sector across Australia, Indonesia and the broader Asia Pacific.
The global oil and gas crisis is going from bad to worse. Amid the Middle East war, Southeast Asian Central Banks must address a perfect storm of rising fuel prices, cost of living pressures and worsening impacts of climate disasters.
In recent days, thousands of people in Thailand, The Philippines and Japan have protested escalating fuel costs and impacts of the war. Mere months prior, Filipinos protested over hundreds of lives lost in the past two years due to embezzled flood controls.
Late last year, in a single week, three huge typhoons tore across Indonesia, Thailand, The Philippines and Vietnam, killing more than 1,300 people and displacing millions, according to the World Meteorological Organization. Disaster recovery efforts across Southeast Asia have been complicated by fuel shortages, with the Strait of Hormuz closed, throttling transport and supplies.
The costs of devastating floods, landslides and storms fuelled by global warming are set to escalate to more than US$10 billion a year according to a 2026 University of Singapore and Willis Natural Catastrophe Review.
As the Association of Southeast Asian Nations (ASEAN) Central Bank Governors meetings kick off in Manila, 7 April, climate concerns must be addressed. It’s critical for security and stability that commitments be made to address the immediate and future impacts that energy choices and climate change force on price stability, economic growth and viability of financial systems.
ASEAN has already taken critical initial steps. The ASEAN Sustainable Finance Taxonomy framework – put simply: a guide for shifting investment to sustainable options and renewable energy – does justice to member states on different points in the development journey.
The framework rightly empowers individual Central Banks which are best placed to determine the urgent and effective measures to be taken in light of the deleterious effects of climate change on their nations.
Nevertheless, ASEAN can take advantage of more opportunities. The Strait of Hormuz has exposed the intrinsic vulnerability and volatility of fossil-fuel focused energy mixes: the proverbial tightening of the tap in oil, coal and gas-producing countries cause prices to spike globally.
ASEAN nations’ fuel imports weigh down the trade balance and cause debilitating fiscal deficits, with the sole exception of Malaysia, which could potentially increase its revenue from oil and gas at the detriment of their neighbors.
Fuel subsidies used to remedy the volatility and expense further erode national finances, entrenching an ever-growing dependency on coal, oil and gas, all while contributing alarming volumes of emissions when we must reduce deadly carbon pollution.
Given increasingly affordable renewable energy technologies and ASEAN countries’ vast untapped clean energy potential according to the International Energy Agency, a refusal to transform the energy mix is an untenable opportunity cost.
Central banks and financial regulators play a vital role in solving this problem: policy tools can enable increased capital for renewable energy, and restrict or de-incentivize development of new fossil fuel facilities.
Make no mistake, there is no room for new oil and gas fields in a world shifting to renewable energy and aiming to limit global warming to 1.5 degrees Celsius, according to scientists and experts, including the International Energy Agency and the Intergovernmental Panel on Climate Change,
Restricting finance for coal, oil and gas development is the most urgent climate initiative. Only Central Banks can disqualify fossil fuel assets as guarantees – or ‘collateral’ – and set rates that buffer climate risks. Yet major Southeast Asian banks still pour billions into fossil fuels, including industrial coal power. So far, none of the ASEAN Central Banks have undertaken efforts to restrict investment in fossil fuel companies.
Beyond the risks posed by the energy crisis and escalating emissions, ASEAN nations are also unprepared for the worsening effects of climate change.
Besides the Philippines flood control failures, ASEAN nations have negligible plans and investment in place to adapt to more frequent and severe flooding, sea level rises and droughts, often resorting to bandaid measures like sea walls, instead of transition-focused efforts.
Climate resilience projects remain seriously underfunded, despite being highly cost-efficient compared to the steep costs of adaptation failure, according to the World Resources Institute.
Financial authorities must use all their means – coordinating, legislative, and executive powers – to direct funding towards critical adaptation against climate dangers and away from projects, such as those involving deforestation and erosion, that cost lives.
Besides incentives and penalties, Central Banks’ core work must account for the spiralling costs of climate-related events and impacts on the stability of economies by undertaking climate stress testing. So far, only Singapore, Thailand and Indonesia have conducted climate stress tests.
Even mere rumors of rate interventions move markets. The Governors of Central Banks hold rights and responsibilities to save financial systems from institutional collapse and this needs to encompass intervening to prevent economies being decimated due to climate risks.
As ASEAN Chair, the Philippines has the honor of ensuring no one leaves the table without a clear climate commitment, lest it cause its people, and everyone across Southeast Asia to suffer even more.
– ENDS
This article first appeared in the Bangkok Post
Cover image: Hanoi, Vietnam, September, 2024: Hanoi floods in Vietnam the aftermath of Typhoon Yagi aftermath. Shutterstock / Vladimir Bronnikov