By Tatsuya Terazawa, Chairman and Chief Executive, Institute of Energy Economics, Japan (IEEJ)

Energy transition is a great challenge for Asia. Australia can strengthen its partnership with this region by providing what is needed for Asia. But it can be a missed opportunity if Australia fails to provide what is needed. 

Asia’s economy is growing strong. The living standards of the people in Asia are rising rapidly. This combination will lead to substantial growth of demand for energy. Asia absolutely needs to expand its energy supply to meet the growing demand. 

To support the expansion of supply, LNG is essential. Gas-fired power plants can expand the power supply in scale and in a timely manner. They can provide the precious dispatchable power to deal with the intermittency of renewable power. They can help retire the older coal-fired power plants to reduce CO2 emission. 

Australia has been the largest and most reliable supplier of LNG to Asia. But with recent policy changes, the future prospect of Australia’s role in supplying LNG is becoming less clear in the eyes of Asian counterparts. 

Energy exports are under a cloud 

Certainly, Asia is looking to the next generation of energy including hydrogen and ammonia. Australia can be a major source of these new energy sources to Asia. But most experts agree that the first stage of hydrogen/ammonia will be blue hydrogen/ammonia because the cost of green hydrogen/ammonia will be relatively more expensive in the first stage. Australia makes the distinction between blue and green and does not provide policy support for blue hydrogen/ammonia while only pushing green hydrogen/ammonia. Australia is unique in making this distinction among the potential global suppliers of hydrogen/ammonia. The absence of policy support for blue hydrogen/ammonia does not meet the needs of Asia. 

Australia is considering the introduction of a European Union Carbon Border Adjustment Mechanism (CBAM) like mechanism. CBAM imposes de-facto tariffs on imports which are not subject to the same level of carbon price in the exporting country as in EU. The covered products started with a proposal of five sectors but they are now expanded to include even screws and bolts. The coverage can be expanded even more. CBAM will have a substantial impact on international trade.  

But Asia, especially Southeast Asia, has been growing through the expansion of international trade. Serious consideration about the impact on trade with Asian countries must be made. While CBAM has a legitimate objective to prevent carbon leakage, the balance between climate change policies and the legitimate need to ensure growth through trade must be struck. Australia can play a leadership role if it can develop a new and improved framework which strikes such as balance rather than just copying the EU model or making it worse by adding additional sectors like the United Kingdom (UK) which is copying CBAM and expanding its coverage to include even glass and ceramics. 

Australia needs a new approach to carbon trading 

Trading of carbon credits will be necessary in the energy transition. The EU Emission Trading System (ETS) is a pioneer in this but it only recognizes carbon credits developed within its region. Australia has introduced a similar system named ACCUS. It is also limited to carbon credits developed domestically. But Asia, especially Southeast Asia, has substantial potential for carbon credits. If Australia includes carbon credits developed in Southeast Asia in its ACCUS, it will provide export opportunities for the region and at the same time help Australian companies satisfy their carbon caps. Australia can demonstrate leadership in this area as well. 

Australia has been invited as a member of the Asia Zero Emission Community (AZEC) together with ASEAN countries and Japan. So far, Australia has been a rather quiet member of AZEC. But by playing a more constructive role, including by providing what is needed by Southeast Asian countries, I am quite sure that Australia can strengthen its partnership with Asia. Australia can be seen as truly looking to Asia and supporting Asia. 

The chance to strengthen partnership with Asia is great under Asia’s difficult challenges for energy transition. By supplying what is needed for Asia, the consequent increased economic activities will help Asia but also lead to further prosperity for Australia. It is more than just the economy. Australia can be a true partner of Asia. A true partner is the one who provides the needed support when others are facing difficulties. As energy transition is a very serious challenge for Asia, the true partnership will be tested.

The big question is whether Australia is willing to take actions to support Asia or misses the great opportunity.

Tatsuya Terazawa is the Institute of Energy Economics, Japan (IEEJ) chairman and chief executive. He was the Asia Society-Victoria Distinguished Fellow in 2023.  

Contribute to the conversation on social media using #AsiaAgenda or send us an email at [email protected]