The 29^th United Nations Climate Change Conference, or COP29, ended in much frustration in Azerbaijan last year. The agreement on the new climate finance goal was a disappointment to Southeast Asia, which urgently needs more funding to tackle and adapt to climate change.

At the summit, developed countries agreed to increase their climate finance provision to developing countries from US$100 billion to US$300 billion annually by 2035. Contributions from governments and multilateral development banks are expected to meet this target. Given the broader goal to raise US$1.1 to US$1.3 trillion annually in climate finance, this means developing countries would need to raise up to US$1 trillion annually from the private sector and other sources by 2035. These finance provisions will help to fund climate mitigation (reducing greenhouse gas emissions in the atmosphere, such as through increased uptakes of renewable energy) and climate adaptation projects (adjusting to the consequences climate change) in developing countries.

Global South representatives have expressed anger and disappointment with the negotiation process and with the New Collective Quantified Goal on Climate Finance (NCQG) because, in their view, climate finance should primarily consist of grants and, to a lesser extent, low-interest loans that minimise financial burdens on governments in developing countries. The NCQG, however, suggests that developing countries will have to rely on for-profit private investments to satisfy most of their climate finance needs, especially as discussions of new finance sources, such as from levies on fossil fuels and air travel, remain vague.  Moreover, if inflation is taken into account, the pledged US$300 billion climate finance target will lose 20 per cent of its value by 2035.

Southeast Asia has good reasons to be frustrated with the climate finance agreement at Baku. According to the Asian Development Bank (ADB), Southeast Asia needs US$210 billion — around 5 per cent of the region’s gross domestic product (GDP) — annually until 2030 to invest in climate-resilient infrastructure, and it is unlikely that public finances alone can reach this target. Southeast Asia’s adaptation needs call for investments in multiple areas, such as in agriculture, water management, mangrove protection, and Early Warning Systems to identify climate-related risks and hazards. Estimated total climate adaptation cost, expressed as a percentage of gross domestic product (GDP) in each Southeast Asian country, ranges from 0.1 per cent (for Singapore) to 2.2 per cent (for Cambodia).

To protect its standard of living, Southeast Asia should step up its efforts on climate action and look for additional alternative sources of climate finance.

Southeast Asia’s energy demand growth is also not being evenly matched by investments in renewable energy. A quarter of the growing global energy demand over the next decade is estimated to come from Southeast Asia. However, according to the International Energy Agency, renewable energy investment in Southeast Asia accounts for only 2 per cent of the global total. Although public and private finance play crucial roles in accelerating energy transition in the region, concessional finance of US$12 billion by the early 2030s is needed.

Given the inadequacy of the NCQG, Southeast Asia should continue to look beyond UN climate conferences for climate finance. Even if greater climate finance commitments had been reached at COP29, it would have nevertheless been a Pyrrhic victory. As history demonstrates, countries tend to fall short of their promises. In 2009, developed countries pledged to provide US$100 billion in climate finance per year by 2020, but their contributions only surpassed this target for the first time in 2022.

In Southeast Asia, Indonesia and Vietnam have joined the Just Energy Transition Partnerships (JETPs), a multilateral climate finance initiative supported by the Group of 7 (G7) that encourages developing countries to transition away from coal-fired power.

Large financing gaps remain, however. Countries such as Thailand, Indonesia, Malaysia and Vietnam have joined the Japan-led Asia Zero Emission Community (AZEC) initiative, which aims to mobilise up to US$8 billion until 2030 to support decarbonisation in Asia, but a third of AZEC projects involve natural gas and fossil-fuel technologies. Asean and the ADB have also established the Asean Catalytic Green Finance Facility (ACGF) to provide loans for green infrastructural investments in the region. Another noteworthy initiative is Singapore’s Financing Asia’s Transition Partnership (FAST-P) which utilises blended finance to advance energy transition in Asia.

It is uncertain whether the options listed above will suffice. Southeast Asia’s battle against climate change is a high-stakes race against time. According to a study by Swiss Re in 2021, the GDP of Asean countries could, in the worst-case scenario, fall by 37.4 per cent by 2048 if the average global temperature rises up to 3.2 degree Celsius compared to the pre-industrial period.

To protect its standard of living, Southeast Asia should step up its efforts on climate action and look for additional alternative sources of climate finance. This should include (but should not be limited to) debt relief, debt-for-nature swap (writing off countries’ debt in return for tangible outcomes in climate/nature projects), green bonds, and support for the new UN global tax convention that aims to raise tax revenues to support sustainable development in the Global South. Such efforts are necessary but might not be sufficient: the financing gap is huge, and the time is short.

Prapimphan Chiengkul is an Associate Fellow with the Climate Change in Southeast Asia Programme at the ISEAS – Yusof Ishak Institute.

This article was first published in Fulcrum, ISEAS – Yusof Ishak Institute’s blogsite.