Will greater APAC collabration be the answer to the forthcoming EU carbon tax?

The power of renewable energy to connect the world at its most fundamental level can sometimes mean a little give and take. October will see the EU’s Carbon Border Adjustment Mechanism (CBAM) come into force to tackle cross-border carbon leakage. APAC businesses are weighing up what it means for them.

In short, anyone exporting into the EU needs to show they’ve paid a carbon price to cover the production of their goods. If they can’t, the importer gets taxed. It’s raising questions in places like Thailand and Malaysia. These big EU exporters have massive production sites, some aren’t quite living up to their sustainability potential yet.

What’s the best course of action? Obviously, each market needs to stay the course of renewable energy transition. Businesses need to stay on the lookout for ways to balance their operations with initiatives like corporate PPAs. But this could also be an opportunity to step up the region’s local cross-border collaboration efforts.

Southeast Asia still has huge untapped integration potential

APAC markets are currently sitting at various different stages of development. In terms of renewables, their needs and contributions are incredibly diverse. One market might have to scramble and struggle to balance the carbon cost of large-scale exports. Another might be perfectly capable of balancing carbon, but have less to actually export.

Now, imagine if we could freely exchange Malaysian solar power with Thai or Vietnamese wind, via Laotian hydro power and storage. The task of balancing carbon is streamlined, APAC businesses become even more competitive.

This kind of collaboration and integration is already being talked about. Australia’s Sun Cable are working with Indonesia on plans to link the archipelago using subsea transmission corridors. This concept is, in turn, part of a $30 billion vision linking Australia and Singapore, the Australia-Asia PowerLink.

Meanwhile, talk is ongoing on the details of the Singapore government’s investment arm working with Hong Kong’s InterContinental Energy. The plan is to build a hydrogen hub in Western Australia which, if completed, would be the biggest on Earth. 50GW of wind and solar are planned across 15,000km².

I’m using the words ‘talk’ and ‘plan’ a lot here. Not all ideas like these are going to see the light of day. But the potential is very real; Indochina-Malaysia-Singapore represents huge opportunity for closer integration. A possible Korea-Japan-Australia Green Hydrogen triangle is another promising area.

However all or some of the very ambitious plans mentioned above might never materialize. Hence let’s focus on the already connected countries in ASEAN. Existing grid networks already connect Malaysia, Thailand, Laos and further grid lines between Cambodia and Vietnam are already in planning stage or construction phase. As part of the ASEAN Economic Community 2025 agenda, the current ASEAN Plan of Action for Energy Cooperation 2016-2025 gives priority to the expansion of multilateral power trade in the existing and future interconnected grid network.

What can we learn from the rest of the world?

In discussion with my BayWa r.e. colleagues, it’s easy to see areas where we can follow other regions’ examples. It’s also worth looking at past mistakes to avoid, the fizzling out of Desertec’s Africa-Europe solar pipeline is one example. Developers in APAC now know to do more for local stakeholders.

For the most part, however, it’s positive lessons we’re taking from regions like the EU. Spain’s status as a natural solar exporter was recognized and built into its energy relations with the rest of the bloc. 

The potential and the opportunity are both there. Measures like the CBAM, and probably America’s Green New Deal too, will speed up the rate we realize that potential. The rewards will be lasting prosperity for some of the world’s most ambitious markets. We can’t afford to let those people down.

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