Energy network transmission reform, price and subsidy reform, deeper cross-border market integration, accelerated technology innovation.
These four trends provide a roadmap both for solving climate change and raising economic growth. Nowhere is this better on display than in Asia.
In this article, we’ll describe Asian examples of each of these in descending order of importance.
Unquestionably, energy transmission tops the list.
Nowhere in Asia, possibly the world, is this occurring more aggressively than in Shenzen, China. Shenzen is the region surrounding Hong Kong.
There, reforms imposed by China’s National Development and Reform Commission (NDRC) now enable buyers and sellers to deal directly with each other and just pay transmission costs to China Southern Grid Corp.
Up to now, electricity and transmission have been bundled together by companies like China Southern and State Grid. Separating electricity and transmission into different transactions represents a huge reform.
It narrows the role of the transmission company to being just a carrier, and not a provider as well. This increases choice and competition for buyers.
The NDRC, to its credit, has taken on the difficult task of ‘unbundling’ these costs and forcing China Southern to offer them separately to customers.
Over the short-term, this means big corporate energy consumers in Shenzen can deal directly with big energy producers (like coal or gas plants) to buy their energy, instead of having China Southern as a required middleman. Under the reforms, China Southern must offer electricity carriage for these bilateral deals at rates fixed by the NDRC.
Reforms like this increase competition in the energy market. They lowering costs for consumers because they encourage new players to enter the market. These players will serve smaller and smaller customers, eventually benefiting everyone who buys electricity.
This will open the way for innovative new companies to become middlemen for buyers and sellers. Over time, this could create an ‘Alibaba’ of energy.
The reforms above make energy prices more visible, and more easy to for consumers to compare. This encourages experimentation and competition as energy suppliers face greater incentives to cut costs to consumers.
That, in turn, leads to the second big reform: pricing carbon and eliminating damaging energy subsidies. Both distort markets terribly. Both cost lots of money. Both make climate change worse.
As with unbundling transmission costs, China’s among the leaders in reforms here, too. China plans to start carbon trading in 2016. This puts a price on carbon, a key reform.
Indonesia, meanwhile, recently took the bold step of removing fossil fuel subsidies. This will enable Indonesia to spend previously wasted money on better things, like infrastructure and anti-poverty programs.
Unpriced carbon and energy subsidies make dirty energy artificially cheap. This is the opposite of what’s needed to fight climate change.
The International Energy Agency estimates China spends roughly US$30 billion a year on fossil subsidies. In 2011, China emitted roughly 8.7 billion tonnes of carbon from energy consumption, according to the US Energy Information Administration.
At $18 per tonne, that’s $156 billion. That’s more than three times the proposed initial capital of China’s new Asian Infrastructure Investment Bank (AIIB).
This leads to the third big trend: deeper cross-border energy market integration.
This is also already happening, with State Grid and China Southern Grid leading the way.
State Grid is several years into a 25-year contract to operate and upgrade the Philippine electricity grid.
State Grid also has bought a large minority stake South Australia’s electricity grid company, Electranet. State Grid also may soon invest in the neighboring Australian states of Victoria, New South Wales and Queensland.
China Southern Grid, for its part, trades power across its border with Vietnam. China Southern also recently laid a subsea power line to Hainan Island. All of these offer huge potential for the future.
For instance, offshore wind farms and ocean thermal energy plants are being considered for off Hainan Island. The Philippines, meanwhile, is considering linking its electricity grid to Malaysia and Indonesia and, possibly, Taiwan.
This can open the way for development of wave, tidal and offshore wind energy.
Further south in Asia, energy transmission experts have analyzed the potential for linking Australia and Indonesia’s electricity grids across the Timor Sea.
This will enable Australia to move away from its role as coal and gas producer and toward higher value — virtually limitless — clean energy exports such as wind and solar.
If that occurs, State Grid — which is already in Australia — would be ideally suited to provide the infrastructure.
Reforms in energy transmission, pricing, subsidies and infrastructure provision coupled with technological innovation and expanded cross-border energy trade can pay a host dividends to Asia.
These will come in the form of cleaner air, more rapid economic growth and rising national wealth. These are benefits everyone will share.
It’s a virtuous circle. China is now playing a world leading role in each of these big reforms.
Taken together, they provide a compelling template to present to the upcoming COP21 global meeting in Paris in December 2015 .
At that meeting, the world’s nations must commit to a binding international plan to solve the climate change problem once and for all.