Energy Opportunities under the Free and Open Indo-Pacific Vision

Energy has emerged as a key element in the economic agenda under the Trump administration’s Free and Open Indo-Pacific strategy, which essentially seeks to marshal a counteroffensive to China-led multi-billion-dollar energy and energy infrastructure outreach in the region. In July 2018, the U.S. administration announced several economic initiatives to “support foundational areas of the future: digital economy, energy, and infrastructure.” In particular, Asia EDGE (Enhancing Development and Growth through Energy) is an initiative that aims to strengthen energy security and promote energy access across the Indo-Pacific by growing regional markets and boosting U.S. energy exports, such as natural gas that is a lower carbon alternative to coal, whose demand is on rise in the region.

What’s more, the economic agenda has gained indispensable tailwind in the form of the BUILD Act (Better Utilization of Investments Leading to Development Act), whose passage enjoyed bipartisan support. Signed into law in October, the act modernizes the U.S. government’s development finance capabilities and sharpens the strategic value of U.S. foreign assistance. For example, the newly created International Development Finance Corporation (IDFC)—scheduled to become operationalized by October 2019—would be able to make limited equity investments, provide technical assistance, and see the total investment ceiling double to $60 billion (from $29 billion under the U.S. Overseas Private Investment Corporation, or OPIC).

The focus on regional energy security and access is timely. The Indo-Pacific has become a center of global energy demand growth, driven by continued economic and population growth. In addition to China, whose energy demand is forecast to continue accounting for one-quarter of the global total until 2040, Southeast Asia and South Asia are raising their profiles in the global energy system. For example, Southeast Asia’s energy demand is forecast to grow by almost two-thirds by 2040, as the regional economy triples in size. This demand growth, in turn, will make the region more dependent on energy imports, raising its annual net import expenditure to over $300 billion in 2040. Moreover, energy access remains to be a challenge for some time despite ongoing improvements. For example, about one-tenth of Southeast Asia’s 640 million people are estimated to remain without electricity. Also, India, whose energy market is expected to overtake that of China by 2030, continues to struggle with delivering universal access to electricity, with an estimated 300 million of its population without access today.

The Indo-Pacific’s energy sector presents a significant opportuni­ty for foreign investment, as a recent CSIS report illustrated. For example, Southeast Asia alone requires an estimated $2.1 trillion to meet its energy investment needs by 2040. This figure includes nearly $425 billion for natural gas supply infrastructure, as well as $1.2 trillion for the power sector, including $300 billion for renewables-based power generation, according to the IEA. This has not gone unnoticed. In fact, since 2003, China has poured roughly half of its $138 billion global investment in power generation into Southeast Asia, according to Bloomberg New Energy Finance.

Recognizing the nearly insurmountable challenge of going head-to-head with China’s state capitalist approach to financing energy and energy infrastructure outreach in the Indo-Pacific, the U.S. administration is increasingly trying to align its agenda with those of like-minded governments and leverage limited resources. The United States has struck partnerships with several countries, including Australia and Japan, that also recognize how improving energy security and access in the Indo-Pacific can advance their own geostrategic and commercial objectives. For example, aligning its energy economic agenda with Japan’s $10 billion investment pledge (announced in July 2017) for developing LNG projects in Asia, the U.S. administration seeks to leverage the initial funding of $113.5 million for its economic initiatives including Asia EDGE. Also, while visiting Singapore last month, Vice President Pence emphasized these partnerships, including a trilateral agreement among the public financial institutions from the United States, Australia, and Japan to cooperate in mobilizing private investment in the Indo-Pacific. Partnerships are increasingly indispensable even for the “America First” administration.

As the U.S. government refines its Indo-Pacific energy strategy and seeks to identify deliverables, engagement in non-fossil as well as fossil energy work would enhance Asia EDGE’s reach in the region, whose energy consumption growth is anticipated to propel a significant rise in greenhouse gas (GHG) emissions—a worrying trend with global implications. The projected increase in GHG emissions is stoking fear among the regional leaders of potentially significant economic damages from climate change induced natural disasters. While the regional governments strive to increase the share of renewables in the regional energy mix, however, political and socio-economic factors persist to inhibit the competitiveness of renewable energy in the regional energy markets.

The United States has a wealth of experiences and capacity in facilitating functioning markets, competitive procurement, and transparent price formation—key elements in a competitive market. Capacity building in the clean energy sector thus merits greater recognition as an area for the U.S. Indo-Pacific energy strategy as its major differentiator from what the state capitalist outreach offers. Full-fledged support to a clean energy transition is what could accord the administration’s energy strategy an enduring effect on the regional energy system and help transform the Free and Open Indo-Pacific economic vision into a new and prevailing geo-economic architecture in the region.

Jane Nakano is a senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Jane Nakano
Senior Fellow, Energy Security and Climate Change Program