- The Energy Transition Challenge in Southeast Asia
Southeast Asia stands at the crossroads of climate urgency and energy dependence. While governments across the region understand the need to pivot toward clean energy, the pathway remains complicated by politics, financial constraints, and structural challenges.
The Global Climate Risk Index 2025 ranks Myanmar, the Philippines, and Cambodia among the world’s 20 most climate-vulnerable nations from 1993 to 2022. Frequent typhoons, rising sea levels, droughts, and extreme heatwaves have turned climate adaptation from a long-term concern into an immediate survival issue for millions.
Yet, despite the alarm bells, Southeast Asia’s energy system remains heavily fossil-fuel dependent. In 2023, more than half of Asia’s energy consumption came from fossil fuels. Coal still dominates in Indonesia and Vietnam, making up 42.7% and 47.5% of their respective energy mixes. Meanwhile, oil is central to Malaysia and Thailand’s energy landscape, each sourcing over a third of their energy from petroleum.
Subsidies complicate the story. In 2023, Indonesia spent nearly US$29 billion on petroleum subsidies, while Malaysia followed with US$6 billion. These subsidies are politically sensitive, providing short-term economic relief but long-term environmental costs. Removing them risks public backlash and higher living costs.
Southeast Asia’s clean energy ambitions are largely backed by climate finance from developed economies, especially the United States and the European Union. One flagship initiative is the Just Energy Transition Partnership (JETP), under which Indonesia and Vietnam secured US$20 billion and US$15.5 billion respectively from the International Partners Group (IPG).
But cracks are appearing. Indonesian officials, including Energy and Mineral Resources Minister Bahlil Lahadalia, have openly questioned the JETP’s credibility, citing sluggish fund disbursement. Many in Jakarta feel that while Western donors are quick to announce big numbers, actual financing is tied up in red tape, conditions, and slow-moving bureaucracies.
And there’s a bigger political risk on the horizon — the potential return of Donald Trump to the US presidency. Trump, who has called climate change a “hoax,” has already signalled in early 2025 a rollback of US climate commitments. If the US pulls back from its share of JETP funding (which constitutes 17.9% of Indonesia’s package), it could set off a chain reaction of delays and distrust across the region.
The European Union, for its part, is committed to pushing the global energy transition. But its policies may have unintended consequences for developing economies.
One such policy is the EU’s Carbon Border Adjustment Mechanism (CBAM), set to take effect in 2026. It will force exporters of carbon-intensive goods — including steel, cement, and fertilizers — to pay for their emissions through certificates. While this is intended to prevent “carbon leakage” (companies relocating to countries with weaker climate laws), it could hurt ASEAN economies that rely heavily on exports of such goods.
For Southeast Asia, this presents a dilemma: decarbonise quickly or lose market access to one of their most important trading partners. But rapid decarbonisation requires huge upfront investment — money that many ASEAN countries simply don’t have.
Enter Australia: From Climate Laggard to Regional Partner
Australia is often criticised for its own climate record — after all, it still accounts for 33.6% of global coal exports and remains the second-largest coal supplier to Southeast Asia. But change is underway.
Under the Albanese government, Australia is repositioning itself as a renewable energy superpower. Two key policy frameworks are driving this shift: the Future Made in Australia policy and the Southeast Asia Economic Strategy 2040. Together, these strategies are designed to rewire Australia’s economy away from fossil fuels and deepen its engagement with Asia’s green future.
The strategic logic is clear. Australia has abundant renewable resources — vast solar and wind capacity, critical minerals essential for batteries, and a deep capital market with the technical expertise to develop green industries.
Moreover, Australia already has strong institutional ties with Southeast Asia, forged over decades through platforms like APEC (Asia-Pacific Economic Cooperation), the East Asia Summit, and the ASEAN-Australia-New Zealand Free Trade Agreement.
Between 2020 and 2024, Australia signed several Memoranda of Understanding (MoUs) with Indonesia on critical minerals, clean energy development, and renewable infrastructure. In November 2024, Canberra went further, announcing a US$126.5 million (AU$200 million) capacity-building fund aimed at supporting Southeast Asia’s energy transition.
This isn’t just charity — it’s strategy. Southeast Asia sits on vast reserves of critical minerals like nickel, copper, and rare earths — all vital for electric vehicles (EVs) and battery storage. Indonesia, in particular, has become a global hub for nickel, drawing interest from Australia as it seeks secure and sustainable supply chains.
In parallel, Australia is using trade mechanisms like the Regional Comprehensive Economic Partnership (RCEP) to strengthen its economic footprint in Southeast Asia. Simplifying rules of origin within RCEP could help build integrated supply chains for EVs, solar technology, and batteries across the region.
But challenges remain. Despite all these efforts, Australia still isn’t a top foreign investor in most ASEAN countries, except for Singapore and Malaysia. To truly shift its weight in the region, Canberra will need to move from policy statements to delivering real infrastructure, capital, and technical expertise on the ground.
Southeast Asia’s energy transition is a shared challenge that also offers mutual opportunity.
For ASEAN nations, Australia provides not only financing but also knowledge transfer in grid management, hydrogen technology, carbon capture, and clean energy regulation — areas where Southeast Asia faces capability gaps.
For Australia, partnering with Southeast Asia is about future-proofing its own economy. As global demand for coal declines, Australia needs new export industries. Green hydrogen, renewable electricity exports, and critical minerals are part of this new strategy.
More importantly, Australia’s geographical proximity gives it an advantage over Western donors located oceans away. Unlike Europe or the US, Australia has a direct stake in the stability and prosperity of its Asian neighbours.
But goodwill and shared interests are not enough. For this partnership to thrive, both Australia and Southeast Asia must overcome several hurdles:
Financing the Gap: Despite the growing climate finance market, Southeast Asia still needs an estimated twelvefold increase in climate resilience investment to meet its goals. Australia’s current contributions are meaningful but small compared to the scale of the challenge.
Building Trust: Delays and conditions in international funding (like the JETP) have created scepticism in Southeast Asia. Australia must ensure its financing mechanisms are flexible, responsive, and aligned with local needs.
Balancing Green Ambition with Reality: ASEAN nations cannot afford to copy-paste EU or US climate policies. Australia can play a role in developing transition models suited to emerging economies — gradual, inclusive, and economically viable.
Implementation over Rhetoric: The next frontier is operational — building renewable plants, modernising grids, training workers, and transferring technology. Southeast Asia needs partners willing to roll up their sleeves and deliver.
As the world confronts escalating climate risks, Southeast Asia’s energy transition is not a peripheral issue — it is central to the global fight against climate change. With its economic weight, strategic location, and resource wealth, the region’s energy choices will shape climate outcomes for decades.
Australia has a unique chance to position itself not just as a mineral supplier or donor, but as a trusted partner in a just, inclusive, and sustainable energy transition.
This moment demands urgency, creativity, and partnership rooted in respect and shared destiny.
The time for Australia and Southeast Asia to move from climate talk to climate action is now.
