Asia’s pragmatic energy transition is unfolding against a backdrop of catastrophic insurance gaps, with the region leaving the vast majority of its natural disaster losses uncovered, according to Moody’s Ratings and independent research.
Rahul Ghosh, global head of sustainable finance and emerging markets at Moody’s Ratings, says Asia is pursuing what he calls a ‘pragmatic transition’ on energy, one that balances decarbonisation with energy security and economic affordability, frequently by keeping fossil fuels in the mix.
‘Ten years ago, the world was aligning around consistent climate policies, but now we’re starting to see a bit of divergence,’ Ghosh says.
Geopolitical shocks driving Asia’s pragmatic energy transition
Russia’s invasion of Ukraine in 2022 triggered a surge in fuel prices and an energy crisis across much of the developing world. February’s US strikes on Iran and the resulting closure of the Strait of Hormuz cut Asia’s oil and gas supplies, underlining the region’s dependence on a volatile Middle East.
Governments have responded by pursuing a range of alternatives: investing in renewable energy and nuclear power, sourcing oil and gas from new suppliers such as the US, and, in several cases, returning to coal.
On 25 August, Japan unveiled detailed plans to accelerate its green transformation, including building up to five nuclear reactors in the 2040s and 14 in the 2050s. Prime minister Sanae Takaichi said in April that fuel shortages and supply-chain disruptions ‘result in major negative societal and economic impacts for Japan’.
Singapore committed 800 million Singapore dollars ($631 million) to research on low-carbon energy and decarbonisation technologies, targeting national greenhouse gas emissions of between 45 million and 50 million tonnes of CO2 by 2035. ‘We are significantly increasing investments in promising solutions to reduce power sector and industry emissions,’ energy minister Tan See Leng said in a parliamentary session on 2 March.
Yet coal use is rising elsewhere. China, Japan, South Korea and Indonesia have all increased coal-fired capacity since 2020, according to the Institute for Energy Economics and Financial Analysis. In March, the Philippines declared a national energy crisis, with energy secretary Sharon Garin saying the country planned to boost output from coal-fired plants to contain energy costs.
Climate resilience gap compounds Asia’s transition challenge
Extreme weather is simultaneously pushing public and private investors towards climate adaptation, covering projects such as floodgates, early warning systems and drought-resistant crops. But the region’s ability to absorb losses when disasters strike remains dangerously thin.
Asia has the largest insurance protection gap of any region in the world, at 82.8%, meaning only 17.2% of total losses from natural disaster-related risks are covered by insurance contracts, according to Mapfre. In lower-income countries including Myanmar, Laos, Cambodia and the Philippines, Green Central Banking reports that coverage can fall below 5%.
‘Large swathes of Asia, including parts of India, China and Southeast Asia, are quite under-insured when it comes to natural disasters,’ Ghosh says. ‘That’s one of the reasons why there’s greater focus in this region on creating greater climate resiliency.’
The urgency is growing. The United Nations has said the world has failed to limit global warming to 1.5 degrees Celsius above pre-industrial levels, despite advances in wind and solar power since the Paris Agreement was ratified in 2016. Last year’s record monsoon season has added pressure on governments to act faster on adaptation.
Ghosh acknowledges the region’s path looks inconsistent from the outside. ‘Be it in Australia, Singapore or Hong Kong, we’ve seen more focus on safeguarding transition assets and activities than we’ve seen in Europe,’ he says, citing Asia’s strong income growth and the historically higher emissions that accompany it.
He remains broadly optimistic. ‘The process was always going to be non-linear,’ Ghosh says. ‘We are still moving from a higher-carbon to a lower-carbon economic system over time.’
Japan’s nuclear expansion plans are scheduled to come before regulators through the 2030s, providing the next concrete test of whether Asia’s transition commitments match its stated ambitions.
