Recalibrating Southeast Asia’s Climate and Energy Strategies Amid US Policy Shifts

INTRODUCTION

In the months since Trump’s inauguration, what began as a sharp departure from prior norms has settled into a broader realignment of US engagement with the world, and with Southeast Asia in particular. From the dismantling of USAID to the imposition of sweeping tariffs across the region, recent actions reflect a diminished US commitment to climate and clean energy cooperation, as well as to broader frameworks of international support. For countries in Southeast Asia, this moment calls for recalibration. While the long-term geopolitical consequences remain uncertain, one thing is increasingly clear: the United States can no longer be relied upon as a stable or sustained partner in advancing regional climate and clean energy goals.

At one point, prior to the 2024 US presidential election, there was cautious optimism that Southeast Asian clean energy and technology firms could serve as strategic partners in helping the United States meet its decarbonisation goals under its bipartisan Inflation Reduction Act and infrastructure legislation. Southeast Asian firms were seen as potential middle-ground suppliers of clean technologies—positioned to profit from US consumer demand while supporting American decarbonisation targets under the IRA and infrastructure legislation. This prospect now looks increasingly tenuous, as the Trump administration has moved aggressively to dismantle federal climate initiatives, including clean energy tax credits for wind, solar, battery storage and EVs. The ripple effects are already being felt: Vietnamese automaker VinFast, once poised to capitalise on these policies and the implicit growth in US consumer demand for cheaper EVs, has postponed its North Carolina factory until 2028, citing uncertain demand among broader questions about the impacts of proposed tariffs on production costs.

These dynamics underscore a broader shift already underway: Southeast Asia is being forced to reconsider the reliability and strategic value of its external partners in the clean energy transition. As the US swings back towards expansion of fossil fuel infrastructure and trade hostility, what is becoming clear is that the demand for foreign-produced clean energy technologies will inevitably shrink. Unfortunately, Southeast Asia’s clean energy firms are caught in this crossfire. Proposed US tariffs, for example those targeting solar equipment and photovoltaics manufactured in Cambodia, Thailand, Malaysia and Vietnam, were proposed to be as high as 3,521% in some cases, based on allegations of Chinese firms circumventing trade restrictions by routing manufacturing through Southeast Asia. The US-Vietnam trade deal signed in early July, however, signals a willingness amongst some Southeast Asian countries to negotiate with the US to ease the burden of these high tariffs. The upshot, even with a 20% tariff for Vietnam exports to the US, could mean that Vietnam remains a cheaper import source for US clean energy technology needs, leaving the door open for future collaboration.

Beyond the immediate loss of economic opportunity, another consequence of Trump’s abrupt policy shifts is the loss of US foreign aid, which had served, albeit modestly, as a counterweight to China’s growing influence in Southeast Asia. The region must now reassess its broader architecture of climate finance and international cooperation, particularly considering that nearly all have declared a net-zero climate pledge that will require the massive adoption of clean energy technologies and fossil-free power infrastructure. The Asian Development Bank estimates US$210 billion is needed annually through 2030 in climate investment and will require a mix of financing to meet, due to the insufficiency of government funding in the region. In this article, we examine how the landscape of climate investment in Southeast Asia is shifting, beginning with a comparison of US and Chinese financing flows. While the US national government may be retreating from international cooperation at the federal level, opportunities may exist for the private sector and subnational governments to potentially fill the void left by the US federal government. We examine these prospects and potential challenges for these collaborations as well.

US VS. CHINA CLIMATE INVESTMENTS IN SOUTHEAST ASIA

What kind of climate partnership have China and the United States actually offered Southeast Asia? A closer look at the patterns of climate-related financing reveals stark differences in both scale and focus. China has provided the lion’s share of climate finance in the region, far surpassing US contributions. According to the Lowy Institute’s Southeast Asia Aid Map, China spent approximately US$11.62 billion in climate-related financing between 2008 and 2025 (Figure 1). Although this represents less than 20% of China’s total investment in the region, 97% of those climate-related funds were directed toward large-scale infrastructure projects, primarily hydropower and energy transmission. In contrast, US climate-related financing has been far smaller in volume (Figure 2) and has largely prioritised soft infrastructure: supporting governance reforms, institutional capacity, environmental safeguards, and civil society engagement.

Yet while China’s investments increasingly dominate the region’s hard infrastructure landscape, the US has historically played a critical, if less tangible role in supporting Southeast Asia’s institutional foundations for climate action. US climate financing spent between 2008-2025 has totalled less than US$1 billion (current USD), with spending on human development (19%) and infrastructure (25%). The remaining 60% of climate-related spending primarily went to support general environmental protection and government and civil society support. This focus on “soft infrastructure” aligns with broader US commitments to capacity building and governance support –  areas where the US had pledged or spent US$7.24 billion. Considering foreign assistance cuts alone, we identified a total of 2,121 ongoing 2025 fiscal year climate-related awards for ASEAN countries that have already been eliminated or may be at risk, totalling more than US$124 million (Table 1). There are additional grants beyond fiscal year 2025, as well as areas of cooperation not covered here, that may also be at risk of cancellation. This could include multi-year initiatives such as the US–ASEAN Smart Cities Partnership (USASCP), launched in 2018, among others.

Table 1. US foreign assistance of climate-related funding at risk of elimination

Country	Contract amount (USD)
Indonesia	10,612,486.48
Cambodia	2,924,192.82
Malaysia	–
Philippines	29,350,772.47
Singapore	53,242.85
Thailand	18,283,012.00
Vietnam	62,863,740.03
TOTAL	124,087,446.65

The current US administration’s proposed FY2026 budget, which eliminates climate funding, would not only halt bilateral climate finance but also slash US contributions to multilateral development banks (MDBs) and mechanisms like the Green Climate Fund and the coal-to-clean-energy Just Energy Transition Partnership that included Indonesia and Vietnam (Table 2). These US funding withdrawals would immediately shrink the pool of grants, concessional loans, and risk-sharing tools, such as ADB’s Innovative Finance Facility for Climate (IF-CAP) mechanism, that ASEAN countries rely on to fund clean energy and infrastructure projects. It would also impact US influence within institutions like the World Bank, IMF, IFC, and ADB, where voting power is tied to financial contributions. As of December 2023, the US and Japan were the largest ADB shareholders. With the US pulling back, there is a growing risk that MDB priorities could shift toward less climate-aligned agendas, compounding financing challenges for Southeast Asia’s energy transition.

Table 2. Multilateral finance channels at risk under the new Trump administration

Program	FY-26 request	Comments
World Bank – International Development Agency (IDA) -21	US$3.2 bn over three years (~20% below President Biden’s US$4 bn pledge)	For countries borrowing under IDA terms, this 20 percent cut can reduce their annual IDA allocation by 20 percent.
Global Environment Facility (GEF)	US$150 m eliminated	Under GEF rules, any donor exceeding the 5% threshold can force a pro-rata deferral, meaning other donors can delay commitments proportionate to the short-fall. For GEF-8 (2022–26), the US pledged US$600.8 million —about 11.3% of the US$5.33 billion total. Because this exceeds 5%, any US default or late payment automatically activates the pro-rata option, allowing delays from other donors’ disbursements until the gap is closed.
Clean Technology Fund (CTF)	US$125 m eliminated.	As of 31 December 2023, the US has contributed roughly US$1.49 billion in grants to the Clean Technology Fund. By the same date, MDBs had returned US$50.5 million to the Trust Fund as revenue, with the ADB’s share totalling US$2.83 million.
ADB IF-CAP sovereign guarantee	US$1 bn guarantee signed 2024; at risk of rescission	IF-CAP turns each US$1 of guarantees into US$4.50 of climate finance; a US$2.28 billion pledge shrinks to US$1.28 billion if the US cuts US$1 billion (a 44% drop), reducing lending capacity from US$11 billion to around US$6 billion and delaying loans, including for ASEAN countries.

Figure 1. China vs. US’s finance spent from 2008 to 2025

Figure 2. Map of energy and environment-related financing spent by the US and China in Southeast Asia from 2008-2025

CAN CHINA FILL THE DEVELOPMENT FINANCING GAP WITHOUT UNDERMINING REGIONAL AUTONOMY?

With the scaling back of US financing, China is rapidly positioning itself to fill the gap. China has steadily expanded its presence in Southeast Asia, not only through infrastructure investment but also through humanitarian aid and political signalling. President Xi Jinping’s April 2025 Southeast Asia tour was accompanied by new agreements covering trade, infrastructure, digital economy and green development, among other largely symbolic areas of cooperation with Vietnam, Malaysia, and Cambodia. Even before these new agreements, the Lowy Institute showed that China was already surpassing the United States as the world’s largest bilateral development financier by commitment volume. The number of countries where China’s Official Development Finance (ODF) exceeds that of the US has nearly doubled, from 44 to 84, while America’s lead has shrunk from 98 to just 52 countries.

China has provided the lion’s share of climate finance in the region, far surpassing US contributions.

In this context, Southeast Asian governments are increasingly confronting what a long-term shift in aid and growing ties with China, given US withdrawal, might mean. As others have argued, the loss of US aid is not necessarily insurmountable, but it raises critical questions about rising dependency on China. With the US no longer acting as a consistent or reliable partner, opinion has wavered between China and the US as the prevailing partner of choice. Of particular salience is what a growing interdependence with China to meet climate and decarbonisation goals might mean, given that China committed approximately US$3 billion for renewable energy projects between 2019 and 2030, with much of the funding directed toward hydropower initiatives along the Mekong River in Laos and Vietnam, alongside significant investments in EV battery production in Indonesia, the Philippines, and Thailand.

While China could fill the gap in some of the green capacity-building aspects left by the US, providing Southeast Asia with much needed expertise for building out renewable energy power systems, grid infrastructure, and public-private partnerships to grow financing for climate-related projects, this deepening reliance also carries strategic risks. Chief among them is the concern that Chinese dominance in clean tech sectors might crowd out the ability of Southeast Asian firms to build their own capacity and for governments to shape and implement their own green industrial strategies. This dynamic is already present in the EV sector, where Chinese firms like BYD have rapidly secured a strong foothold in Thailand and is expanding in Vietnam, raising concerns about the long-term viability of decarbonisation strategies focused on domestic green industrial policies throughout Southeast Asia. This complexity and potential dependency is one reason—in addition to the fact that US foreign direct investment into ASEAN represented a sizeable percentage at 32.4% of the region’s total FDI flows in 2023—why Southeast Asian countries have not yet closed the door to the US and are still seeking ways to continue to partner.

OPENING THE DOOR TO OTHER PARTNERSHIPS

Given the strategic risks of deepening dependence on China with respect to climate and clean energy cooperation, where else could Southeast Asian countries explore alternative avenues for financing and collaboration? Certainly, America’s retreat has created an opportunity for the region to diversify its alliances, with the European Union (EU) emerging as a promising partner. Negotiations for bilateral free trade agreements between the EU and Southeast Asian countries, including Malaysia, the Philippines, and Indonesia, which had stalled for nearly a decade, signal a renewed interest in strengthening economic ties. For the EU, the US’s retreat creates an opportunity to position itself as a more attractive partner for Southeast Asia. Malaysia has gained momentum as a regional leader in green hydrogen projects, while Indonesia’s abundant reserves of nickel and other rare earth elements are essential for green technologies, including solar panels and electric vehicle batteries. Since Indonesia banned nickel exports in 2020, any near-term EU “secure access” will likely depend on Chinese-built or partnered facilities, as Chinese firms currently control about 75% of Indonesia’s refining capacity. In the longer term, however, the EU–Indonesia Comprehensive Economic Partnership Agreement (CEPA)—if implemented as announced—could strengthen critical-minerals supply chains based on “responsible supply” and “local value creation.” Early corporate initiatives, such as the INA/Danantara–Eramet memorandum of understanding to develop upstream-to-downstream projects with financing and technical expertise, signal intent to support Indonesia’s downstream ambitions. These opportunities give Indonesia leverage to negotiate a trade deal that enhances its domestic refining capacity.

As the US swings back towards expansion of fossil fuel infrastructure and trade hostility, what is becoming clear is that the demand for foreign-produced clean energy technologies will inevitably shrink. Unfortunately, Southeast Asia’s clean energy firms are caught in this crossfire.

Another promising avenue for cooperation lies at the subnational level. The UN Climate Secretariat has recorded more than 40,000 companies, private investors, and subnational governments pursuing their own climate efforts. These actors and networks create subnational linkages that could birth new opportunities for collaboration, knowledge-sharing, and partnerships with Southeast Asian subnational counterparts. This decentralised approach offers a pathway for advancing clean energy and climate collaboration without the need to navigate challenging, broader geopolitics. The US’s experience with innovative financing models, such as municipal green bonds and state-level green banks, provides valuable frameworks that Southeast Asian cities could adapt to accelerate their own climate action. For instance, Connecticut’s pioneering green bank model demonstrates how public-private financing mechanisms can be localised to mobilise investment in clean energy and climate resilience across the region, particularly for small businesses. In Southeast Asia, US subnational counterparts have much to learn, from Singapore’s urban heat management strategies to region-wide nature-based climate solutions like mangrove restoration, and ASEAN’s efforts to enhance renewable energy adoption through grid interconnectivity.

But what is the appetite among US subnational actors to collaborate with Southeast Asian counterparts? The US-ASEAN Smart Cities Partnership offers a promising example. In October 2024, the initiative launched the Smart Cities Business Innovation Fund 2.0, which is aimed at supporting net-zero urban innovation projects and low-carbon solutions for SMEs across ASEAN countries. As of February 2025, the fund, totalling US$3 million, was still actively seeking proposals, signalling ongoing interest and potential for subnational engagement beyond federal-level diplomacy. Subnational governments in both the US and ASEAN face similar climate-related challenges, from urban heat to natural hazard risks to the need to identify nature-based solutions. With US subnational governments impacted by federal budget cuts, particularly through proposed cuts to the IRA, cities are searching far and wide for innovative and creative ways to advance and implement climate actions while juggling budget deficits and other competing priorities.

POTENTIAL EXPANDED ROLE FOR THE PRIVATE SECTOR?

Outside of subnational governments, the next few years could see growing influence of private US companies playing a role in Southeast Asia’s clean energy sector and decarbonisation efforts. Tech giants including Google, Microsoft, Meta and Amazon, are all looking to expand operations in Southeast Asia as demand for data centres and cloud computing services increases with the rapid development and expansion of AI technologies. Thailand has already approved three data centre projects totalling US$2.7 billion in cost. The surging energy demand to power these data centres is also driving new investments in clean power. From rooftop solar PPAs in Singapore to a 210 MW solar deal in Indonesia, these firms are seeking to offset the growth in electricity demand through investments in renewables. However, with ASEAN’s data centre capacity expected to nearly triple by 2030, current corporate clean energy deals only cover about 15% of the  2.9 GW projected demand. This gap highlights that, while there is certainly scope for private companies, particularly major technology firms, to play a new and growing role in Southeast Asia’s decarbonisation, significant expansion in clean energy procurement, grid modernisation, and enabling policy frameworks will be necessary to ensure that the region’s digital growth aligns with its climate goals.

MOVING FORWARD – IS THERE A SILVER LINING?

One silver lining of President Trump’s second term so far is the clarity it provides for Southeast Asia’s path forward: the once-competitive landscape now lacks half of the equation. While this shift represents a significant loss for the United States and a broader setback for global climate progress, especially given its disproportionate share of greenhouse gas emissions, it also removes some of the geopolitical ambiguity that has long complicated regional decision-making. In many ways, this moment merely formalises a reality that has existed for years: the US has never been a dominant clean energy or climate actor in Southeast Asia. Its engagement has historically been limited, fragmented, and highly dependent on shifting administrations.

Yet this does not mean that US-Southeast Asia collaboration is without a future. In fact, stepping outside the bilateral clean energy frame may reveal new opportunities. Subnational partnerships, technology co-development, nature-based climate solutions, digital infrastructure, and academic and private-sector innovation are all domains where shared interests remain strong. Collaboration in mutually-defined priorities, of which there are many when it comes to climate change and clean energy, can endure despite shifting political headwinds. In particular, Southeast Asia’s rapid digital transformation and the rise of data centre–driven energy demand present a unique opening for US companies, institutions, and cities to partner on decarbonisation, climate resilience, and sustainable urban development. In this new chapter of US-Southeast Asia relations, redefining climate cooperation around these adjacent spaces, rather than competing head-to-head with China, may prove more pragmatic, and ultimately, more productive.

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This is an adapted version of ISEAS Perspective 2025/76 published on 9 October 2025. The paper and its references can be accessed at this link.