Southeast Asia Caught Between a Commodity Crisis and a Climate Crunch

The Russia-Ukraine war’s repercussions, compounded by high inflationary pressures and the post-pandemic supply chain crunch, have added to the rupture of the global economy. This threatens existing global climate pledges. Balancing policy trade-offs between growth and sustainability will become increasingly complex for governments worldwide, as higher carbon emissions threaten both the environment and the economy. 

Some major economies have reactivated their exploitation of and reliance on fossil fuels to mitigate worsening energy shortages and fuel price hikes. The two Asian giants, China and India, have fallen back on coal, and oil, and gas exploration to mitigate electricity shortage, knowing fully that it could derail their net-zero pledges. Similar moves are taking place across Southeast Asia. Governments are taking short-term yet environmentally harmful measures to mitigate the current crisis, such as lifting environmental taxes and providing energy subsidies.

Indonesia’s recent move to temporarily ban palm oil exports is an example of protectionism which does little to benefit the climate or consumers. Despite raising people’s awareness about efficiently using palm oil for consumption, banning palm oil exports at most ensures domestic supply availability and affordability. Typically vocal environmental critics are silent in the larger conversation about whether it is worth it for Indonesians to bear the costs of palm oil scarcity while palm oil companies continue to exploit forests and generate carbon emissions. 

To complicate matters, Indonesian President Joko Widodo’s 2018 moratorium on new palm oil plantations, rolled out in an attempt to stop deforestation, ended in 2019 without any clarity on an extension. Instead, the Indonesian government chose to utilise existing laws to deal with the issuance of new plantation permits — an inferior approach compared to the previous moratorium. Meanwhile, Malaysia, the world’s second largest palm oil exporter, considered lifting its palm oil export tax to fill the gap caused by Indonesia’s brief ban. Both Malaysia and Indonesia have faced international criticism for their poor sustainability practices in palm oil production. They favour their own local sustainability certification standards over the more stringent Roundtable for Sustainable Palm Oil (RSPO) standards that cover labour, environment, and ethical aspects. Malaysia has been vocal in countering the anti-palm oil lobby, promoting its ‘Love MY Palm Oil‘ campaign to instil national appreciation for Malaysian palm oil. But, in the past years, Indonesia’s palm oil sustainability practices have improved; more than half of the total area covered by RSPO-certified oil palm plantations worldwide is located in Indonesia. Indonesia recorded a 12 per cent increase in its RSPO-certified areas from 2018 to 2019, while Malaysia only recorded a 6 per cent increase in the same period. Thus, even the brief ban of palm oil supplies from Indonesia would likely cause a slight global shortage of sustainable food products even if Malaysia were to step up its exports.

Regional governments should not miss the forest for the trees in their short-term quest for economic protection.

The energy commodity crisis has also eroded earlier climate commitments made by regional governments. Indonesia’s parliament recently approved the government’s request to increase energy subsidies almost three-fold this year to protect consumer purchasing power. Although these subsidies will not deplete Indonesia’s coffers because the country, a net energy exporter, has benefitted from the increased price of commodities in international markets, Jakarta must recall its past experience in reforming fossil fuel subsidies. Indonesia’s deep cuts of fossil fuel subsidies in 2015 enabled the country to spend on critical areas, namely infrastructure, education, and social programmes for poverty alleviation.  Separately, Malaysia is discussing a plan to provide a more targeted fossil fuel subsidy, especially for low-income groups. Vietnam is proposing cutting its environmental tax on fuel to bring prices under control. These moves could undermine some of the pledges that these counties made in their Nationally Determined Contributions (NDCs) at COP26 in 2021.

Despite Covid-19 and the Ukraine crisis, multilateral institutions elsewhere have maintained their commitments to accelerate renewable energy transformation in the long term. For instance, the EU recently announced the REPowerEU plan to decouple from Russian fossil fuels and to fast forward the regional bloc’s green transition. G7 nations have pledged to phase out coal power electricity grids by 2023. Under Indonesia’s presidency, the green energy transition has become one of the key policy areas for G20 meetings this year.

It would be unfortunate if the burgeoning crisis in commodity prices wrought by the Russian-Ukraine war deepens Southeast Asia’s dependence on fossil fuels and exacerbates unsustainable deforestation practices. Regional governments should not miss the forest for the trees in their short-term quest for economic protection. There are opportunities within the current crisis to enable longer-term transformation in Southeast Asia that will benefit the environment, if tough decisions are made to redouble rather than back down from climate pledges.

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