CEOInterviews.AICan Asia Ever Move Beyond Coal? | Ep264: Ravi Menon

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Ravi Menon0:00

I don't quite agree that all we need to do is to grow the green stuff and leave the rest behind. It doesn't work in Asia. It probably works in Europe or America, but it doesn't work in Asia. You take the coal fleet for instance. 60-70% of Asia's electricity comes from coal-fired power plants.

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Michael Liebreich0:20

Down to 50% in China.

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Ravi Menon0:22

Yes.

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Michael Liebreich0:22

From 80% when I started to do what I do.

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Ravi Menon0:25

But you've got to phase down or phase out the coal fleet. Then that's what China has been doing. It's not just about building the renewables. It is easy enough to build solar panels or wind farms. You can get the capital for that. But if you left the existing coal fleet in Asia as they are, and remember energy demand is growing and is expected to double by 2050 in Asia. So, if you leave that behind, that is going to eat up the bulk of your carbon budget remaining that's available to the world.

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Michael Liebreich1:01

So, let me challenge that. Hello. I'm Michael Liebreich, and this is Cleaning Up. And I'm in Singapore for Ecosperity Week. This episode is the first of a number that we're recording on Southeast Asia. My guest today is Singapore's Ambassador for Climate Action. He's also senior advisor to the Prime Minister's office on all things climate-related. For many years, he was a governor of Singapore's central bank and has also been the permanent secretary for trade. Please welcome Ambassador Ravi Menon to Cleaning Up. Ambassador Ravi, thank you so much for taking time out of a busy schedule during Ecosperity Week here in Singapore to talk to us.

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Ravi Menon1:58

Likewise, Michael. Thanks for taking the time. Happy to be here.

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Michael Liebreich2:01

Good. So, let's start where we always start with you explaining in your own words the short version of who you are and what you do.

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Ravi Menon2:11

So, shortly after I retired from the Monetary Authority of Singapore as a managing director, which is a central bank in Singapore, I was offered to take up a position of ambassador for climate action. It was a newly created role. So, I had the great pleasure of actually discussing with my government colleagues to write up the job description as to what I wanted to do. There is already an existing architecture. We have a chief climate negotiator as a career diplomat. And then of course, we have a ministerial track where the minister for sustainability leads our climate negotiations. So, we carved out a space where I thought where they thought I could be useful, which was to sit at the intersection of public and private partnerships to drive thematic climate priorities, quite apart from the negotiations. So, I have no part in the COP negotiations. There's a well-oiled machinery that's doing that. So, I do stuff like carbon markets, blended finance, discussions about grids, adaptation and resilience financing and programs. Anything that involves governments and private sector coming together to advance the climate agenda. Most of it is external facing, working with other countries and climate leaders in other countries. I also have a role domestically as senior advisor to the National Climate Change Secretariat, which sits under the Prime Minister's office and coordinates climate policies across government. So, I think it's a real blessing that we have such a thing like the National Climate Change Secretariat because in my conversations with people in other countries, one of the big problems is the coordination challenge. Because climate touches every facet of life, every government agency. And because we have this coordinating mechanism with a small but highly effective secretariat, which sits in the Prime Minister's office. That's been very useful. So, I was also appointed senior advisor to that secretariat to help some of the domestic transition work.

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Michael Liebreich4:27

So, I knew you were senior advisor to the PM's office, but it's to the climate piece.

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Ravi Menon4:32

Yes, it's the climate piece. I'm not the advisor to the Prime Minister.

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Michael Liebreich4:35

So, everything you do now has this climate lens on it. Is that right?

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Ravi Menon4:39

Government appointments.

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Michael Liebreich4:40

Yeah, government appointments.

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Ravi Menon4:41

And then I do some stuff on the private sector.

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Michael Liebreich4:44

Okay. So, there's a few fascinating touch points with previous guests. Rachel Kite, of course, who's the special envoy of the UK with a somewhat similar role. The institutional touchpoints are quite different because of the climate change committee, whereas we don't have that Prime Minister's office. But also central bankers. So, I think you are our fourth either current or former central banker. Illustrious colleagues, Mark Carney, Pierre Wunch. So, you're in good company. You said that you were at the monetary authority. You were the central banker. What were you doing before then? So, what is your background before then? Do you come out of is it kind of econometrics and finance or was there always some kind of an environmental or energy industry angle

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Ravi Menon5:41

Well, I started life in economics. So, I started life at the Monetary Authority of Singapore, fresh out of school as an economist doing economic research analysis. Yes, econometrics, forecasting, macro models, stuff like that, exchange rate policies. Did that for about 10 years. And then started to move around to other areas of central banking beyond monetary policy and economic analysis. And then I went over to the broader public service. Where I served in the Ministry of Finance as Deputy Secretary and there I did fiscal policy. It's still an extension of my economics finance background, but it gets into a lot more of the work of the ministries and then subsequently the Ministry of Trade and Industry where I did trade, industry, energy, R&D and that's when I started having touch points with energy policy and energy strategies. And that was also when we were getting Singapore was organizing itself on its climate action agenda. And so I started getting into that space. Then I came back to the Monetary Authority of Singapore as managing director.

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Michael Liebreich6:50

So, I remembered who the fourth central bank. It wasn't actually the central banker, but he was and that is Professor Ma Jun.

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Ravi Menon6:59

Ma Jun, yes.

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Michael Liebreich7:00

The sort of in some ways the father of the originator of a lot of China's climate finance.

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Ravi Menon7:06

Yes.

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Michael Liebreich7:06

Wonderful chap. I just saw him this morning.

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Ravi Menon7:08

Oh, he's in Singapore?

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Michael Liebreich7:10

He's in Singapore. Oh gosh. Now, I've missed him on this trip, I think. Singapore is just a really interesting case study because you know very committed to climate action, I think it's fair to say, but with a very specific, let's call it geography and economy. Being physically very small, very dependent for energy on imports. So, it's quite constrained in what Singapore can do itself on climate action, but with enormous ambitions and enormous influence regionally, which is why I'm here for instance.

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Ravi Menon7:47

Yes, Singapore is a city-state, about the size of, smaller than greater London. And we account for 0.1% of global emissions, so we're not going to make the difference. But we have always been very committed to the multilateral global order. Not sure if it exists anymore, but to the extent it did and we benefited tremendously from that, whether it's trade, finance, or other areas. And so as part of, we're an active participant in COP and the Paris Agreement. And so we take those commitments seriously. And it's not a matter of how small you are or how big you are, every one of us has to do his part. And so I think that's the basis for our ambition on climate, net zero by 2050, just like the rest. We also know that it's not enough that we decarbonize, we got to help the world decarbonize, or at least Asia decarbonize. And we have some unique strengths as a business, logistics, financial, and technological hub that and because we're so connected that we can play a role in facilitating Asia's own transition towards lower carbon future. So those are the prongs of our approach to climate. First, decarbonize ourselves and then help the region, at least, to decarbonize. We have no doubt quite formidable challenges, because imagine a city trying to be net zero. Countries can because they have space to do stuff we don't have. So we call ourselves alternate energy disadvantaged. Yes, the sun shines here, we're in the tropics, but even if you blanketed all the rooftops with solar panels, we're not going to, you know, that's not going to account for the bulk of our solar for our electricity needs.

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Michael Liebreich9:34

And we're recording this on a day when

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Ravi Menon9:38

When it's gloomy, yeah. It's raining.

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Michael Liebreich9:40

On the film, they will see that it is raining. So, that's the Marina Sands, very iconic view, which you can barely see, because it's been raining pretty hard at the moment. You can see it.

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Ravi Menon9:50

But that illustrates one point though. The sun is one thing, cloud cover is another. The solar insolation into Singapore is actually weaker than say in countries like India or Australia, where you look up, it's blue skies. Here, cloud cover is quite dense. And I think you'll see this as a feature in many tropical countries. So, because of the density of the clouds, actually the effective solar power that you get is lower.

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Michael Liebreich10:14

If we just take a quick overview of the challenge domestically, we'll talk about the international influence and so on in a second, but you've got all the usual things of buildings with air conditioning. You've got some small, mid-size manufacturing. I've actually just been out today to visit a noodle factory, so I know you've got some of that, sort of SME manufacturing.

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Ravi Menon10:39

Yeah.

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Michael Liebreich10:40

You've got a lot of transport, airport, so aviation fuel. You've also got a big refinery sector.

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Ravi Menon10:47

Yeah.

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Michael Liebreich10:48

How will you get to net zero 2050 with that lot? Because as you say, it's not like you're going to have wind turbines. There's a conversation about nuclear, but I don't know how keen people are given the small land area on nuclear, and the solar is limited. So, what are you going to do?

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Ravi Menon11:10

Yeah, good question. And we have the disadvantages of small size that the city has. And also the disadvantages of a country with a large manufacturing base. So, it's not often that you have a city-state with a large manufacturing base. Manufacturing is about 20% of GDP. And we have a sizable oil refining and petrochemical industry within that manufacturing which is highly carbon intensive.

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Michael Liebreich12:13

Right. So, what is the plan?

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Ravi Menon12:14

[laughter]

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Michael Liebreich12:15

Okay, so that's the problem. What's the solution or what's the proposed approach?

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Ravi Menon12:19

We have defined our approach as comprising three transitions that we need to make as a country by 2050. We call it first the energy transition, second the carbon transition, third the economic transition. So, the energy transition is about greening the grid. So, this is about electricity usage, mostly in industry, fair amount in buildings and residential houses, commercial space. So, greening the grid is one priority. Then there's the carbon transition which is the non-electricity related emissions, mostly in industry, heating, cooling, all manner of industrial chemical processes which give rise to emissions. And that is quite separate from greening the grid. And then third is the economic transition which is we envisage that the economy has to fundamentally restructure. In fact, the global economy has to fundamentally restructure. And some have called it potentially as big as the industrial revolution of 200 years ago. The scale and scope that's required and so we are looking to an economic transition of restructuring which is two-pronged. One is to grow the green sectors of the economy which are currently small and then to green what is brown which are never going to become green but 80% of global GDP is brown. And so progressively greening it that's the process and then to build up the skill sets so that people can move into new jobs. So it's an approach that touches on all three. Now the most difficult is the energy transition. Because as you say with limited capacity for solar where are we going to green it from? I think there are a few options. One is to maximize solar. We've just raised our solar targets and there is active debate going on as to whether we can keep pushing that. I hope with improved technologies that we can do that.

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Michael Liebreich14:28

So solar at the moment is what a couple of percent?

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Ravi Menon14:30

Solar is just 2% I think we're looking at going up to 6 to 8%. Some of us believe it could be in the mid-teens if you really push the frontiers of technology and there are interesting developments taking place in terms of materials, efficiency improvements but there is a physical limit to efficiency in solar panels. So I think if you can get close to those efficiency boundaries we could get quite a bit more.

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Michael Liebreich14:58

On that I actually I suspect you can get further not because solar output can become larger. By the way you know we're sitting here with a view over at least a part of Singapore. I can't see a single solar panel. So there's definitely more that can be done but also you used a number which I'm going to if I can if I may respectfully challenge which is you know you said 80% of the global economy is fossil-based. It's actually 80% of the supply of energy is fossil-based. If you actually look at the economy, the global economy, all the things we do, heating, lighting, mobility, aviation, everything. If you look at it from what the economy delivers, it's actually 70%. And the reason is differential in efficiencies. For instance, if you electrify all your transport, then your primary energy goes down and therefore your solar percentage in a sense just goes up automatically. So, you may get to a higher percentage, but I mean 15 or 20% would be some kind of limit, I suspect, there. Just in terms of land area.

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Ravi Menon16:04

I don't know enough to say whether we can go beyond 15 or towards 20. But that's the kind of challenge we need to post ourselves.

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Michael Liebreich16:12

Okay. But that's a no regrets approach, right? Because we've got some area and you're not using it yet, as we say. Okay.

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Ravi Menon16:21

Yeah. No, when you get to 8%, you should be seeing panels everywhere. Yeah, that's the maxed out and then we got to go beyond that. So, solar is one part of the equation. The other part of the equation is renewable energy imports. So, I do believe that the world needs to transit to a paradigm just as in an earlier era we traded goods and services for mutual prosperity and gain, we need to look at trading of green electrons. And this is already happening to some extent in Europe.

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Michael Liebreich16:52

The interconnections.

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Ravi Menon16:53

Interconnections across countries because you have deficit countries. In fact, it's not deficit countries, deficit regions and surplus regions for renewable energy. And if you can get them to trade and have unified grids, which is the ASEAN power grid project, but we can't wait till that's in place because that's going to take a couple of decades. And so, we have already been negotiating terms for importing electricity. And we've already started to import a small amount of electricity through the Laos-Cambodia line that goes through Malaysia to Singapore.

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Michael Liebreich17:26

Can I ask, what is the current status with Sun Cable? Because that was the one that kind of exploded on the scene. Everybody was very excited. Australia to Singapore, thousands of kilometers. Is that ever likely to happen?

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Ravi Menon17:38

So, that's still on the table. I think we've actually got some kind of implicit agreement with Australia. They are keen to sell it to us, but it is exorbitant to lay subsea cables all the way from Australia to Singapore. So, I think recently I was in India. Some of them were saying, 'Why don't we also lay a line from the east coast of India, which is producing renewable energy, across the Bay of Bengal?' Yes, there are all kinds of possibilities. But it's the analogy to what I said earlier on, the trading goods and services. You need to create a multilateral network, a framework, before this can happen.

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Michael Liebreich18:20

So, I agree. I was actually an investor in Xlinks, which is Morocco to the UK. So, I think we will do all of those long-distance HVDC subsea cables. Not all. There's one that's being proposed from the UK to the northeast of the US.

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Ravi Menon18:40

Really?

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Michael Liebreich18:40

4,000 km, 15% losses, an enormous advantage trading across time zones, which is very, very lucrative. If you could imagine

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Ravi Menon18:49

Interesting.

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Michael Liebreich18:50

But you need to do multiple. You can't have any one link providing too much. And when you say exorbitant, if you say exorbitant, I say oil price shock or gas price shock. So, what are you comparing to?

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Ravi Menon19:06

Yeah. Well, it really depends on the current crisis and how much that is going to shape our views of future fossil fuel prices, especially if you factor in resilience risks and so on.

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Michael Liebreich19:21

If they get priced in properly.

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Ravi Menon19:23

Priced in which is a question. Yeah.

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Michael Liebreich19:24

Yeah. And history shows that they get priced in for short periods of time, but after some passage of time people forget and they take the easy way out. I mean, we've seen this movie before. It's a bad movie. We saw it in 1973. We saw it in 1982. We saw it in 2022. And each time yes, there was some response. Some countries started doing the right things. 73 forced Japan to do some things. 2022 is forcing Europe to do some things. Let's see how this goes. That's a fascinating conversation about how much history says, how much memory there is in the system. Yes. Because each crisis there has been a memory, but it's only been in the last couple of crises, the Russian invasion of Ukraine and this one where there's been a large-scale alternative to oil and gas. Is this the first time we can really do something that's not exorbitant to use your word. But let's come back to you were talking about importing green electrons. What about importing green molecules? Is that also on the plan?

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Ravi Menon20:34

That is. There are pilots that we are using. Ammonia is one of the options that we are because ammonia carries hydrogen and it can also be combusted for fuel. So we have a pilot that does both for bunkering and for combustion. The trick with these pilots is that it demonstrates that it works, but once you start scaling it, does it still hold the economics? Does it hold?

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Michael Liebreich21:05

I lured you into talking about hydrogen. When we met outside, we agreed that we maybe should skirt around that subject because when you use the word exorbitant, when you're talking ammonia for power production at $400 per megawatt hour if you tried to generate from ammonia.

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Ravi Menon21:34

Ammonia.

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Michael Liebreich21:35

But there's other green molecules and I'm struck by the relationship between Singapore and Malaysia in particular. Malaysia could make a lot of green gas, of green natural gas, biogas. We have a figure in Europe, 45% of the gas that is used in Denmark is biogas from its agricultural sector because they've been incredibly consistent in investing and producing that gas. That has not yet happened here in Asia.

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Ravi Menon22:07

Yes, it is. So, that's the other area we are looking at closely beyond solar and electricity imports is biofuels. It's a whole family of fuels there. Biogas is one of them and the larger notion is the value of the bioeconomy as a whole. Because there'll be a whole range of activities around this and Asia, Southeast Asia has a lot of this. Agricultural waste and waste to energy projects are happening quite a bit. So, I think that's very much on the table. We've also got pilots in the biofuel space and cooperation agreements with other countries, but we need to be conscious of where the bio comes from. It's not a result of deforestation. It's not a result of wasteful agricultural practices. That is genuine waste.

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Michael Liebreich23:03

Wasteful or cutting down primary rainforest of course.

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Ravi Menon23:08

So, I think we have to be careful about where it comes from, but also we should be much more careful where it's going to because the biofuels I'm very aware of the economics of electric vehicles.

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Michael Liebreich23:19

Yes. It's one of my long-term special subjects and I actually so much so that I'm actually building a heavy goods vehicle charging business in Europe for Pragma Charge.

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Ravi Menon23:30

Okay.

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Michael Liebreich23:30

Because you can already beat the economics of diesel let alone biodiesel today with limited or no subsidies.

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Ravi Menon23:39

Using biofuel.

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Michael Liebreich23:40

No, using electric electricity. Even at some of the European countries electricity costs.

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Ravi Menon23:47

You're right.

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Michael Liebreich23:48

And so right now I would venture that almost every single liter of biofuels that we produce, most of it almost all of it goes into land transportation.

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Ravi Menon23:59

Mhm.

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Michael Liebreich23:59

Completely absurd.

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Ravi Menon24:00

Mhm.

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Michael Liebreich24:01

And so I look around and I see some but not very many electric vehicles here.

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Ravi Menon24:08

Mhm.

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Michael Liebreich24:08

And that seems to be a big opportunity as well.

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Ravi Menon24:11

Yes, yeah. No, you're absolutely right. We look at biofuels not for land transportation. We use it for bunkering and extremely heavy large vehicles. We don't have many of those. So, I think when it comes to land transport it is going to be electrification. Already I think 40 to 50% of all new car sales in Singapore are electric. So, the flow has taken off massively. The stock is going to change. We have a policy to basically get rid of the internal combustion engine by 2040. I don't think we'll get to every large heavy vehicle. But substantively it will be electric land transportation.

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Michael Liebreich24:53

So, let me suggest that the large heavy vehicles when you really get into it, the economics are probably even better than the smaller vehicles because they do so many kilometers. So, you have an expensive vehicle, but it gets amortized over what is actually

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Ravi Menon25:10

Have very long distances here. But I'll be very keen to find out about this company you are. Yes.

M

Michael Liebreich25:14

Well, also we can I can help you to do the numbers for Singapore. Okay. So, that's a plan. There's lots to be done. And you've talked about the architecture of you have your ministries and you can liaise with them, but most of your time you said is spent on the international liaison on the international front. So, what sorts of I know that you are very interested in the carbon market side of things and that you have a fund, the FAST-P fund for regional decarbonization. Take those in whichever order you'd like.

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Ravi Menon25:56

Yeah, maybe I'll start with FAST-P because that's what I started with when I was at the Monetary Authority of Singapore. And the question we asked is so, we have a huge financing gap, very well known. How do we get finance to flow to transition projects in Asia? The cost of capital in Asia is very high because of actual and perceived risks. And they're real and that's what commercial investors are telling us and you just got to respect that. So, they expect much higher returns than they would for projects in Australia or Europe or America. And you don't have carbon pricing. So, you have two: cost of capital is too high and the price of carbon is too low. And so, that makes financing of private capital flows very difficult. The theory of change we had is not entirely new. Blended finance has been around, but has never been scaled. It is to build a capital stack where concessional capital is used to de-risk the projects and then you can crowd in private capital. One of the big problems the world has is that much of public capital whether it comes from foreign governments or from the multilateral development banks or even the development finance institutions is going directly into commercially viable projects which doesn't make sense. They are crowding out private capital competing with private capital. But that's the way it is because governments don't like to lose money. MDBs don't like to lose money and MDBs need to retain their triple A rating so they go for safe projects. The world doesn't need money for safe projects. They need money for marginally bankable projects. Projects that are below the line but you need to just tip them over and so we thought if we provided a base of first loss capital and crowded in private capital you can multiply the value of that our dollar.

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Michael Liebreich27:53

Let's talk about first loss capital and let me tell you why because our audience is non-specialist.

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Ravi Menon27:59

Right.

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Michael Liebreich27:59

So you know I've known Rachel Kite who's been on the show twice and is a great friend and I've known her since she was at IFC and then World Bank doing inventing a lot of blended finance tools and first loss capital type approaches. But let's explain what it means.

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Ravi Menon28:17

It is basically what we call concessional capital. Capital that absorbs loss meaning if the project goes bad we take the first loss.

M

Michael Liebreich28:30

But it is debt. It is not equity. So this is a typical project would have

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Ravi Menon28:36

It's a grant. So it is a grant which means it has so Singapore government has committed to put in 500 million US dollars half a billion US dollars as grant with no expectation of a return, but it is meant to absorb loss and catalyze other sources of capital.

M

Michael Liebreich28:58

Okay, but now let me drill in now because it's a grant into the vehicle into FAST-P, right? So, the government never wants to see it back, but it's not being granted to the project

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Ravi Menon29:09

And that's the difference with FAST-P and projects because

The blended finance models we've seen are going directly into projects and there is a lot of debate and argument between providers of concessional capital, providers of commercial capital. Providers of commercial capital want more protection and less risk bearing. Providers of catalytic capital are saying, 'Well, you are in the business of taking risk. I'm just de-risking this portion. I'm not going to subsidize you making huge profits.' Imagine those conversations afflicting every single project. So, we said we will take a program approach, build a platform, we are committing into that platform. Singapore government doesn't have direct visibility of which projects it's going into, but all these discussions take place at the program level. And once it's settled there, term sheets are drawn up, then the fund managers then go out and do their stuff in a much more agile manner. They fund the projects because they've got this backing. So, the formula is we put in 500 million dollars and we want it to be back matched dollar for dollar by other sources of grant capital from sovereigns, development finance institutions, philanthropies, anyone else willing to put grant money to absorb loss with either zero or very minimal return prospects, and then use that 1 billion dollar base to crowd in 4 billion.

M

Michael Liebreich30:30

So, when you say matching dollar for dollars, that's 500 million from you, 500 million from others with some kind of a policy.

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Ravi Menon30:39

Correct.

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Michael Liebreich30:40

Desire to do this stuff.

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Ravi Menon30:43

Yes.

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Michael Liebreich30:44

4 billion from purely commercial. So, this would be sovereign wealth funds, insurance companies, pension funds, banks, but that 4 billion would not take the first loss. So, the billion will take the first losses. So, if a project is delayed by a year or two and it can't meet its interest payments,

R

Ravi Menon31:04

Yeah.

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Michael Liebreich31:04

The first billion pays it, which is quite why it's called first loss.

R

Ravi Menon31:08

Correct.

M

Michael Liebreich31:09

Yes. Yes.

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Ravi Menon31:09

Right.

M

Michael Liebreich31:10

Anything beyond that, of course, they have to bear it. So, they bear some risk, but the first loss risk is taken. And it's asymmetric. They're not bearing 80% of all risk. They're bearing no percent of the first loss. And then they bear their part of it.

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Ravi Menon31:25

Yes. That's right.

M

Michael Liebreich31:26

Okay. And where is this mechanism at the moment? What is the status? Does it exist?

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Ravi Menon31:31

Oh, it does. It does. So, we announced it two or three years ago, and since then we've been testing it with partners. So, we set up three funds under FASTP, Financing Asia's Transition Partnership. The first fund is what we call the energy transition fund, primarily focused on phasing out fossil fuels and replacing with renewable energy.

M

Michael Liebreich31:53

And can I ask you a question though? Why not do that via the Asian Development Bank? I mean, there is the ADB, Asian Development Bank, it sits in the Philippines. They do this stuff. Why would you not say, you know, we love what you're doing, here's 500 million, don't lose it all at once. Thank you very much.

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Ravi Menon32:11

Yeah, except, like I said, the MDBs don't do this. The MDBs don't fund marginally bankable projects. The ADB is not meant to lose money. Because this is shareholders' money. This is coming from countries. And so, the World Bank and the ADB are constrained in how much risk they can take.

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Michael Liebreich32:31

Even if you asked them to create a window, manage it separately, gave them an incentive of contract to do it on your behalf. They're just institutionally not able to do.

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Ravi Menon32:39

Institutionally they can't. So, the ADB actually has been among the more progressive of the development banks. And actually the ADB is a partner for FAST-P. In fact, when we conceived of FAST-P, we had active discussions with ADB and we still continue to talk to them. And look forward to ADB being part of the FAST-P project where they can contribute part of their trust funds. Now, ADB is progressive because it has tapped philanthropic monies for such use. But it cannot use its shareholders' money because the shareholders hold the ADB to account for how it's managed.

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Michael Liebreich33:16

Cleaning Up is proud to be supported by its leadership circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Signum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, The Gilardoni Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL, and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live. To keep up with all that's going on in the Cleaning Up universe, make sure you subscribe to our newsletter. Written and edited by my long-time New Energy Finance and BloombergNEF colleague Angus Mcrone, it comes out every second Monday. Angus provides the latest on the episodes we're recording, the events we're hosting, stories we're watching, and what Bryony Worthington and I are up to. To sign up for the Cleaning Up newsletter, visit cleaningup.live. In a sense, the theory behind this is that there are these marginally or not quite bankable projects.

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Ravi Menon34:38

Yes.

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Michael Liebreich34:38

There's another theory which says there just aren't enough projects. That the developer community is insufficiently skilled. That the policy environments across Asia are not tailored for clean energy projects. Whether it's wind or solar or batteries or nuclear or electric vehicle charging. It's too difficult from a policy perspective. So, have you decided? I mean, are you sure that you're solving the real problem?

R

Ravi Menon35:10

We are solving the problem that exists. That is tractable. So, are there projects that are absolutely not bankable? Of course there are. In fact there are a good number of those and we can't touch that. But we need to solve that in order to solve the climate problem. But we're trying to solve the problem in the middle which is marginally bankable, which we estimate is around 30% of the projects. There are some that are commercially viable, and there's some that are absolutely unviable. So this is not a small chunk. And $5 billion is not enough. We need about another dozen blended finance platforms to do this. But you start doing this, that moves the needle. 30% is not small.

M

Michael Liebreich35:55

I do worry because I go back to the time when there were these things called CDM, right? The carbon development... now, my acronym... Whatever. We'll put a link in the show notes or an explanation. And the problem there was that to get those funds you had to prove additionality. You had which meant in the jargon that you had to prove that your project was not viable commercially. But if it was too rubbish then it would also not qualify. So it had to be in this middle zone, the Goldilocks zone. And what happened was there was an enormous sprouting of consultants who could prove that your project was not rubbish enough to be completely ignored, but not good enough to go ahead. And it was all utter nonsense. It was all just spreadsheet work by consultants charging money. And it was all a waste of time. In the end it all went away.

R

Ravi Menon36:54

No, you're quite right. This is more art than science. Additionality is important for us because if these are commercially viable projects, then the Singapore government and the other governments and the philanthropies are putting in, we are being taken for a ride, right? This needs to be marginally bankable. Now, of course, if they are very unbankable, the commercial guys are not going to come in. So we are in that space, which is not a small space. My point is that about 30% of the projects are in that space. The challenge is identifying the correct ones. At the margin you'll make some mistakes on either end of it. You will end up with unviable projects that lose money and there'll be one or two that you probably didn't need concessional. I think we shouldn't let the perfect be the enemy of the good. Do what's practical. So these are exactly the discussions we have with our fund managers. Are you sure this is in this space?

M

Michael Liebreich37:47

But it's a funny situation because if I come back in two, three years when you've got five years, six years of track record, if you say to me and Michael, it was such a great idea that we never lost money on a project, then that actually is a worrying... So let's talk about then your carbon market activities as well, because that's the other big area that I believe you're working on. What are you doing on the carbon markets? Because this is, how can I put it? This is a time, you know, we had lots of enthusiasm about carbon markets during the, I would call it the Glasgow COP 26 years. The high integrity carbon markets work under Mark Carney and Mike Bloomberg. You were very involved in that Glasgow process, GFANZ, the Glasgow Financial Alliance for Net Zero, where you chaired the Asian partnership. But you know, carbon markets, are they still around? Are they still a thing in this current political environment?

R

Ravi Menon38:50

They are still a thing. They are still very much a thing. I think there was a lot of hype in the lead up to the Glasgow COP. I don't think the hype was unfounded. I think it was just a sense of the potential long-term potential of the carbon markets. But a lot of frameworks and foundations were not properly laid and I think we got into a bad patch. Lots of conservation projects for instance turned out not to be actually removing that carbon. There were real problems with the crediting methodologies and so on, and so there's been quite a lot of reputational damage done to that market and the market is basically tanked. So transaction volumes have collapsed, prices have collapsed, demand and supply have both frozen.

M

Michael Liebreich39:35

Do we have to differentiate here between the voluntary and the regulated markets? Because there were all these airlines running around saying they're going to be net zero, oil companies were going to be net zero, and they all needed to buy credits to get there. And then the credits of course were these fictional credits. And so that whole thing just has been a nightmare.

R

Ravi Menon39:55

I think the compliance markets, because they're based on the Article 6 provisions of the global COP process, have very strict criteria and because sovereigns are involved in that process, have generally held up pretty well. But that's a rather smallish market because sovereign demand outside of countries like Singapore, Japan, Korea, Switzerland, Sweden, maybe Luxembourg. Probably Luxembourg. Yeah, a few small European countries, Singapore and a couple of others. Most other countries are not in this game yet. So that market is probably, because of the small number of credible players, and we pay a lot of attention to the integrity of the projects that we sign up to, so that market is in a good place. But the voluntary market, which has no such regime, developed quite organically, has faced a lot of these problems. And our theory is that if a market is not functioning, the solution is not to exit it, but to reform it, to make it work, to understand why it's not been working. And so most of the work that we're doing currently on our carbon markets agenda is to make that market work. And we think that's vital. Why do I talk about blended finance and carbon markets? Because I don't see any other financing pathway to net zero. The fundamental problem is this: there's just not enough public money for the climate transition. Most governments are facing high deficits, public debt levels. Electorates are not going to countenance tax increases to fund these things. And you have now many competing demands like defense, infrastructure, energy security and so on, which compete. So there's not enough public capital. There is enough private capital, but private capital is not going to take this risk. And carbon markets and blended finance are ways to unlock, to bridge these two.

M

Michael Liebreich41:57

So, most of the work that I do when I'm not doing Cleaning Up is on, and even the theory that I talk about or the kind of frameworks that I write about and that I push through Cleaning Up, it's all about growing the clean stuff quickly. It's all about speed of growth. It's not about trying to remove carbon or to push down and in a sense to demonize fossil fuels. It's about growing the clean stuff. And I do think that there's a lot of private capital available for that. And also a lot more of that could be unlocked relatively easily if we had things like price signals, locational and temporal price signals in the power markets, which we're struggling with in Europe. And I don't know that the debate has really started in Asia in the same way because the penetration of renewables is not as high as it is in Germany, Denmark, UK, and so on. So that feels to me like, you know, I hear you when you say the private markets can't do it, but there's so much more, it's such a rich vein that can still be tapped for private markets.

R

Ravi Menon43:05

The private markets total financial assets are several dozens of times or hundreds of times what's needed for the climate transition. So there's no lack of capital. It's all a matter of risk and return. And those mechanics don't work. I don't quite agree that all we need to do is to grow the green stuff and leave the rest behind. It doesn't work in Asia. It probably works in Europe or America, but doesn't work in Asia. You take the coal fleet for instance. 60-70% of Asia's electricity comes from coal-fired power plants.

M

Michael Liebreich43:40

Down to 50% in China.

R

Ravi Menon43:43

Yes.

M

Michael Liebreich43:43

From 80% when I started to do what I do.

R

Ravi Menon43:46

But you've got to phase down or phase out the coal fleet. That's what China has been doing. It's not just about building the renewables. It is easy enough to build solar farms or wind farms. You can get the capital for that. But if you left the existing coal fleet in Asia as they are, and remember, energy demand is expected to double by 2050 in Asia, so if you leave that behind, that is going to eat up the bulk of your carbon budget remaining that's available to the world.

M

Michael Liebreich44:22

So, let me challenge that because China built last year 90 gigawatts. They commissioned 90 gigawatts of coal.

R

Ravi Menon44:31

More than two times the rest of the world put together. Yeah.

M

Michael Liebreich44:33

But burnt less coal than the year before.

R

Ravi Menon44:36

Exactly.

M

Michael Liebreich44:36

India as well. So, what you've actually got is I agree there's a lot of building going on of coal, but the reality is that it's actually being forced into almost like a backup role. I mean, it's not there yet. Of course, China with 50% coal it's still miles from that. But the direction of travel is already clear that there's more and more China's building nuclear, so is India, but it's much slower than the build out of wind and solar and batteries, and the coal is being pushed down and down. Will it get all the way there? I will concede to you that we're not going to get coal off the system by that approach, but there is miles more that will happen, mainly through private. Through private in China?

R

Ravi Menon45:22

Well, it was a combination of.

M

Michael Liebreich45:26

Subsidies. China, we enjoy cheap solar panels today because of years of Chinese subsidies which increased production. Economies of scale drove down the cost curve, and now we enjoy it.

R

Ravi Menon45:41

But now we enjoy it. But that initial investment was public.

M

Michael Liebreich45:43

It doesn't matter. But the point is what's happening now, and I would argue that now what you've got is a massive misallocation of resources into coal because a lot of it is to do with provincial state leadership that doesn't want to be dependent on other states and.

R

Ravi Menon46:02

Minimize. The political and governance impediments in many of the Asian countries, but there's one big difference between China, India on the one hand and Southeast Asia on the other. And that's China and India are continental economies, largely accessible, and they have reasonably good grid systems. China's invested massively in its grid and battery storage, and India's doing the same now. You look at Southeast Asia, transmission is extremely poor. So, the real challenge is not getting private capital to build solar panels. The real challenge is getting financing to build the grid systems and the battery storage. You take a plant in the Philippines, which we are trying to phase down, generating carbon credits to retire them early. The battery storage alone for the solar energy that's going to replace the coal makes that project very dicey. And so, you need some kind of blended finance instrument, some kind of concessional capital that's going to absorb that cost, because you can't charge that electricity tariff to the villagers.

M

Michael Liebreich47:05

How do you explain what Pakistan has achieved in the last 3 or 4 years? A poor grid, intermittent electricity, brownouts, rolling power cuts, and people just went and bought solar. Farmers just went and bought solar for irrigation for their own and put it on rooftops and put it in fields and so on. And they are saving massively in foreign exchange. 12 billion that they have saved in the last few years. I can't remember the period. This year they're expected to save 6 billion.

R

Ravi Menon47:36

No, I'm not going to argue for unregulated. I'm not a libertarian. I'm not saying, 'Oh, just let the markets do it.' I just suppose it's just a fascinating conversation about how much intervention and what types of intervention are still needed, whether it's power market policy or blended finance or there's various other sort of instruments that can be used.

M

Michael Liebreich47:52

Silver bullet in any of this. I mean, if you need three bullets, I would say they are policy, technology, and finance. Finance can't do this job alone. Finance is the oil that greases the machine, but you need the machine. You need the technologies. And there are some areas where the technologies are not good enough. And policy frameworks are key. Carbon pricing is the single most important thing. And then how the energy market operates. Is it a really competitive market-based system? If that's the case, then it makes it a lot easier for financing and for technology solutions to come on. So, I agree. It's all three things that are required. But given what it is, what can we do on financing? And that's where we've started to use carbon markets and blended finance. Not under any illusion that they're going to solve the whole problem, but they do address some of the gaps. I want to come back to something that you said very early in our conversation in the remaining minutes that we have of your generous allocation of time. And that is I can't remember exactly how you phrased it, but you said, 'If there is still a global sort of rule of law or a global consensus.' And you know, Singapore has done incredibly well. There's the GDP per capita literally the highest in the world. You've done very well from a system of international rule of law and trade. You've been the trade minister yourself. I was on the UK Board of Trade. Permanent secretary, sorry. Permanent secretary, that's right. Not the minister, but the secretary. And I was on the UK Board of Trade. How worried are you because the country that fulfilled the role of ensuring the openness of navigation, the country that ensured the openness of the Strait of Hormuz, the country that was behind one of the major players behind the WTO has essentially stepped away from all those responsibilities and is not building alliances to maintain stability, but is actually attacking its allies and building alliances or investing its political capital in the less predictable players in the world. Isn't this enormously threatening to Singapore?

R

Ravi Menon50:29

Yes, it's worrying. But worry is not a strategy. I think we have to accept the world order has quite fundamentally changed. And whether it's a disorder or an unorder it remains to be seen. And as a small country we're a price taker and so we're under no illusions that we're going to change things in the rest of the world, but we've got to find new ways of operating and that's what it boils down to. We've got to be flexible and nimble in coming up with new coalitions of the willing on different issues to tackle them in different ways together in small groups. I think this is the time when small countries and middle countries need to just step up because there is no global leadership and when you have no global leadership the market is a wonderful analogy. The market has no leadership. Nobody directs it. Not at least in a market capitalist economy. The individual actions of players through some coordinating mechanisms like exchanges in the financial markets or through market mechanisms and some basic amount of regulation. We got to create those kinds of conditions for new what we call variable geometries that don't map into existing multilateral forums. This is not to give up on multilateralism. I think we got to continue to fly the flag, but we got to be realistic and find new ways of operating. And some of this I think has forced many countries to think hard about new corridors and relationships, and you see that in Asia. We're thinking about corridors to the Middle East, to India, East Africa, our own neighborhood. There are things we can do together, and now the impetus is even higher because we're not operating in a safe and conducive global order. So we got to keep looking at these new forms of cooperation, be it in trade, be it in climate, and even security arrangements.

M

Michael Liebreich52:44

It's fascinating to have this conversation in Asia because, you know, I spend most of my time in Europe, some in the US, and around the world in what I call most of the world. But here, it does feel like, unlike most of those other places, where the climate conversation has very much taken a downturn, here, it doesn't seem to have because you've chosen the climate beat. Within all of those multilateral, plurilateral, coalitions of the willing, nimbleness, you've chosen the climate beat for your activities. So, now your official roles are all climate related. It does feel like if you had done that, if you look at Rachel Kite's role, it's very, very difficult. Yours might be marginally less difficult because some of these Asian countries are actually, in a sense doubling down on their actions on climate versus where they might have been 5 years ago where much of the rest of the world is doing the opposite. I don't know, undoubling down, doubling, whatever that opposite is. Actually dismantling or deprioritizing. Do you think that's fair? Is that your sense as well?

R

Ravi Menon54:00

Yes and no. Yes, I think Asia is doubling down a lot more in this space, not because they have suddenly become greenies but because of what's happened in the Hormuz Straits. I think the energy security and climate transition agendas have started to converge. Now, I won't exaggerate the convergence because there are some issues where they will still diverge but they have started to converge. We spoke about electric vehicles. You don't need any government policies for that. The massive queues you see outside fuel stations in Manila, in Vientiane, and in Bangkok is spurring EV demand. Bangkok Auto Show last year, for the first time in history, BYD had more registrations than Toyota. You're seeing double and triple digit growth rates. So, consumers are acting. So, I think this is a response to, and I think increasingly the policy discussions across Asian capitals is this. The energy security agenda drives us towards renewable. We're not going to give up coal but we've got to reduce dependence on imported oil and gas. So, that is very positive. On the negative side, Asia has a lot more to go. Asia is more than 50% of global carbon emissions, Asia alone, and it is going to rise. That proportion is going to increase simply because of the growth rate, the urbanization. You still need to supply electricity to millions of people in poor villages. And so, the magnitude of the task. I don't worry about net zero in Europe and America because I think the economics will drive it down for some of the reasons you said. It is going to drive it down. Maybe not literally net zero, close enough. And the government just has to do the last mile or carbon removals. In Asia it's different. In Asia it's huge. So, yes, I think there is more activity on the climate front, not because of climate but because of energy security, but it's converging. But it's a fragile convergence. It can break down and there's a lot more work to be done.

M

Michael Liebreich56:09

And it's very early days in how societies and how governments respond to the situation in the Strait of Hormuz. And so we still have to see the impacts on for instance national budgets. Malaysia, I understand, is really in trouble because of its subsidies of fossil fuels and that can't go on. And so we're going to see quite a lot more on this front. I'm going to leave it there. I'm going to thank you so much for taking time with us here today during Eco-Prosperity Week. I know you've got a packed agenda. So, it's been absolutely fascinating. Thank you.

R

Ravi Menon56:44

Likewise, thank you. Enjoyed the conversation very much, Michael. Thank you so much.

M

Michael Liebreich56:50

So, that was Ambassador Ravi Menon, Singapore's Ambassador for Climate Action and senior advisor to the Prime Minister's Office on all things climate-related. As always, we'll put links in the show notes to resources that we mentioned during our conversation. Too many to mention here. And so, I'd like to thank our Singapore-based cameraman, Pavel Jechonski, our producer, Oscar Boyd, video editor, Jamie Oliver, head of operations, Kendall Smith, the whole team behind the scenes at Cleaning Up, the Leadership Circle, without whom none of this would be possible, and you, the audience, for spending some time with us here today. Please join us this time next week for another episode of Cleaning Up. Cleaning Up is proud to be supported by its leadership circle. The members are Actis, Alcazar Energy, Arup, Copenhagen Infrastructure Partners, Signum Capital, Davidson Kempner, EcoPragma Capital, EDP, Eurelectric, the Gilardoni Foundation, KKR, Mitsubishi Heavy Industries, National Grid, Octopus Energy, Quadrature Climate Foundation, Schneider Electric, SDCL, and Wärtsilä. For more information on the leadership circle, please visit cleaningup.live. If you're enjoying this episode, please hit like, leave a comment, and also recommend it to friends, family, colleagues, and absolutely everyone. To browse our archive of around 250 past episodes, and to subscribe to our free newsletter, visit cleaningup.live.

Can Asia Ever Move Beyond Coal? | Ep264: Ravi Menon

About Ravi Menon