ASEAN countries’ commitment to meet ambitious emission targets, including fast-evolving energy regulation, development of carbon trading markets and innovative investment policies in the renewable energy sector, are bringing a new variety of work to lawyers in the region

 

Given their geography and proximity to oceans, the ten countries comprising the Association of Southeast Asian Nations (ASEAN) are collectively one of the region’s most vulnerable to the impact of climate change.

Southeast Asia’s 688 million people are concentrated along coastlines, which are 173,251 kilometres long, leaving them exposed to rising sea levels. At the same time, the region’s heavy reliance on agriculture and fishing for livelihood makes it vulnerable to droughts, floods, and tropical cyclones associated with warming.

In recognising these risks, countries have set ambitious targets to achieve net-zero greenhouse gas emissions, re-organise and revitalise their renewable energy sectors, and build a sustainable energy transition plan that involves a crackdown on coal, promoting carbon markets and inviting foreign investment and technology to plug emission leakages.

This push to net zero has birthed a diverse variety of work for the region’s legal community, which is advising domestic and international stakeholders on compliance with new emission-friendly regulations and high-stakes renewable projects and financing. Both the regulatory landscape and legal market are changing in the ASEAN’s biggest economies and emitters - Indonesia, Thailand, Singapore, Vietnam, and the Philippines – as they push to transform their energy mix, build renewable capabilities and come down hard on high-carbon industries.

INDONESIA

Indonesia, as the ASEAN’s largest economy by GDP and also its largest emitter, has committed under the Paris Agreement to reach carbon neutrality by 2060 or sooner, and increased its unconditional emission reduction target from 29 percent to 31.89 percent by 2030. To achieve these goals, the country has taken many steps towards energy transition, particularly in the field of carbon trading, explains Kirana D Sastrawijaya, senior partner and head of the power, energy, and infrastructure group at Indonesian law firm UMBRA. In 2021, Indonesia rolled out its first carbon trading regulation that specifically regulates carbon trading as one of the carbon pricing mechanisms, together with result-based payment and carbon levy. On the same day, the government also introduced a carbon tax. Indonesia, which is the world’s fourth-largest producer of coal and Southeast Asia’s biggest gas supplier, also rolled out its first regulation that prohibits new coal-fired power plant (CFPP) development, and introduced sustainability obligations for financial services institutions, issuers and public companies.

 

“Numerous stakeholders, both from public and private sectors, have shown great interest in carbon trading and are actively developing projects tailored to their business. This situation presents a great opportunity for law firms to make substantial contributions by structuring the projects, meticulously drafting and negotiating the transaction documents for carbon trading.”
— Kirana D Sastrawijaya, UMBRA

 

More recently, in September, Indonesian President Joko Widodo launched the country’s first carbon emission credit trading market, which aims to fund cuts in greenhouse gas emissions and become a major participant in the global carbon trade.

“Numerous stakeholders, both from the public and private sectors, have shown great interest in carbon trading and are actively developing carbon trading projects tailored to their business. This situation presents a great opportunity for law firms to make substantial contributions by structuring the carbon trading projects, meticulously drafting and negotiating the transaction documents for carbon trading,” says Sastrawijaya.

The Indonesian government is also currently preparing a new renewable energy bill and revising its national energy policy. The challenge for lawyers is to stay abreast of new and upcoming policy and regulatory developments in the energy transition market, Sastrawijaya explains.

“Every party involved, despite their high interest, is still figuring out the best approach to serve their distinct interests. This is where we, as lawyers, come in. We can offer our expertise to assist them in developing and structuring their projects in a way that aligns with the current regulatory frameworks while also anticipating forthcoming legal changes. The unfolding energy transition era requires us to think innova-tively within the bounds of the existing regulations and the evolving market dynamics.”

“We envisage a variety of projects and deals coming up in the decarbonisation space, spanning from the development of carbon trading business to CFPP phase-out and renewable energy development,” Sastrawijaya adds.

THAILAND

At the United National Climate Change Conference 2021 in Glasgow, Thailand’s Prime Minister Srettha Thavisin announced the country’s commitment to carbon neutrality by 2050 and net zero greenhouse gas emissions by 2065. While the country has made shifts

to its national energy policy to increase the share of renewables in its energy mix, most of the legislative and regulatory initiatives that would have a more significant impact in reducing carbon emissions are in the planning or proposal stages, says David Beckstead, a partner at Thai law firm Chandler MHM.

These include the creation of third-party access (TPA) codes by the country’s government power utilities - the Electricity Generating Authority of Thailand, the Metropolitan Electricity Authority and the Provincial Electricity Authority - in order to permit power generators to utilise their transmission and distribution infrastructure to sell to customers at a distance.

 

“Once the TPA Codes are adopted and fully implemented, it is likely that many new business models will be developed to permit businesses operating in Thailand to purchase a greater share of their power form renewable sources. If properly implemented, this may result in significantly increasing the volume of renewable projects over the coming decades.”
— David Beckstead, Chandler MHM

 

“Once the TPA Codes are adopted and fully implemented, it is likely that many new business models will be developed to permit businesses operating in Thailand to purchase a greater share of their power form renewable sources. If properly implemented, this may result in significantly increasing the volume of renewable projects (mainly solar) being developed in Thailand over the coming decades,” Beck-stead says.

The country’s regulators and policymakers are also working on rules to regulate carbon capture, utilisation and storage, and a draft climate change law, which could establish regulatory authority for government agencies to enact specific rules needed to tackle carbon emissions.

Law firms in Thailand, Beckstead says, have been seeing an increasing number of engagements involving the financing and setting up of renewable infrastructure in the country.

“A successful round of renewable energy procurement has just concluded, with 4.88 GW of projects being awarded.

Most of the projects were ground-mounted solar, solar + battery storage, and wind power. Further, an additional 3.66 GW has been approved for government procurement, meaning we are likely to see more renewables projects being developed in the short- to mid-term.”

For law firms, there is great potential to assist clients in drafting and negotiating major project agreements, such as EPC contracts and wind turbine supply agreements. We assume that many project sponsors will be seeking project financing on a non-recourse or limited-recourse basis, meaning there will be opportunities for law firms to advise on these financing deals in 2024 and beyond.

SINGAPORE

Singapore is using technology to overcome its lack of natural renewable resources to achieve its commitment to reach net zero greenhouse gas emissions by 2050. In February 2021, the city-state launched SGP 2030 – its long-term sustainability roadmap that includes targets to significantly increase solar energy infrastructure, build emission-friendly power generation technology and enhance electric vehicle deployment. Shemane Chan, a partner at Singapore law firm Rajah & Tann, says that Singapore also came out with a vital carbon pricing law in 2019 that aims to encourage industries to reduce their carbon emission by way of levying a “progressive” carbon tax on emissions.

Singapore’s carbon tax rate is currently 5 Singapore dollar ($3.60) per tonne and will be increased to 25 Singapore dollar per tonne in 2024 and 45 Singapore dollar per tonne in 2025, with a view to reach 50 Singapore dollar to 80 Singapore dollar per tonne by 2030, Chan explains.

Another key component of Singa-pore’s strategy to reach its net zero commitments is its transition to green energy sources. “The Singapore government has identified four supply “switches” to transition Singapore’s electricity generation to low-carbon generation sources: (i) to enhance the energy efficiency of Singapore’s natural gas power plants; (ii) accelerating solar deployment; (iii) tapping on regional power grids for low-carbon electricity imports; and (iv) developing low-carbon solutions such as hydrogen and carbon capture, utilisation and storage solutions which will enable decarbonisation in the longer-term,” Chan says.

Key to this energy transition is the use of solar energy, available in abundance to countries like Singapore in the tropical belt.

“Singapore’s Energy Market Authority (EMA) is collaborating with the industry and government agencies to maximise solar deployment in Singa-pore by using innovative methods such as deployment of floating solar farms, installing building-integrated photovoltaics and rooftop solar photovoltaic systems on buildings,” Chan says.

Rajah & Tann recently acted for the EPC contractor to secure a project to deploy a large-scale 60 MWp floating solar farm at Singapore’s Tengah Reservoir. “As Singapore’s Public Utilities Board has announced more potential projects in the pipeline to deploy floating solar farms at other water bodies in the country, we expect that law firms in Singapore will see more work for such floating solar projects in the near future,” Chan says.

“We also anticipate more demand for legal work with regards to the supply and installation of battery energy storage systems in Singapore,” Chan adds. In Feb. 2023, Singapore launched a 285-megawatt-hour energy storage system in Jurong Island, which is the largest energy storage system in Southeast Asia and was commissioned within six months.

Law firms can also expect more work coming in from Singapore’s low-carbon energy import deals. EMA first granted its conditional approval to Keppel Energy to import 1GW of electricity from Cambodia generated using a mix of solar, hydropower and potentially wind sources. Recently, EMA announced that five projects have been granted conditional approval to import a total of 2GW of electricity from Indonesia using solar sources.

“Singapore law firms can also expect more work to come from the development of additional infrastructure to support the various import projects – ex. laying of additional subsea cables, installation of additional battery energy storage systems and mobilisation of back-up facilities to provide ancillary services to ensure stability of Singapore’s power grid,” Chan says.

VIETNAM

A 2021 World Bank report found that Vietnam is among the top five countries most likely to be affected by climate change. Despite its pledge to reach net-zero emissions by 2050, a McKinsey report found that the country’s energy transition will be difficult as a high proportion of its GDP comes from high-carbon sectors and much of its capital stock is tied up in fossil-fuel-based power.

Vietnam has taken steps to further its national strategy on climate change, which was released in 2020. These include laying out regulations for a domestic carbon credit market, issuing guidelines on greenhouse gas emission reduction, establishing a national steering committee to guide the country towards its net-zero goal, and conducting greenhouse gas inventory and emission reduction assessments for facilities in the country based on levels of emission. The head of Vietnamese law firm LNT & Partners’ Hanoi office, Vu Thanh Minh, says that a new law specifically outlines the roadmap for establishing and operating the carbon trade exchange, with a pilot phase commencing in 2025 and full-scale operation in 2028.

 

“Lawyers will also support investors in negotiating with the government regarding the consequences of prematurely terminating investment projects, including issues related to investment capital, labour (in supporting unemployed workers, providing allowance, and retraining), land, assets, or transforming the functions of coal-fired power plants.”
— Vu Thanh Minh, LNT & Partners

 

Vietnam is also pushing hard for a transition to low-carbon energy sources. “Inefficient and outdated coal-fired power plants will be negotiated for closure, and coal-fired power plants failing to meet environmental standards will cease operations. By 2030, the aim is to use E5 gasoline exclusively. Investors undertaking energy transition projects will be eligible for incentives related to infrastructure (land), financial benefits (taxes) through land use planning policies, and economic and social development plans at various levels,” Vu adds. Consequently, law firms specialising in energy and infrastructure practices are seeing an increasing number of representations throughout the lifecycle of energy transition projects – from advising on local regulatory framework and bidding to finance and supply contract negotiation and finalisation, Vu says. “Lawyers are also currently supporting local credit institutions in negotiating and signing two-step loan contracts with international financial institutions (IFC, World Bank, JBIC, IFC, AIIB...) to fund green projects,” Vu adds.

Law firms will also advise stakeholders on the country’s drive to shut down certain coal-fired power plants. “Lawyers will also support investors in negotiating with the government regarding the consequences of prematurely terminating investment projects, including issues related to investment capital, labour (in supporting unemployed workers, providing allowance, and retraining), land, assets, or transforming the functions of coal-fired power plants,” Vu explains. As Vietnam’s roadmap to carbon neutrality gradually takes shape and new regulations are put in place, Minh believes that lawmakers’ top priorities going forward must be to build a detailed regulatory mechanism for energy transition, work with investors and financiers to issue clear instructions on new and upcoming schemes, and clarify incentives for green investments.

PHILIPPINES

The Philippines is the only ASEAN country that has not committed to a net-zero target. While the country has put in place several policies to promote renewables, climate-tracking groups say those are not likely going to be sufficient to halt emission growth in the country. Manila has submitted an ambitious nationally determined contribution target of reducing greenhouse gas emissions by 75 percent below a cumulative business-as-usual pathway for 2020-2030. Most of this commitment is conditional on international support. A small fraction, 2.71 percent, of the 75 percent targeted emissions avoidance, is unconditional.

The Philippines also became the first Southeast Asian country to set a moratorium on new coal plants in December 2020, but allowed already approved plants to move forward, which means that 2.6 GW of coal capacity will still come online by 2025. Coal today constitutes around 57 percent of the country’s energy mix.

The country has had specific regulations to promote renewable energy projects as far back as 2008, which provided for various tax benefits to those looking to set up renewable energy plants. This was given a substantial boost at the end of 2022, when the government fully opened the renewable sector to foreign ownership, representing a significant shift in the country’s energy policy.

The Philippines also launched its second green energy auction, which brings the combined total of auctioned renewables capacity to 13.6 GW or 52 percent as of 2026, and adds approximately 100 new projects to the country’s infrastructure pipeline.

With the recent developments in the legislation on the development and use of renewable energy, there is now a significant movement towards projects and deals in the renewable energy sector, says Aris Gulapa, the founding partner of leading Philippine law firm Gulapa Law. “It is expected that more foreign investors will engage in more M&A deals and enter into various procurement and construction of renewable energy facilities in the country,” Gulapa says. This inflow, according to Gulapa, will keep lawyers in the country busy as they advise public and private sector stakeholders on compliance with fast-developing regulations related to the exploration, development, and use of renewable energy.

There is also work expected from the growth of public-private partnerships in the renewable energy sector, which is specifically encouraged by the government, Gulapa adds.

“The partnerships that may arise from this among the Local Government Units, the private sector, and the legal community are evidence that public service, energy, and law are intertwined sectors and industries, which are deemed valuable in achieving milestones towards decarbonisation and achieving the country’s commitments under the Paris Agreement.”