Most ASEAN countries are climate-vulnerable nations and heavily rely on resources provided by Western countries for energy transition. (Photo: iStock)
Western climate policy rollbacks are raising concerns about setbacks to Southeast Asia’s energy transition, as reduced financing and weaker climate accountability could slow progress across the region.
The U.S. recently withdrew from the Just Energy Transition Partnership (JETP), disrupting an estimated USD 3 billion in green financing for Indonesia and Vietnam. Meanwhile, the European Union has shifted toward a more simplified and pragmatic emissions policy, easing corporate sustainability disclosure requirements.
Despite these headwinds, governments across ASEAN continue to prioritize sustainability. Indonesia’s sovereign wealth fund, Danantara, and Vietnam’s infrastructure investments both channel funds toward industrial decarbonization. But as Western policies shift, what strategies can ASEAN adopt to stay on course?
What do Western policy shifts mean for Southeast Asia’s energy future?
The U.S. accounted for around 8% of total climate finance contributions to developing countries among donor nations in 2024. The country planned to invest USD 11 billion in climate aid this year, but major cuts followed the return of Donald Trump. In addition to formally withdrawing from the Paris Agreement, the U.S. pulled back its USD 4 billion commitment to the Green Climate Fund and stepped down from the board of the Loss and Damage Fund.
For ASEAN countries, the most significant impact came from Trump’s decision to halt the JETP and cut funding from the U.S. Agency for International Development (USAID). Under JETP, Indonesia could lose as much as USD 2 billion in energy transition support, while Vietnam could see a USD 1 billion shortfall. Although USAID’s energy-related funding in Southeast Asia is smaller, an estimated USD 23.7 million could also be affected.
However, the influence goes beyond funding. It also lies in its diplomatic and political leadership. According to Mirza Sadaqat Huda, a senior fellow at Singapore’s Yusof Ishak Institute, ASEAN countries aim to diversify their energy partnerships. While the U.S.’ financial contributions are relatively modest, its technical support has been critical for politically sensitive projects. The U.S.’ withdrawal put ASEAN at risks of becoming overly reliant on China for its energy development.
The EU’s recent move to lift corporate climate disclosure rules could weaken decarbonization efforts across ASEAN’s supply chains. The European Commission proposed in February the Omnibus Simplification Package, aimed at reducing bureaucratic delays and pressure by limiting reporting requirements to major emitters, while maintaining the EU’s net-zero goals.
However, this shift may allow Southeast Asian countries with fragmented supply chains to slip under the regulatory radar.
The EU is ASEAN’s third-largest trading partner, following China and the U.S. Trade between the EU and ASEAN in 2023 reached GBP 252.5 billion pounds (USD 331.1 billion), accounting for about 8% of ASEAN’s total trade. ASEAN companies generally lag in the quality of climate disclosures, and the EU’s revised regulations could further reduce supply chain transparency, weakening market competitiveness and credibility.
Trade deficit between the EU and ASEAN countries. (Source: European Union)
Experts recommend diversifying supply chains to sustain ASEAN’s climate momentum
Southeast Asian countries are highly vulnerable to extreme weather events like frequent typhoons and floods. At the same time, economic and technological growth continues to drive up energy demand, much of it still met by fossil fuels, resulting in high carbon emissions. This cycle is accelerating climate change and reinforcing the urgency of an energy transition.
As deeply interconnected, ASEAN nations must carefully navigate changing sustainability policies from the West, relying on insights from some companies and experts for now to find a path forward amid headwinds.
Strategy 1: Maintain a diversified supply chain
To protect local businesses, President Trump imposes tariffs on certain imported products, including solar components, pushing up global raw material prices.
Jayniel Carl Manuel, a trader at Philippine investment firm Seedbox Securities, said the country’s power plants and grid infrastructure rely heavily on imported materials, and rising costs could delay project timelines.
Yet, the Philippines should take this opportunity to promote the use of local resources and diversify its supply chain, thereby helping energy sector maintain long-term resilience and competitiveness, Manuel added.
Tariffs are unlikely to affect material costs in the short term. However, strengthening supply chain resilience and maintaining close oversight of developments remain critical to ensure timely adjustments, said Emmanuel Rubio, president and CEO of Manila Electric Company (Meralco).
Strategy 2: Strengthen regional cooperation
In an article for The Diplomat, researchers Olivia Zeiner-Morrish and So Lyhong warned that ASEAN countries risk being caught between China and the U.S., particularly in solar and electric vehicle supply chains. The uncertainty could weaken investor confidence in renewable energy.
They suggest ASEAN countries setting unified regional standards for solar and clean energy technologies, support innovation among small and medium-sized enterprises, and present a united front to both China and the U.S. as a reliable partner.
Read more: Can Southeast Asia shield its economy from Trump’s tariff war threat?
Huda noted that while Southeast Asia’s mineral wealth may appeal to the US defense interests, it does not necessarily benefit renewable energy deployment. He urged ASEAN nations to avoid taking sides and instead deepen local-level technical cooperation with the U.S., while strengthening ties with the EU and South Korea.
Harjeet Singh, founding board member of the Satat Sampada Climate Foundation, said emerging Asian economies must strengthen regional collaboration, push bold national policies, and pressure developed countries to fill the financing gap left by the U.S.’ withdrawal.
The International Energy Agency (IEA) estimates that the 10 member nations of ASEAN will account for 25% of global energy demand growth by 2035, driven largely by manufacturing expansion. As the West pulls back on climate obligations, ASEAN should seize this moment to lead the energy transition and turn crisis into opportunity.
Source: The Guardian, Fulcrum(1), EU, Inquirer, The Diplomat, SCM
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