The ripple effects of two recent geopolitical developments have raised doubts about the feasibility of accelerating Southeast Asia’s energy transition. In February, the United States signalled its withdrawal from the Just Energy Transition Partnership and broader global aid commitments. Soon after, key strategic partners of the Association of Southeast Asian Nations, including the European Union and the United Kingdom, signalled plans to cut aid spending to prioritise defence investment in response to regional security dynamics.
Given the region’s significant financing needs, these developments come as a serious blow. Yet Southeast Asia has compelling reasons to continue transitioning – particularly its vital industries.
Industrial decarbonisation is not just an environmental imperative, it is also a sensible, solid, long-term economic strategy.
Under current policy settings, Southeast Asia is projected to account for 25 per cent of the world’s energy demand growth in the next 10 years, driven primarily by its expanding manufacturing sector. Given this trajectory, the world cannot decarbonise without addressing these emissions. The choices made today will have significant consequences not just for Southeast Asia, which is expected to experience climate-driven economic damages at twice the global average, but for the world.
Industrial decarbonisation is not just an environmental imperative, it is also a sensible, solid, long-term economic strategy. As countries in the region think about how their public investments can support growth, governments must ensure these funds are directed towards building clean industry competitiveness rather than reinforcing emissions-intensive energy and industrial sectors. Examples of such targeted initiatives include Indonesia’s sovereign wealth fund Daya Anagata Nusantara (Danantara) and the increase in infrastructure investment in Vietnam. ASEAN’s Strategy for Carbon Neutrality also recognises the need to decarbonise industries to build long-term economic competitiveness. But bolder action from governments and industries is required to keep things moving and determine overall success, beginning with coordination.
Time to start sharing the load
A single industry, company or government cannot decarbonise alone. The region requires a coordinated approach to support future booming green industries. That is where industrial precincts present a promising pathway.
The Net Zero Industrial Precinct idea is relatively simple – by combining and coordinating operations within industrial precincts (also known as clusters or hubs), companies can leverage shared infrastructure, renewable energy systems and integrated supply chains to accelerate decarbonisation efforts. This collaborative approach fosters local stakeholder engagement and enables tailored solutions that address region‐specific challenges. It also allows for the costs, risks and benefits to be shared, which is imperative for scaling up infrastructure development in countries such as Indonesia and Vietnam.
Energy efficiency is an easy win
One of the most effective places to start is with energy-efficient technologies, which are crucial for industrial emissions reductions. Climateworks Centre’s recent report, Decarbonising Indonesia’s manufacturing sector, shows how readily available solutions can significantly reduce emissions across key manufacturing industries, which made up 28 per cent of Indonesia’s total emissions in 2024. While energy-efficient technologies require upfront investment, they deliver substantial long-term financial benefits by lowering energy costs and reducing dependency on fossil fuels.
Future-proofing manufacturing
Southeast Asia has all the key elements to expand clean technology manufacturing: abundant critical minerals, vast renewable energy potential, established manufacturing capabilities, and a skilled workforce. Indonesia, for instance, has emerged as a top destination for foreign investment in critical minerals, electric vehicles, and the battery supply chain. Meanwhile, Malaysia, Vietnam, and Thailand rank among the world’s leading manufacturers and exporters of solar photovoltaics.
ASEAN and its member states have strong partnerships that can be leveraged to support the growth of key manufacturing sectors. The bloc has established formal dialogue partnerships with 11 countries, collectively representing 81 per cent of global Gross Domestic Product. Within the region, intra-ASEAN trade now constitutes the largest share of the bloc’s total, accounting for 22 per cent. ASEAN can shape the future of its economies’ low-carbon industrial futures, with several key mechanisms at its disposal.
Bringing businesses along for the ride
ASEAN is home to 70 million micro, small, and medium enterprises (MSMEs), many of which are integrated into global clean supply chains and vital to economic and social development. While MSMEs often have fewer financial resources, they are typically more agile in adopting new technologies. Developing these capabilities requires a long-term strategy, one that ensures both the workforce and MSMEs are equipped to navigate and thrive in a rapidly evolving economic landscape.
Industrial decarbonisation is an opportunity to ensure Southeast Asia’s industrial regions, and the workers and businesses they support, remain competitive in a net zero world.
Southeast Asia is at a crucial crossroads between economic growth and the energy transition. The path it takes now will have significant implications for the region and the rest of the world. There are a handful of tools and approaches at the region's disposal that could get it on track to establishing itself as a globally enviable clean industrial hub.