Going Beyond 'Zero Tailpipe Emissions': Southeast Asia Can Lead In Further Decarbonising EV Sector

This article is researched and written by Angsana Council Intern Sean Becker with further input from the Angsana Council team.
It draws insights from the ASEAN Investment Report 2023. 

Gasoline engines’ days are numbered in Southeast Asia. Many nations are promoting electrification of their transport networks, like Singapore targeting to achieve fully electrified transportation by 2040. exponentially growing the electric vehicles (EVs) industry. The Southeast Asian EV market is forecasted to grow to USD 2.7 billion by 2027, and foreign investment into Southeast Asia’s EV supply chain has risen by almost nine-folds, from 2.1 billions in 2019 to 18.1 billion in 2022 reaching USD 18.1 billion across EV related sectors. 

Southeast Asian governments are competing by offering incentives such as tariff cuts to attract original equipment manufacturers (OEMs) and foster a robust EV industry, seemingly striking a balance between economic growth and environmental sustainability.  But does the “green” perception of EVs hold up in reality?


Investments into EV: Economic Growth or Environmental Sustainability? 

On the one hand, EVs promise cleaner air, reduced greenhouse gas (GHG) emissions in transportation, as seen in Figure 1, and new economic opportunities. Conversely, the quest for economic growth risks obscuring the full environmental burden of EV production and usage, masked by the simplicity of “zero tailpipe emissions”. The massive surge in EV popularity as a climate-conscious good has only added to its favour.

Figure 1: Transportation emissions abatement could account for 14% of all global abatement through 2050. Source: McKinsey, Capturing Growth in Asia’s Emerging EV Ecosystem, June 2022
  Investment in the EV supply chain has been touted as a sustainable investing, bolstering Southeast Asia’s EV manufacturing hubs. Indonesia, a mineral titan holding 22% of global nickel reserves and Thailand, the 11th largest automobile manufacturer by output, are leveraging comparative advantages to capture a greater share of the value chain. Notably, global automotive giants like the Volkswagen Group, General Motors and Hyundai and home-grown giants like Vietnam’s VinFast are expanding across the region’s EV supply chain.  Each nation, playing to its strengths, aims to carve a unique niche in the burgeoning electric vehicle landscape to meet various adoption targets, as shown in Figure 2.
Figure 2: The diverse goals set forth by SEA state spur industrial growth in this industry. Source: ASEAN, ASEAN Investment Report 2023, December 2023
  Yet, the question of prioritisation – economic growth or environmental sustainability – casts a long shadow over government policies. To consider EVs a truly sustainable industry, Southeast Asia should consider closing hidden emission loops starting prioritising energy transition, focussing on cultivating a circular economy for the EV sector and standardising and auditing EV supply chains starting at least with the regional supply chains. 
Figure 3: Recommendations to Prioritise to Further Decarbonise the EV Sector


Tapping into Scope 1, 2 and 3 Emissions Framework

Each Southeast Asian state can map its supply chains and unmask individual emissions profiles by designing an assessment process leveraging the Scopes 1, 2, and 3 emissions framework. Currently, most measurements of carbon emissions eschew Scope 3 emissions given its complexity.  Yet, employing this framework as a practical roadmap to environmental accounting practices can optimise for long term growth of the sector.  

EV production’s first critical environmental challenge lies in direct scope 1 emissions. Specifically, in cases like Indonesia, the immediate effect of rapid manufacturing must be factored into EV sustainability assessment.  The EV industry’s scope 1 emissions, accounting for 15% of coal demand, are also significant in industrial parks for nickel processing. The “green” dream of EVs falters if the manufacturing floor itself breathes fumes of environmental degradation.

In considering scope 2 emissions, while EVs are cleaner than internal combustion engines, its current production processes carry hidden scope 2 emissions- the most pertinent of which is due to continual reliance on coal-fired power. Even in a country like Vietnam, which has invested significantly into phasing out gasoline engines, attracting EV carmakers with favourable tariffs yet enables battery manufacturing to tap into a predominantly coal-powered grid. In 2020, the Vietnamese government ceased subsidising solar energy producers, decelerating the transition from carbon-intensive energy sources. Furthermore, many of Vietnam’s coal-fired power plants have barely reached the halfway point of their 35-year lifespan. These aging plants are expected to lead energy production through 2030. 

All across Southeast Asia, fossil fuels are entrenched in energy production, accounting for 80% of the electricity production in Thailand, Indonesia, and Malaysia. Even transitioning to relatively cleaner liquefied natural gas has been stymied by surging global demand amidst the conflict in Ukraine. This highlights the need to double down on renewable electricity grids not only to enhance scope 2 adherence but also for longer term energy security.

Measuring scope 3 emissions present a complicated challenge to states and businesses, even where they are willing. Indirect emissions encompass the entire EV supply chain, including raw material extraction, manufacturing, and global transportation, requiring regional collaboration for mitigation. It could be useful for policy recommendations to further distinguish between regional and international scope emissions in order that efforts to be calibrated t

The region struggles to balance their EV growth ambitions with sustainability concerns throughout their supply chain, particularly failing to factor negative externalities particularly water pollution and environmental degradation. From mineral extraction to waste disposal, the concept of a “green mining” industry is still in its infancy often as a result of favouring keeping production costs low, and capturing market share in what is a highly competitive sector. With more Southeast Asian states such as Vietnam and potentially Malaysia moving upstream into mineral extraction activities, maintaining an extractive EV supply chain will greatly strain scope 3 emissions in the region. 

The EV supply chain is an intricate web that spans continents and interconnects numerous states. International scope 3 emissions emerge as a complex challenge within this global network. Key components like lithium from Chile and cobalt sourced from the Democratic Republic of Congo traverse international boundaries, casting environmental shadows across the finished product. The global shipping system further contributes to the intricacies of Scope 3 emissions.

The complexities inherent to Scope 3 emissions necessitate consistent reporting standards to identify problem areas. A good starting point thereafter would be to necessitate supply chain audits and transparency reporting. Only then, a meaningful plan addressing critical emission nodes that can balance economic growth and environmental responsibility, can be forged.

Figure 4: Scope 1, 2 and 3 Framework to Streamline Understanding of EV’s Impact on the Environment


Further Greening a Green Technology: 3 Areas of Priority

Ultimately, the green mirage shimmering over Southeast Asia’s EV boom can only solidify into reality through sustained, holistic action. EV can become a truly green technology. Governments must see the resolution of scope 1, 2, and 3 emissions as what they are: a substantial opportunity to expand into new growth areas along with meeting climate obligations.

I. Energy transition:

Regulatory efforts like eliminating legacy price support for carbon-intensive sources will show a willful government commitment to promoting sustainability and reinforce their bet on EV manufacturing. For example, the Philippines has taken an innovative approach by permitting 100% foreign equity in renewable energy projects to facilitate rapid supply. Government liberalisation promotes EV plans, boosting climate sustainability and foreign investment. Southeast Asia can leverage developed countries’ clean energy investments through technology transfers, transforming the coal-powered paradox into a clean energy revolution.

The opportunities go beyond the EV industry. A McKinsey study highlighted that investing in clean energy development can help Vietnam retain manufacturers committed to 100% renewable energy, necessitating bold domestic choices like phasing out coal and carbon pricing mechanisms. On the flipside, if national renewable strategies do not keep up with carbon border tax schemes, large exporters like Vietnam could place USD 200 billion in exports at risk.

II. Focusing on the Circular Economy

A cohesive narrative on all-scope emissions will encourage confident domestic and foreign investment into climate-conscious industrial growth. The Economic Research Institute for ASEAN and East Asia (ERIA) determined circular economy principles that address scope 3 emissions could introduce USD 324 Billion in Asia’s economic growth over the next 25 years. One example of this is Singapore and Thailand corporations collaborating on recycling and re-purposing end-of-life battery facilities to capitalise on fully sustainable supply chains. This reimagined landscape offers hope. Southeast Asia has the opportunity to get ahead of the curve and capture battery recycling opportunities by investing in R&D from now, even though many of the EVs in use have yet to reach the stage of battery disposal. 

III. Standardisation and Supply Chain Audits

Regional agreements like the ASEAN Framework for Circular Economy show standardised regulations that can combat the uncertainty of scope 3 emissions. Firm transnational agreements, exemplified by initiatives like the ASEAN Leaders’ Declaration on Developing Regional Electric Vehicle Ecosystem, provide frameworks for centralising regulation to navigate an intricate global supply chain. The rewards of investing in a standardised green regional EV supply chain include trade security, attractive economies, and a unified region at the forefront of a sustainable transportation revolution.

COP28 already shows progress in regional cooperation enhancing global competitiveness, with financial innovation and infrastructure development accelerating coal phase-out. Southeast Asia can transform its EV boom from a mirage to a beacon of sustainable development by prioritising robust environmental responsibility alongside economic growth.