Asia can't shy away from hard choices on energy use

Energy is the lifeblood of economic growth. It keeps factories and offices running, ports and airports humming and shopping malls in business.

Asia's extraordinary growth story has given the power-hungry manufacturing sector a starring role. The region's energy consumption is now twice US levels. And there are no signs that the expansion of this appetite for energy will slow.

At the same time, a heavy dependence on carbon fuels means Asia's rise has been breathtaking in more ways than one. Just ask anyone who has experienced the air pollution in Beijing or Shanghai recently.

While the global slowdown has weighed on the region since 2010, growth stabilised last year and the region is well positioned for a gradual, but meaningful, recovery. Asia's GDP is likely to grow by roughly 65 per cent by 2020. To fuel this expansion, primary energy consumption will need to increase by almost 60 per cent, most of it in China, India and Indonesia.

However, the price could be high. It is clear that Asia needs to use cleaner fuels and improve its energy mix without undermining the competitiveness of exports. Difficult choices lie ahead. For example, generous and poorly targeted electricity subsidies have lowered costs to unsustainable levels and given people little incentive to consume less. This places a huge burden on government budgets.

While some efforts have been made to phase out subsidies, with fuel and electricity price hikes in the Philippines and Indonesia, progress has been delayed by strong public resistance.

Moreover, pressure is building on governments to introduce policies that will raise energy efficiency and protect themselves from vulnerability to external shocks. In the case of carbon fuels, Asia is more vulnerable than France and Russia. Hong Kong, Singapore and Taiwan are particularly exposed, given that they have no natural resources and satisfy almost all their energy needs with carbon fuels.