Asia needs a green energy transition to grow—Global economic and climate goals depend on it too

Asia contributes two-thirds of global growth and accounts for over half of the global greenhouse gas emissions largely due to its heavy reliance on coal. But it lacks adaptive capacity, including resilient infrastructure, early warning systems and social as well as financial safety nets to respond to climate change effects.

Climate-related shocks threaten economic growth and stability, exacerbated by development pressures, rising debt and decarbonisation challenges amid geopolitical fragmentation, making it a macro-critical challenge. For instance, analysis by the Council of Energy, Environment and Water (CEEW) finds that 75% of India’s districts are extreme climate hotspots (vulnerable to cyclones, floods and droughts).

The solution lies in sustainable energy transition with adaptive capacity building. Pursuing energy independence and net-zero goals can enhance financial stability and alleviate balance-of-payment vulnerabilities. It is a growth imperative for Asia.

As major markets including the EU, Japan and Canada restrict non-green products, transitioning to sustainable energy becomes vital for maintaining market access, with failure risking exports. Embracing cheaper renewables and advancing clean tech across value chains will boost Asia’s energy security and reduce economic volatility.

Seizing this opportunity hinges on massive climate finance. Asia’s emerging markets and developing economies (EMDEs) face a staggering annual gap of at least $800 billion (IMF, 2024). The private sector must cover 80-90% of the investment needs, but many EMDEs face structural barriers.

These include sub-investment grade credit ratings, limited domestic capital market development, inconsistent climate disclosure standards and insufficient risk assessment capacity. Innovative de-risking instruments like guarantees, blended finance and credit enhancement structures can unlock private sector investment.

A regional stakeholder dialogue held by the International Monetary Fund (IMF), Niti Aayog and CEEW this year revealed a key finding: there is growing private and venture capital willingness to fund innovative green projects. Participants representing major investors, policymakers and thought leaders across Southeast Asia, China and India concluded that “the train has left the station” and the energy transition is now irreversible.

Breaking barriers—Price signals and effective regulation: Conference participants emphasised that catalysing climate finance through proper pricing mechanisms is essential. There is a broad consensus on eliminating counterproductive policies such as explicit fossil fuel subsidies, which total $1.3 trillion globally. Also, expanding carbon pricing would create a level playing field to attract investment into low-carbon technologies. Emissions trading systems could also be used to overcome any political-economy concerns.

To further promote private climate finance, central banks and financial supervisors could promote transparent climate disclosures and incorporate climate-related financial risks into prudential frameworks. Integrating digital leadership with decarbonisation and resilience building, through climate finance information platforms and digital registries, is key to scaling reforms in emerging markets.

Technology and structural transformation for resilience: Asia is leading the development of clean technology and driving an affordable green transition through enhanced energy efficiency and investment. Deploying existing technologies can deliver over 80% of the emissions reduction needed by 2030, according to the International Energy Agency.

Asia can also use trade, green foreign direct investment and scaled research and development for decarbonization while boosting productivity and environmental performance.

But accelerating clean technology adoption requires structural transformation beyond climate financing. Policymakers need to turn renewable capacity into a reliable supply source while addressing skill shortages, technology scale-up constraints, inadequate storage and grid infrastructure.

CEEW finds India can meet its 2030 power demand with about 876 gigawatts (GW) of total capacity, including 600GW from non-fossil sources, supported by expanded storage and transmission infrastructure.

Asian policymakers note the importance of predictability in renewables, energy security, managing stranded assets and labour redeployment during the energy transition. For India, success demands coordinated action by the central and state governments.

The fruits of India’s ambition are already showing. A decade ago, utility-scale solar power cost ₹5 per unit. Now, transparent auctions have cut tariffs to ₹2–2.5, and solar-plus-storage now delivers round-the-clock power at ₹2.7/kWh—cheaper than new coal.

Asia is critical to the global green transition. The transition is equally critical for Asia’s growth. Underinvestment in climate resilience threatens both environmental and economic goals. Coherent policies will shape Asia’s future. Climate action safeguards the environment and macroeconomic stability that drives Asia’s role as the engine of global growth.

These are the authors’ personal views.

The authors are, respectively, director, Asia & Pacific department, IMF; and founder-CEO, Council on Energy, Environment and Water, and special envoy for COP30 representing South Asia.