Singapore is one of the smallest countries in the world, yet plays a unique role as one of Asia’s main financial and oil refining hubs. So how is it using its influence to help or hinder the transition?
Ravi Menon has spent his career at the heart of Singapore’s economic and financial strategy, serving as Managing Director of the Monetary Authority of Singapore (the country’s central bank) before becoming the country’s Ambassador for Climate Action.
In this conversation with Michael Liebreich, Menon explains why Asia’s energy transition will follow a different path from the West. With growing energy demand, dependence on coal and the need for affordable and reliable power, the challenge is not just building clean energy but replacing the systems already in place.
They discuss Singapore’s role in shaping Asia’s future energy system, from cross-border electricity trade and new financing models to carbon markets, electric vehicles and the growing link between energy security and the move away from fossil fuels.
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Ravi Menon
I don't quite agree that all we need to do is to grow the green stuff and leave the rest behind. It doesn't work in Asia. It probably works in Europe or America, but it doesn't work in Asia. You take the coal fleet for instance, 60-70% of Asia's electricity comes from coal-fired power plants.
Michael Liebreich
Down to 50% in China, from 80% when I started to do what I do.
RM
Yes but you've got to phase down or phase out the coal fleet. And that's what China has been doing. It's not just about building the renewables.
It is easy enough to build solar farms or wind farms. You can get the capital for that. But if you leave the existing coal fleet in Asia as they are, and remember, energy demand is growing, and is expected to double by 2015 in Asia.
So if you leave that behind, that is going to eat up the bulk of your carbon budget remaining that's available to the world.
ML
So let me challenge though…
ML
Hello, I'm Michael Liebreich and this is Cleaning Up. I'm in Singapore for Ecosperity Week and this episode is the first of a number that we're recording on Southeast Asia.
My guest today is Singapore's Ambassador for Climate Action. He's also Senior Advisor to the Prime Minister's Office on all things climate related. For many years, he was a Governor of Singapore's Central Bank and has also been the Permanent Secretary for Trade.
Please welcome Ambassador Ravi Menon to Cleaning Up.
ML
Ambassador, Ravi, thank you so much for taking time out of a busy schedule during Ecosperity Week here in Singapore to talk to us.
RM
Likewise, Michael, thanks for taking the time. Happy to be here.
ML
Good. So let's start where we always start with you explaining in your own words, the short version of who you are and what you do.
RM
So shortly after I retired from the Monetary Authority of Singapore as a Managing Director, which is a central bank in Singapore, I was offered to take up the position of Ambassador for Climate Action. It was a newly created role so I had the great pleasure of actually discussing with my government colleagues to write up the job description as to what I wanted to do.
There is already an existing architecture. We have a Chief Climate Negotiator, he's a career diplomat. And then, of course, we have a ministerial track where the Minister for Sustainability leads our climate negotiations. So we carved out a space where I thought, where they thought I could be useful, which was to sit at the intersection of public and private partnerships to drive thematic climate priorities quite apart from the negotiations. So I have no part in the COP negotiations. There's a well-oiled missionary that's doing that.
So I do stuff like carbon markets, blended finance, discussions about grids, adaptation and resilience financing and programmes, anything that involves governments and private sector coming together to advance the climate agenda. Most of it is external phasing, working with other countries and climate leaders in other countries.
I also have a role domestically as Senior Advisor to the National Climate Change Secretariat, which sits under the Prime Minister's office and coordinates climate policies across government. So I think it's a real blessing that we have such a thing like the National Climate Change Secretariat, because in my conversations with people in other countries, one of the big problems is the coordination challenge, because climate touches every facet of life, every government agency. And because we have this coordinating mechanism with a small but highly effective Secretariat, which sits in the Prime Minister's office, that's been very useful.
So I was also appointed Senior Advisor to that Secretariat to help some of the domestic transition work.
ML
So I knew you were Senior Advisor to the PM office, but it's to the climate piece.
RM
It's the climate piece. I'm not the advisor to the Prime Minister.
ML
So everything you do now has this climate lens on it. Is that right?
RM
Yes, my government appointments. And then I do some stuff in the private sector.
ML
OK, so there's a few fascinating touch points with previous guests. Rachel Kyte, of course, who's the Special Envoy for the UK with a somewhat similar role. The institutional touch points are quite different because of the Climate Change Committee, whereas we don't have that Prime Minister's office, but also central bankers.
So I think you are our fourth either current or former central banker, iIllustrious colleagues, Mark Carney, Pierre Wunsch. So you're in good company.
RM
Thank you
ML
And you said that you were the monetary authority. You were the central banker, what were you doing before that? What is your background before that?
So do you come out of, is it kind of econometrics and finance? Or was there always some kind of an environmental or energy industry angle to it?
RM
Well, I started life in economics. So I started life at the Monetary Authority of Singapore, fresh out of school as an economist, doing economic research, analysis, econometrics, forecasting, macro models, stuff like that, exchange rate policies. Did that for about 10 years and then started to move around to other areas of central banking beyond monetary policy and economic analysis.
And then I spent, then I went over to the broader public service where I served in the Ministry of Finance as Deputy Secretary. And there I did fiscal policy. It's still an extension of my economics finance background, but it gets into a lot more of the work of the ministries.
And then subsequently, the Ministry of Trade and Industry, where I did trade, industry, energy, R&D. And that's when I started having touch points with energy policy and energy strategies. And that was also when we were getting Singapore's organising itself on its climate action agenda.
And so I started getting into that space. Then I came back to the Monetary Authority of Singapore as Managing Director.
ML
So I've remembered who the fourth central banker was, he wasn't actually the central banker, but it was. And that is Professor Ma Jun. In some ways, the father or the originator of a lot of China's finance architecture.
RM
Wonderful chap. I just saw him this morning.
ML
Oh, he's in Singapore. He's in Singapore. Oh, gosh. No, I've missed him on this trip, I think. Singapore is just a really interesting case study because, you know, very committed to climate action I think it's fair to say, but with a very specific, let's call it, geography and economy being physically very small, very dependent for energy on imports. So it's quite constrained in what Singapore can do itself on climate action, but with enormous ambitions and enormous influence regionally, which is why I'm here, for instance.
RM
Yes, Singapore is a city state about the size of smaller than Greater London. And we account for 0.1% of global emissions so we're not going to make the difference.
But we have always been very committed to the multilateral global order, not sure if it exists anymore, but to the extent it did. And we benefited tremendously from that, whether it's trade, finance or other areas. And so as part of our active participation in COP and the Paris Agreement we take those commitments seriously. And it's not a matter of how small you are or how big you are, every one of us has to do its part. And so I think that's the basis for our ambition on climate, net zero by 2050, just like the rest. We also know that it's not enough that we decarbonise, we’ve got to help the world decarbonise, or at least Asia decarbonise.
And we have some unique strengths as a business, logistics, financial and technological hub because we're so connected, that we can play a role in facilitating Asia's own transition towards a lower carbon future. So those are the prongs of our approach to climate. First, decarbonise ourselves and then help the region at least to decarbonise.
We have no doubt quite formidable challenges because imagine a city trying to be net zero. Countries can because they have space to do stuff we don't have. So we call ourselves alternate energy disadvantaged.
Yes, the sunshine's here, we're in the tropics. But even if you blanketed all the rooftops with solar panels, that's not going to account for the bulk of our electricity needs.
ML
And we're recording this on a day when it's gloomy. If people look carefully at the film, they will see that it is raining. So there's the Marina Sands, a very iconic view, which you can barely see because it's been raining pretty hard at the moment you can see it.
RM
But that illustrates one point though. The sun is one thing, cloud cover is another. The solar insulation into Singapore is actually weaker than say in countries like India or Australia, where you look up, it's blue skies.
Here cloud cover is quite dense. And I think you see this as a feature in many tropical countries. So because of the density of the clouds, actually the effective solar power that you get is lower.
ML
If we just take a quick overview of the challenge domestically, we'll talk about the international influence and so on in a second. But you've got all the usual things of buildings with air conditioning. You've got some small midsize manufacturing, I've actually just been out today to visit a noodle factory. So I know you've got some of that SME manufacturing.
You've got a lot of transport, airport, aviation fuel. You've also got a big refinery sector. So how will you get to net zero 2050 with that lot? Because as you say, it's not like you're going to have wind turbines.
There's a conversation about nuclear, but I don't know how keen people are given the small land area on nuclear and the solar is limited. So what are you going to do?
RM
Yeah, good question. And we have the disadvantages of small size that a city has and also the disadvantages of a country with a large manufacturing base. So it's not often that you have a city state with a large manufacturing base.
Manufacturing is about 20% of GDP. And we have a sizable oil refining and petrochemical industry within that manufacturing, which is highly carbon intensive.
ML
Another analogy or another analogous size of country would be Luxembourg. It's small and it doesn't have a lot of land area to do things, but it doesn't have lots of refineries.
RM
Yes, it doesn't have an industry. It's a services economy. Hong Kong is a services economy. Most city states are services economies. Now they have their own challenges, but nowhere near the scale of having industries, which are really where the carbon emissions are coming from. And so thankfully we don't have cement, steel and the other types of hard to abate sectors, but oil refining and petrochemicals and just to some extent semiconductors, they also soak up a fair amount of energy.
ML
Right. So what is the plan? That's the problem. What's the solution or what's the proposed approach?
RM
We have defined our approach as comprising three transitions that we need to make as a country by 2050. We call it first the energy transition, second the carbon transition, third the economic transition. So the energy transition is about greening the grid.
So this is electricity usage, mostly in industry, a fair amount in buildings and residential houses, commercial space. So greening the grid is one priority. Then there's carbon, what we call the carbon transition, which is the non-electricity related emissions, mostly in industry, heating, cooling, all manner of industrial chemical processes, which give rise to emissions.
And that is quite separate from greening the grid. And then third is the economic transition, which is we envisage that the economy has to fundamentally restructure. In fact, the global economy has to fundamentally restructure.
And some have called it potentially as big as the industrial revolution of 200 years ago, the scale and scope that's required. And so we are looking to an economic transition of restructuring, which is two pronged. One is to grow the green sectors of the economy, which are currently small, and then to green what is brown, which is never going to become green, but 80% of global GDP is brown.
And so progressively greening it, that's the process. And then to build up the skill sets so that people can move into new jobs. So it's an approach that touches on all three.
Now, the most difficult part is the energy transition. Because as you say, with limited capacity for solar, where are we going to green it from? I think there are a few options.
One is to maximise solar. We've just raised our solar targets. And there is an active debate going on as to whether we can keep pushing that.
I hope with improved technologies that we can do that.
ML
Solar at the moment is what, a couple of percent?
RM
Solar is just 2%.I think we're looking at going up to 6 to 8%. Some of us believe it could be in the mid-teens, if you really push the frontiers of technology. And there are interesting developments taking place in terms of materials, efficiency improvements.
But there is a physical limit to efficiency in solar panels. So I think if we can get close to those efficiency boundaries, we could get quite a bit more.
ML
On that, I suspect you can get further, not because solar output can become larger. By the way, we're sitting here with a view over at least a part of Singapore. I can't see a single solar panel.So there's definitely more that can be done.
But also, you used a number which I'm going to, if I may, respectfully challenge. You said 80% of the global economy is fossil-based.
It's actually 80% of the supply of energy is fossil-based. If you actually look at the economy, the global economy, all the things we do, heating, lighting, mobility, aviation, everything. If you look at it from what the economy delivers, it's actually 70%.
And the reason is differential inefficiencies. For instance, if you electrify all your transport, then your primary energy goes down and therefore your solar percentage, in a sense, just goes up automatically. So you may get to a higher percentage, but I mean, 15 or 20% would be some kind of limit, I suspect, just in terms of land area.
RM
I don't know enough to say whether we can go beyond 15 or towards 20, but that's the kind of challenge we need to pose to ourselves.
ML
Okay. But that's a kind of, that's a no regrets approach, right? Because you've got some area and you're not using it yet, as we say.
RM
Okay. Yeah. No, when you get to 8%, you should be seeing panels everywhere. That's a maxed out and then we've got to go beyond that. So solar is one part of the equation.
The other part of the equation is renewable energy imports. So I do believe that the world needs to transit to a paradigm, just as in an earlier era, we traded goods and services for mutual prosperity and gain. We need to look at trading of green electrons.
And this has already happened to some extent in Europe.
ML
Interconnections.
RM
Interconnections across countries, because you have deficit countries. In fact, it's not deficit countries, deficit regions and surplus regions for renewable energy.
And if you can get them to trade and have, you know, unified grids, which is the ASEAN power grid project, but we can't wait till that's in place, because that's going to take a couple of decades. And so we have already been negotiating terms for importing electricity and we've already started to import a small amount of electricity through the Laos - Cambodia line that goes through Malaysia to Singapore.
ML
Can I ask what is the current status with sun cable? Because that was the one that kind of exploded on the scene. Everybody was very excited, Australia to Singapore, thousands of kilometres. Is that ever likely to happen?
RM
So now that's still on the table. I think we've actually got some kind of implicit agreement with Australia. They are keen to sell it to us, but it is exorbitant to lay sea cables all the way from Australia to Singapore.
So recently I was in India, some of them were saying, why don't we also lay a line from the east coast of India, which has produced renewable energy across the Bay of Bengal? Yes, there are all kinds of possibilities. But the analogy is to what I said earlier on, the trading goods and services, you need to create a multilateral network, a framework before this can happen.
ML
So I agree. I was actually an investor in Xlinks, which was Morocco to the UK. So I think we will do all of those long distance HVDC subsea cables.
There's one that's being proposed from the UK to the north east of the US.
RM
Really?
ML
4,000 kilometres, 15% losses, an enormous advantage trading across time zones, which is very, very lucrative if you could imagine.
But you need to do multiple. You can't have any one link providing too much. And when you say exorbitant, if you say exorbitant, I say oil price shock or gas price shock.
So what are you comparing to?
RM
Well, it really depends on, well, that goes to the current energy crisis and how much that is going to shape our views of future fossil fuel prices, especially if you factor in resilience risks and so on.
ML
If they get priced in properly, which is a question.
RM
And history shows that they get priced in for short periods of time. But after some passage of time, people forget and they take the easy way out. I mean, we've seen this movie before.
It's a bad movie. We saw it in 1973. We saw it in 1982. We saw it in 2022. And each time, yes, there was some response. Some countries started doing the right things.
1973 forced Japan to do some things. 2022 is forcing Europe to do some things. Let's see how this goes.
ML
So that's a fascinating conversation about how much hysteresis, how much memory there is in the system. Because each time, each crisis, there has been a memory. But it's only been in the last couple of crises, the Russian invasion of Ukraine and this one, where there's been a large-scale alternative to oil and gas.
This is the first time we can really do something that's not exorbitant, to use your word. But let's come back to You see, you were talking about, you said importing green electrons. What about importing green molecules? Is that also on the plan?
RM
That is. So there are pilots that we are using. Ammonia, green ammonia is one of the options that we have because ammonia carries hydrogen and it also can be used to combust, can be combusted for fuel.
So we have a pilot that does both for bunkering and for combustion. The trick with these pilots is that, well, it demonstrates that it works. But once you start scaling it, does it still hold the economics? Does it hold?
ML
I lured you into talking about hydrogen when we met outside. We agreed that we maybe should skirt around that subject, because when you use the word exorbitant, really, when you're talking ammonia for power production at $200, actually I did an episode with Emmanouil Kakaras from Mitsubishi Heavy Industries and we agreed that right now it's probably $400 per megawatt hour if you try to generate from ammonia. But there's other green molecules. And I'm struck by, of course, the relationship between Singapore and Malaysia in particular.
Malaysia could make a lot of green gas, of green natural gas, biogas. We have a figure in Europe, 45% of the gas that is used in Denmark is biogas for its agricultural sector, because they've been incredibly consistent in investing and producing that gas. That has not yet happened here in Asia.
RM
Yes, it is. So that's the other area we are looking at closely beyond solar and electricity imports is biofuels. There's a whole family of fuels there.
Biogas is one of them. And the larger notion is the value of the bioeconomy as a whole, because there'll be a whole range of activities around this. And Asia, Southeast Asia has a lot of this.
Agricultural waste and waste to energy projects, you see quite a bit of that happening. So I think that's very much on the table. We've also got pilots in the biofuel space and cooperation agreements with other countries.
But we need to be conscious that where the bio comes from, that it's not a result of deforestation. It's not a result of wasteful agricultural practices. That is genuine waste.
ML
Wasteful or cutting down primary rainforest.
RM
Yes, yes.
ML
So I think we have to be careful about where it comes from. But also we should be much more careful where it's going to because of the biofuels, I'm very aware of the economics of electric vehicles. It's one of my long term special subjects.
And I actually so much so that I'm actually building a heavy goods vehicle charging business in Europe, a pragma charge, because you can already beat the economics of diesel, let alone biodiesel today with limited or no subsidies.
RM
Using biofuel?
ML
No, no, using electricity. Even at some European countries, electricity costs. And so right now, I would venture that almost every single litre of biofuels that we produce, most of it, almost all of it goes into land transportation, which is completely absurd.
And so I look around and I see some, but not very many electric vehicles here. And that seems to be a big opportunity as well.
RM
You're absolutely right. We look at biofuels not for land transportation. We lose it for bunkering and extremely heavy, large vehicles.
We don't have many of those. So I think when it comes to land transport, it is going to be electrification. Already, I think 40 to 50 percent of all new car sales in Singapore are electric.
So the flow has taken off massively. The spark is going to change. We have a policy to basically get rid of the internal combustion engine by 2040.
I don't think we will get to every large heavy vehicle, but substantively, it will be electric land transportation.
ML
So let me suggest that the large heavy vehicles, when you really get into it, the economics are probably even better than the smaller vehicles.
RM
Right.
ML
Because they do so many kilometres. So you have an expensive vehicle, but it gets amortised over what is actually...
RM
We don't have very long distances here. But I'll be very keen to find out about this company you are making..
ML
Well, or I can help you to do the numbers for Singapore. OK. So that's a plan, there's lots to be done. And you've talked about the architecture of, you know, you have your ministries and you can liaise with them. But most of your time, you said, is spent on the international liaison, on the international front.
I know that you are very interested in the carbon market side of things and that you have a fund, the Fast-P Fund for regional decarbonisation. Take those in whichever order you'd like.
RM
Yeah. Maybe I'll start with Fast-P because that's what I started with when I was at the Monetary Authority of Singapore. And the question we asked is, so we have a huge financing gap, very well known.
How do we get finance to flow to transition projects in Asia? The cost of capital in Asia is very high because of actual and perceived risks. And they're real.
And that's what commercial investors are telling us. And you have just got to respect that. So they expect much higher returns than they would for projects in Australia or Europe or America.
And you don't have carbon pricing. So the cost of capital is too high and the price of carbon is too low.
And so that makes financing of private capital flows very difficult. The theory of change we had is not entirely new. Blended finance has been around but has never been scaled, is to build a capital stack where concessional capital is used to de-risk the projects and then you can crowd in private capital.
One of the problems, one of the big problems the world has is that much of public capital, whether they come from sovereign governments or from the multilateral development banks or even the development finance institutions, is going directly into commercially viable projects, which doesn't make sense. Which doesn't make sense. They are crowding out private capital, competing with private capital.
But that's the way it is because governments don't like to lose money. MDBs don't like to lose money. And MDBs need to retain their triple A rating so they go for safe projects.
The world doesn't need money for safe projects. They need money for marginally bankable projects. Projects that are below the line, but you need to just tip them over.
And so we thought if we provided a base of first loss capital and crowded in private capital, you can multiply the value of that, our dollar.
ML
Let's talk about first loss capital. I'll tell you why, because our audience is non-specialist. So, you know, I've known Rachel Kyte, who's been on the show twice and is a great friend. And I've known her since she was at IFC and then World Bank, doing, inventing a lot of blended finance tools and first loss capital type approaches. But let's explain what it means.
RM
It is basically what we call concessional capital. Capital that absorbs loss, meaning if the project goes bad, we take the first loss.
ML
But it is debt. It is not equity. So this is a typical project.
RM
It is a grant. It's a grant. So it is a grant, so Singapore government has put in five, has committed to put in 500 million US dollars, half a billion US dollars as grant with no expectation of a return. But it is meant to absorb loss and catalyse other sources of capital.
ML
OK, but let me drill in now, because it's a grant into the vehicle, into Fast-P. Yes. So the government never wants to see it back. But it's not being granted to the project.
RM
No. So and that's the difference with fast pay and projects, because the blended finance models we've seen are going directly into projects. And there is a lot of debate and argument between providers of concessional capital, providers of commercial capital.
Providers of commercial capital want more protection and less risk bearing. Providers of catalytic capital are saying, well, you are in the business of taking risk. I'm just de-risking this portion.
I'm not going to subsidise you making huge profits. Imagine those conversations afflicting every single project. So we said we will take a programme approach, build a platform. We are committing into that platform. Singapore government doesn't have direct visibility of which projects it's going into, but all these discussions take place at the programme level.
And once it's settled there, term sheets are drawn up, then the fund managers then go out and do their stuff in a much more agile manner. They fund the projects because they've got this backing. So the formula is we put in $500 million and we want it to be matched dollar for dollar by other sources of grant capital from sovereigns, development finance institutions, philanthropies, anyone else willing to put grant money to absorb loss with either zero or very minimal return prospects. And then use that $1 billion base to crowd in $4 billion.
ML
So when you say matching dollar for dollar, that's $500 million from you, $500 million for others with some kind of a policy desire to do this stuff, and then $4 billion from purely commercial. So this would be sovereign wealth funds, insurance companies, pension funds.
But that $4 billion would not take the first loss. So the billion will take the first loss. So if a project is delayed by a year or two and it can't meet its interest payments, the first billion pays it, which is quite why it's called first loss.
RM
Correct. Yes. Anything beyond that, of course, they have to bear it. So they bear some risk, but the first loss risk is taken.
ML
And it's asymmetric. They're not bearing 80% of all risk. They're bearing no percent of the first loss and then they bear their part.
RM
Yes, that's right. That's right.
ML
And where is this mechanism at the moment? What is the status? Does it exist?
RM
Oh, it does. It does. So we announced it two, three years ago. And since then, we've been testing it with partners. So we set up three funds under Fast-P, Financing Asia's Transition Partnership.
The first fund is what we call the Energy Transition Fund, primarily focused on phasing out fossil fuels and replacing them with renewable energy.
ML
And can I ask you a question, though? Why not do that via the Asia Development Bank? I mean, there is the ADB, Asia Development Bank that sits in the Philippines.
They do this stuff. Why would you not say, you know, we love what you're doing. Here's 500 million, don't lose it all at once.
RM
Yeah, except like I said, the MDBs don't do this. The MDBs don't fund marginally bankable projects. The ADB is not meant to lose money because these are shareholders' money. This is coming from countries. And so the World Bank and the ADB are constrained in how much risk they can take.
ML
Even if you asked them to create a window, manage it separately, gave them, in a sense, a management contract to do it on your behalf. They're just institutionally not able to do that.
RM
Institutionally, they can't. So the ADB actually has been among the more progressive of the development banks. And actually, the ADB is a partner for Fast-P.
In fact, when we conceived the Fast-P, we had active discussions with the ADB and we still continue to talk to them and look forward to ADB being part of the Fast-P project, where they can contribute part of their trust funds. Now, ADB is progressive because it has tapped philanthropic monies for such use, but it cannot use its shareholders' money because the shareholders hold the ADB to account for how it's managed.
ML
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ML
In a sense, the theory behind this is that there are these marginally or not quite bankable projects.
RM
Yes.
ML
There's another theory which says there just aren't enough projects, that the developer community is insufficiently skilled, that the policy environments across Asia are not tailored for clean energy projects, whether it's wind or solar or batteries or nuclear or electric vehicle charging. It's too difficult from a policy perspective.
Have you decided? Are you sure that you're solving the real problem?
RM
We are solving the problem that exists, that is tractable. Are there projects that are absolutely not bankable? Of course, there are. In fact, there are a good number of those and we can't touch that. But we need to solve that in order to solve the climate problem.
But we're trying to solve the problem in the middle, which is marginally bankable, which we estimate it's around 30% of the projects. There are some that are commercially viable and there are some that are absolutely unviable.
So this is not a small chunk and $5 billion is not enough. We need about another dozen blended finance platforms to do this. But you start doing this, that moves the needle. 30% is not small.
ML
I do worry because I go back to the time when there were these things called CDM, the Carbon Development Mechanism. And the problem there was that to get those funds, you had to prove additionality, which meant in the jargon, that means you had to prove that your project was not viable commercially.
But if it was too rubbish, then it would also not qualify. So it had to be in this middle zone, the Goldilocks zone. And what happened was, there was an enormous sprouting of consultants who could prove that your project was not rubbish enough to be completely ignored, but not good enough to go ahead.
And it was all utter nonsense. It was all just being, you know, it was just spreadsheet work by consultants charging money. And it was all a waste of time. In the end, it all went away.
RM
No, you're quite right. This is more art than science. Additionality is important for us because if these are commercially viable projects, then the Singapore government and the other governments and the philanthropies are putting in, we are being taken for a ride, right?
This needs to be marginally bankable. Now, of course, if they are very unbankable, the commercial guys are not going to come in. So we are in that space, which is not a small space.
My point is that it's about 30% of the projects are in that space. The challenge is identifying the correct ones. At the margin, you'll make some mistakes on either end of it.
You will end up with unviable projects that lose money. And there'll be one or two that you probably didn't need concessionally. I think we shouldn't let the perfect be the enemy of the good.
Do what's practical. So these are exactly the discussions we have with our fund managers. Are you sure this is the space?
ML
And it's a funny situation because if I came back in two, three years, when you've got five years, six years of track record, if you say to me, and Michael, it was such a great idea that we never lost money on a project, then that actually is bad.
RM
That would be worrying. That would be worrying.
ML
So let's talk about then your carbon market activities as well, because that's the other big area that I believe you're working on. What are doing on the carbon markets? Because this is how can I put it?
This is a time we had lots of enthusiasm about carbon markets during the I would call the Glasgow COP 26 years, the high integrity carbon markets work under Mark Carney and Mike Bloomberg. You were very involved in that Glasgow process, GFANZ, the Glasgow financial alliance for net zero, where you chaired the Asian partnership. But carbon markets, are they still around? Are they still a thing in this current political environment?
RM
They are still a thing. They are still very much a thing. I think there was a lot of hype in the lead up to the Glasgow COP. I don't think the hype was unfounded. I think it was just a sense of the potential, long term potential of the carbon markets.
But a lot of frameworks and foundations were not properly laid. And I think we got into a bad patch. Lots of conservation projects, for instance, turned out not to be actually removing that carbon. There were real problems with the crediting methodologies and so on.
And so there's been quite a lot of reputational damage done to that market. And the market is basically tanked. So transaction volumes have collapsed. Prices have collapsed. Demand and supply have both frozen.
ML
Do we have to differentiate here between the voluntary and the regulated markets, because there were all these airlines running around saying they're going to be net zero, oil companies are going to be net zero, and they all needed to buy credits to get there. And then the credits, of course, were these fictional credits. And so that whole thing just has been a nightmare.
RM
I think the compliance markets, because they're based on the Article 6 provisions of the COP process, has very strict criteria. And because sovereigns are involved in that process, has generally held up pretty well. But that's a rather smallish market.
Because sovereign demand outside of countries like Singapore, Japan, Korea, Switzerland, Sweden, probably Luxembourg, a few small European countries, Singapore, and a couple of others, most of the countries are not in this game yet. And that market is probably because of the small number of players, credible players, and we pay a lot of attention to the integrity of the projects that we sign up to, that market is in a good place.
But the voluntary market, which has no such regime, developed quite organically, has faced a lot of these problems. And our theory is that if a market is not functioning, the solution is not to exit it, but to reform it, to make it work, to understand why it's not been working.
And so most of the work that we're doing currently on our carbon markets agenda is to make that market work. And we think that's vital. Why do I talk about blended finance and carbon markets?
Because I don't see any other financing pathway to net zero. The fundamental problem is this - there is just not enough public monies for the climate transition.
Most governments are facing high deficits, public debt levels. Electorates are not going to countenance tax raises, tax increases to fund these things. And you have now many competing demands like defence, infrastructure, energy security, and so on, which competes.
So there's not enough public capital. There is enough private capital, but private capital is not going to take this risk. And carbon markets and blended finance are ways to unlock, to bridge these two.
ML
So most of the work that I do when I'm not doing Cleaning Up is on, and even the theory that I talk about, or the kind of frameworks that I write about and that I push through Cleaning Up. It's all about growing the clean stuff quickly. It's all about speed of growth.
It's not about trying to remove carbon or remove or to push down and be in a sense to demonise fossil fuels. It's about growing the clean stuff. And I do think that there's a lot of private capital available for that.
And also, a lot more of that could be relatively easily if we had things like price signals, locational and temporal price signals in the power markets, which we're struggling with in Europe. And I don't know that the debate has really started in Asia in the same way because the penetration of renewables is not as high as it is in Germany, Denmark, UK, and so on.
So it feels to me like, I hear you when you say the private markets can't do it, but there's so much more, it's such a rich vein that can still be tapped for private markets.
RM
The private markets total financial assets are several dozens of times or hundreds of times what's needed for the climate transition. So there's no lack of capital. It's all a matter of risk and return.
And those mechanics don't work. I don't quite agree that all we need to do is to grow the green stuff and leave the rest behind. It doesn't work in Asia. It probably works in Europe or America, but it doesn't work in Asia. You take the coal fleet, for instance, 60-70% of Asia's electricity comes from coal-fired power plants.
ML
Down to 50% in China, from 80% when I started to do what I do.
RM
But you've got to phase down or phase out the coal fleet. That's what China has been doing. It's not just about building the renewables.
It is easy enough to build solar farms or wind farms. You can get the capital for that. But if you left the existing coal fleet in Asia as they are, and remember, energy demand is expected to double by 2050 in Asia, so if you leave that behind, that is going to eat up the bulk of your carbon budget remaining that's available to the world.
ML
So let me challenge though, because China built last year 90 gigawatts. They commissioned 90 gigawatts of coal.
RM
It's more than two times the rest of the world put together.
ML
But burnt less coal than the year before.
RM
Exactly.
ML
India as well. So what you've actually got is, I agree, there's a lot of building going on of coal, but the reality is that it's actually being forced into almost like a backup role.
I mean, it's not there yet. Of course, China with 50% coal, it's still miles from that. But the direction of travel is already clear that there's more and more.
China's building nuclear, so is India. But it's much, much slower than the build out of wind and solar and batteries. And the coal is being pushed down and down.
Will it get all the way there? I will concede to you that we're not going to get coal off the system by that approach. But there is miles more that will happen, you know, mainly through private, mainly through private.
RM
Was it through private in China?
ML
It was a combination.
RM
Theres a lot of massive subsidies. China, we enjoy cheap solar panels today because of years of Chinese subsidies, which increased production, economies of scale drove down. You travel down the cost curve and now we enjoy it. But that initial investment was big.
ML
It doesn't matter. But the point is what's happening now. And I would argue that now what you've got is a massive misallocation of resources into coal, because a lot of it is to do with provincial state leadership that doesn't want to be dependent on other states.
RM
I don't minimise the political and governance impediments in many of the Asian countries, but there is one big difference between China, India on the one hand and Southeast Asia on the other. And that's China and India, continental economies are largely accessible and they have reasonably good grid systems. China's invested massively in its grid and battery storage and India is doing the same now.
You look at Southeast Asia, transmission is extremely poor. So the real challenge is not getting private capital to build solar panels. The real challenge is getting financing to build the grid systems and the battery storage.
You take a plant in the Philippines, which we are trying to phase down, generating carbon credits to retire them early. The battery storage alone for the solar panels, solar energy that's going to replace the coal, that makes the project very dicey. And so you need some kind of blended finance instrument, some kind of concessional capital that's going to absorb that cost because you can't charge that electricity tariff to the villagers.
ML
How do you explain what Pakistan has achieved in the last three, four years? A poor grid, intermittent electricity, brownouts, rolling power cuts and people just went and bought solar. Farmers just went and bought solar for irrigation for their own rooftops and put it on rooftops and put it in fields and so on.
RM
And they are saving massively in foreign exchange now.
ML
I think it was 12 billion that they have saved in the last few years.
RM
And this year they're expected to save six billion.
ML
I'm not going to argue for unregulated, I'm not a libertarian. I'm not saying, oh, just let the markets do it. I suppose it's just a fascinating conversation about how much intervention and what types of intervention are still needed, whether it's power market policy or blended finance, or there are various instruments.
RM
There is no silver bullet in any of this. If you need three bullets, I would say they are policy, technology and finance. Finance can't do this job alone.
Finance is the oil that greases the machine, but you need the machine. You need the technologies. And there are some areas where the technologies are not good enough.
And policy frameworks are key. Carbon pricing is the single most important thing. And then how the energy market operates. Is it a really competitive market based system? If that's the case, then it makes it a lot easier for financing and for technology solutions to come on. So I agree.
It's all three things that are required. But given what it is ,what can we do on financing? And that's where we've started to use carbon markets and blended finance, not under any illusion that they're going to solve the whole problem, but they do address some of the gaps.
ML
I want to come back to something that you said very early in our conversation in the remaining minutes that we have, your generous allocation of time. And that is, I can't remember exactly how you phrased it, but you said if there is still a global sort of rule of law, a global consensus, and Singapore has done incredibly well, GDP per capita is literally the highest in the world, you've done very well from a system of international rule of law and trade, you've been the trade minister yourself.
RM
Permanent Secretary.
ML
Sorry, Permanent Secretary, not the minister, but the Secretary. And I was on the UK Board of Trade. How worried are you?
Because the country that fulfilled the role of ensuring the openness of navigation, the country that ensured the openness of the Strait of Hormuz, the country that was behind one of the major players behind the WTO, has essentially stepped away from all those responsibilities and is not building alliances to maintain stability, but is actually attacking its allies and building alliances or investing its political capital in the less, let's call it the less predictable players in the world. Isn't this enormously threatening to Singapore?
RM
Yes, it's worrying, but worry is not a strategy. I think we have to accept the world order has quite fundamentally changed. And whether it's a disorder or an un-order remains to be seen.
And as a small country, we're a prize taker. And so we're under no illusions that we're going to change things in the rest of the world. But we've got to find new ways of operating.
And that's what it boils down to. We've got to be flexible and nimble in coming up with new coalitions of the willing on different issues to tackle them in different ways together in small groups. I think this is the time when small countries and middle countries need to just step up because there is no global leadership.
And when you have no global leadership, the market is a wonderful analogy. The market has no leadership, nobody directs it. At least not in a capitalist economy. The individual actions of players through some coordinating mechanisms like exchanges in the financial markets or through market mechanisms and some basic amount of regulation and so on, we got to create those kinds of conditions, form new what we call variable geometries that don't map into existing multilateral forums.
This is not to give up on multilateralism, I think we've got to continue to fly the flag. But we've got to be realistic and find new ways of operating. And I think this has forced many countries to think hard about new corridors and relationships.
And you see that in Asia. You're thinking about corridors to the Middle East, to India, East Africa, our own neighbourhood. There are things we can do together.
And now the impetus is even higher because, well, we are not operating in a safe and conducive global order. So we've got to keep looking at these new forms of cooperation, be it in trade, be it in climate and even security arrangements.
ML
It's fascinating to have this conversation in Asia because I spend most of my time in Europe, some in the US and around the world in what I call most of the world. I've been in Egypt and I've been in Canada and so on. But here it does feel like, unlike most of those other places where the climate conversation has very much taken a downturn, here it doesn't seem to have because you've chosen the climate beat within all of those multilateral, plurilateral coalitions of the willing, nimbleness.
You've chosen the climate beat for your activities so that now your official roles are all climate related. It does feel like if you had done that, if you look at Rachel Kyte's role, it's very, very difficult, yours might be marginally less difficult because some of these Asian countries are actually, in a sense, doubling down on their actions on climate versus where they might have been five years ago, where much of the rest of the world is doing the opposite, undoubling down, doubling whatever the opposite is, actually dismantling or deprioritising. Do you think that's fair? Is that your sense as well?
RM
Yes and no. Yes, I think Asia is doubling down a lot more in this space, not because they have suddenly become greenies, but because of what's happened in the Hormuz Straits. I think the energy security and climate transition agendas have started to converge.
Now, I won't exaggerate the convergence because there are some issues where they will still diverge, but they have started to converge. We spoke about electric vehicles. You don't need any government policies for that.
The massive queues you see outside fuel stations in Manila, in Vientiane and in Bangkok is spurring EV demand. Bangkok auto show last week, for the first time in history, BYD had more registrations than Toyota. You're seeing double and triple digit growth rates.
So, consumers are acting. So, I think this is a response to, and I think increasingly the policy discussions across Asian capitals is this - the energy security agenda drives us towards renewable.We're not going to give up coal, but we've got to reduce dependence on imported oil and gas. So, that is very positive. On the negative side, Asia has a lot more to go.
Asia is more than 50% of global carbon emissions, Asia alone, and it is going to rise. That proportion is going to increase simply because of the growth rate, the urbanisation. You still need to supply electricity to millions of people in poor villages.
And so, the magnitude of the task, I don't worry about net zero in Europe and America, because I think the economics will drive it down for some of the reasons you said. It is going to drive it down, maybe not literally net zero, close enough. And the government just has to do the last mile, or carbon removals.
In Asia, it's different. In Asia, it's huge. So, yes, I think there is more activity on the climate front, not because of climate, but because of energy security, but it's converging, but it's a fragile convergence. It can break down and there's a lot more work to be done.
ML
And it's very early days. If you start looking at how societies and governments respond to the situation in the Strait of Hormuz, we still have to see the impacts on, for instance, national budgets. Malaysia, I understand, is really in trouble because of its subsidies of fossil fuels and that can't go on.
And so, we're going to see quite a lot more on this front. I'm going to leave it there. I'm going to thank you so much for taking time with us here today during Ecosperity Week.
I know you've got a packed agenda. So, it's been absolutely fascinating. Thank you.
RM
Likewise. Thank you. Enjoyed the conversation very much, Michael. Thank you so much.
ML
So, that was Ambassador Ravi Menon, Singapore's Ambassador for Climate Action and Senior Advisor to the Prime Minister's Office on all things climate-related. As always, we'll put links in the show notes to resources that we mentioned during our conversation. Too many to mention here.
And so, I'd like to thank our Singapore-based cameraman, Pavel Chihonsky, our producer, Oscar Boyd, video editor, Jamie Oliver, Head of Operations, Kendall Smith, the whole team behind the scenes at Cleaning Up, the Leadership Circle, without whom none of this would be possible, and you, the audience, for spending some time with us here today. Please join us this time next week for another episode of Cleaning Up. Cleaning Up is proud to be supported by its Leadership Circle.
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