This article first appeared in Forum, The Edge Malaysia Weekly on July 29, 2019 - August 4, 2019

We are all going to have to count the cost of climate change one way or another. If it is not the huge economic cost of implementing the correct mitigation strategy, it is the dire cost of coping with the impact. One part of that statement is incorrect, and it is not the part you might think.

Many call climate change humanity’s greatest challenge, and rightly so. It could cost our economies trillions if left unchecked. That is aside from the sweeping ecological and societal damage if the world warms more than 2°C above pre-industrial levels, identified in the United Nations Framework on Climate Change (UNFCC). The myth that we must tackle is that addressing this challenge will necessitate significant economic sacrifices. That simply is not the case.

In Boston Consulting Group’s (BCG) latest report, “The Economic Case for Combating Climate Change”, we reveal that there are clear paths to significantly reduce greenhouse gas (GHG) emissions while contributing to economic growth. By prioritising the most efficient emission reduction measures, many nations can accelerate, rather than slow, gross domestic product growth. A key part of that journey is the question of sustainable energy supplies, and that is something Malaysia is well-positioned to leverage.

Renewing Malaysia’s energy journey

Energy, Science, Environment and Climate Change Minister Yeo Bee Yin announced a fresh transformation of the renewable energy policy last year, setting a target of 20% renewables as a share of electricity generation by 2030, up from just 2% already installed.

This 20% target is a positive shift in policy, yet one that highlights a key finding of our report. Just about every leading global emitter could eliminate 75% to 90% of the gap between emissions projected under current policies and the 2°C target using proven technologies that exist today. Malaysia is better placed than many, with the likelihood that it could reduce that gap by 80% to 90% using existing technologies. And all this could be achieved without sacrificing that all-important economic growth.

Renewable energy is a key enabler in reducing the carbon intensity of economies. That is particularly true in Malaysia, where in 2014, energy accounted for 80% of industrial emissions. “The Economic Case for Combating Climate Change” report estimates that all countries studied could provide at least 80% of their power with low-carbon technologies by 2050.

This shift to low-carbon and renewable energy not only provides a path to reduced carbon emissions from the country’s power sector, it amplifies that benefit across the economy. With electricity set to power everything from buildings and industry to the cars on our roads, a more sustainable electricity supply is a critical step toward decoupling growth from GHG emissions. That equation is a vital part of balancing the question of energy and growth.

The growth and fossil fuel dilemma

Rapidly developing economies like Malaysia’s face a substantial dilemma when it comes to decarbonising the economy. While economies like the US’ and Europe’s have enjoyed the benefits of historical carbon-intensive growth, ignorant perhaps of the consequences, we must face a more informed future. That raises an important question about fossil fuels and growth.

Ambitious economic targets, alongside population growth that is expected to add 10 million people by 2040, will create a significant energy need for the country. The traditional approach to meeting this challenge has been a reliance on carbon-intensive fossil fuels, which would see emissions rise significantly, particularly if this involves a heavy reliance on coal. This challenge is mirrored by that of India in our report, where growth targets and a rise in coal combustion could see India’s emissions more than doubling by 2050. But in a world of ever more affordable renewable energy, coal’s high fixed cost makes it an increasingly poor economic option.

Russia presents a unique challenge that also offers some insight for Malaysia. As a carbon-intensive economy without a high per capita income, Russia faces a much higher investment hurdle than rival developed economies. Steering toward the 2°C path would require investment equivalent to 6.1% of annual GDP, compared with 1.4% for Germany.

Russia’s significant domestic fuel reserves also create a strange conundrum. Not only must they resist the temptation to utilise cheap domestic fuel, but as a hydrocarbon-exporting nation, the world’s move toward a more climate-friendly economy will see GDP decrease as exports decline.

Leveraging Malaysia’s advantage

Nobody is saying all this is easy. There is no global template that Malaysia can import as a tick-box exercise toward greener economic growth. Not only will efforts to reduce emissions need to be significantly accelerated, they will have to be customised to meet the needs and opportunities of the nation.

Renewable energy has a big role to play. Solar power will contribute significantly to that journey, providing an affordable solution that benefits from the rapidly falling levelised cost of energy (LCOE) it generates. While the LCOE of solar is perhaps not at parity with conventional thermal power in Malaysia, the trajectory toward that moment is inevitable and unstoppable. Self-generation through initiatives such as net metering will also add a valuable dimension. Wind power is a globally popular option, but one with limited potential in Malaysia.

The country’s significant natural gas reserves also present an important opportunity. Natural gas will inevitably replace coal in power generation and industry on the path to a less carbon-intensive global economy. Malaysia must push towards becoming one of the most climate-competitive and cost-efficient producers of natural gas. This could enable the country to competitively position its hydrocarbons while leveraging the economic benefits of the global switch to gas.

Sustaining greener growth

Under the Nationally Determined Contributions as part of UNFCC, Malaysia has committed to reducing GHG emissions intensity of GDP by 45% by 2030, relative to 2005 levels. That policy imperative must guide our actions going forward. These targets are not simply hypothetical. In one BCG study conducted in Belgium, we estimate the country could save around 36 megatonnes of CO2 by 2030 through investment in established technologies.

There are green shoots on the horizon for Malaysia. By 2014, GHG emission intensity per unit of GDP had improved by 27% compared with 2005 levels. The recent shift to a more renewable energy future gives us further cause for hope.

In the face of global climate change, it is already clear that the cost of doing nothing is far greater than the cost of embracing change. What BCG’s report highlights is that delivering a greener future for the planet does not have to cost Malaysia the Earth.

Dave Sivaprasad is managing director and a partner at Boston Consulting Group

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.