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Asia's energy and food security challenges

10 December 2012

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Professor Tom Kompas is Director of the Crawford School of Public Policy. He is also the Foundation Director of the Australian Centre for Biosecurity and Environmental Economics (AC BEE). He currently teaches the course Masters Microeconomics (IDEC8064).

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Greater regional co-operation is required to ensure Asia's future energy and security challenges are met, write Crawford School Director TOM KOMPAS and QUENTIN GRAFTON of the Centre for Water Economics, Environment and Policy..

Many Asian countries have been concerned about resource security and whether they will have enough food and energy at an accessible cost, and within tolerable risks, to meet projected demands.

To manage these risks, countries are encouraging energy and food self sufficiency, energy efficiency and conservation, protection of key transportation routes, emergency supply responses, and food and energy supply diversification.

According to Shell, Asia’s primary energy demand may rise by around 40 per cent in this decade alone. By contrast, the predicted increase in North America is less than 5 per cent. The International Energy Agency (IEA) reckons that this Asian energy transformation could result in investment of up to $10 trillion in the Asian energy sector over the next 10 years.

In this week’s lead essay from the latest issue of East Asia Forum Quarterly, Jack Barnes and Suman Bery of Shell argue for more cooperation to attain energy security in Asia. ‘As the main region of energy growth in the coming decades, Asian countries face challenging energy policy choices’, they say. ‘Whether they cooperate or compete for access to energy will shape long-term relationships regionally and globally’.

While energy self-sufficiency is being actively pursued by many countries in the region to meet increased demand, rapidly growing Asian economies will need to import more energy sources. Although China is by far the largest coal producer in the world it has, in the last five years, switched from being a net exporter to net importer. Despite having the world’s largest unconventional gas resources, China’s projected 4-fold increase in gas consumption over the next two decades will also require that it substantially increase gas imports via pipelines and also in the form of liquefied natural gas (LNG). Indeed, according to the IEA, China’s net gas dependency is expected to double by 2035 while its oil dependency is projected to rise from about 50 per cent to over 80 per cent. A similar trend of increased import dependency is expected for India.

Australia is among the countries well placed to lift its energy exports to its Asian neighbours in the form of coal, gas and uranium. It is already the world’s largest coal exporter, the third largest uranium producer in the world and by the end of the decade may become the world’s largest LNG exporter. Climate change mitigation policies, however, may limit increases in thermal coal demand from the 2020s onwards as will domestic energy policies to increase the proportion of electricity produced by renewable energy sources. As Australia increases in importance as an energy supplier within Asia, some countries may also wish to diversify their supply and direct further energy investments elsewhere.

Energy security will require mobility of investment in supplies across multiple sources, the promotion of domestic renewable energy sources, and appropriate price signals to encourage improvements in energy intensity. While each country can individually pursue its own energy security, all would benefit from regional co-operation in terms of energy issues to increase supplies and to reduce the risks of supply disruptions.

A rapid rise in population in some large, Asian emerging economies, such as India, presents a future food security challenge. This is especially true for the poor who suffered the most with the global food-price spikes of 2007–08. The risks to the poor will not necessarily diminish over time because long-term global-economy-wide modelling suggests that real food prices have stopped declining which, over previous decades, has been an important contributor to reducing global poverty.

Rather than restricting food exports, as has happened in the recent past, countries need to encourage additional supplies and promote trade. The two most effective ways to confront food security are to support policies that reduce poverty and to invest in research and development to increase crop yields and, ultimately, food supplies.

As a leading net food exporter Australia can help meet the growing food demand in Asia. Nevertheless, finite limits in terms of the arable land available and water resources will constrain the potential growth in exports. Sustainable food production increases will require increased yields, but without increasing overall water use. In turn, this requires effective and efficient water management that adapts to climate variability and climate change. Sustainable management of fisheries and forests is also necessary to maintain future food supplies and to avoid further degradation of critically important natural capital stocks.

Australia is, and will continue to be, an important player in promoting energy and food security in Asia. It has the energy resources to help meet increased demand, it has the agricultural expertise to contribute to increased yields and productivity, and it is at the forefront of developing market-based approaches to promote more effective water and resource management.

To ensure the challenges of energy and food security are met in the decades to come, much greater regional co-operation is required within the Asian region. The danger for all is that security concerns manifest themselves in unilateralism. Instead, what is needed are frameworks that promote investment and trade, knowledge transfer, competitive markets, and price signals that reflect the economic costs of the use of all natural resources.

This piece was originally published on East Asia Forum: http://www.eastasiaforum.org/2012/12/10/asias-energy-and-food-security-challenges/#more-32493

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