IPEF’s clean energy initiatives amid US-China rivalry
Even as US-led IPEF initiatives give clean economy projects in the region a boost, US-China rivalry could be an issue, says ISAS academic Amitendu Palit.
Many trade watchers have been pessimistic about the prospects of the 15-member US-led Indo-Pacific Economic Framework for Prosperity (IPEF). Contrary to these impressions, the framework is making robust progress.
The IPEF ministers met in Singapore earlier this month. This was the second in-person ministerial meeting this year after an earlier one in the US. The meeting was important given that some of the IPEF members like Indonesia, India and New Zealand have had their national elections. Their new governments have maintained the commitment to regional cooperation for the framework. This augurs positively for the future progress of the IPEF.
Spotlight on the clean economy
The Singapore ministerial saw the IPEF concluding two more agreements.
Earlier, in November 2023, the San Francisco ministerial had concluded the Supply Chain Agreement under Pillar II. This agreement became operational from February 2024, after five of the IPEF members — the US, Fiji, India, Singapore and Japan — ratified it. Subsequently, Korea has ratified the agreement, while Thailand and Malaysia have completed their domestic processes for ratifying the same.
Further to the supply chain agreement, the Singapore ministerial concluded the clean economy and the fair economy agreements. With these two agreements having been concluded, IPEF has now fixed rules for three of its four pillars — II, III and IV — with only pillar I on trade, left to be concluded.
“Clean economy” was the highlight of the Singapore ministerial event. The Clean Economy Investor Forum announced a slew of investment-ready clean economy projects. The total value of these projects is US$6 billion spread over 20 ventures. Almost 50 more projects with an aggregate value of US$17 billion are also potentially investment ready.
Further important initiatives in the clean economy include the progress on the Catalytic Fund run by the US, Japan, Korea and Australia; a hydrogen fund launched by Japan; cross-border cooperation by Singapore, US and Vietnam on electricity trade; and the US commitment to equity investment for a clean energy fund for Southeast Asia.
Other announcements included the identification of a large number of clean energy innovative startups from IPEF members, the announcement of cooperative work programmes and private sector initiatives.
Investments fashioned around US and OECD members?
The IPEF initiatives on clean economy leave no doubt about the seriousness of the framework in taking long-term initiatives for tackling climate change and enabling a meaningful transition of the region to environmentally sustainable lifestyle and business processes. These objectives work best in a multilateral rules-based framework that enables a group of countries along with their public and private sectors to contribute effectively.
The IPEF is looking to do that by ensuring government funding made available through various clean economy initiatives provides an initial spurt to resources that are required for setting off a strong trend of private investments for launching various clean economy projects.
... whether these investments will be primarily fashioned around the US and a few other OECD member business interests at the expense of those of the middle-income economies of the group.
The IPEF’s efforts are noteworthy and will provide a strong impetus to clean energy and sustainable practices in the Indo-Pacific region. There are, however, some issues that need to be looked at closely in this respect.
Generating green growth and sustaining the same through innovative and transformative actions require large funds. Not all IPEF members will have similar abilities to mobilise resources in this regard. This raises a doubt over whether the clean economy projects will tend to be dominated by a few among the IPEF members that have the undisputed ability to deploy more resources than others.
The US, for example, has already taken the lead in funding. The US International development finance corporation (DFC) is providing significant equity support to the Southeast Asia Clean Energy Fund. The DFC is also a significant equity promoter of the Eversource Climate Investment Partners Fund that will invest in a variety of businesses providing innovative solutions in clean economy areas such as renewable energy, electric mobility and circular economy.
The prominent US role as a funder in these investments, as well as its spearheading of the IPEF Catalytic Capital Fund along with Japan, Australia and Korea, is giving rise to ideas whether these investments will be primarily fashioned around the US and a few other OECD member business interests at the expense of those of the middle-income economies of the group.
US-China strategic competition in clean energy
The possibility of business interests of “lead” funders like the US dominating the clean economy development agenda of the Indo-Pacific also assumes significance in the light of the impact this has on the region’s relations with China.
Lately, US-China relations have further worsened over their strategic command and influence in the global development of “future” clean economy industries like electric vehicles and clean energy. The US has offered extensive subsidies for developing local capacities in these industries through the Inflation Reduction Act (IRA). In May 2024, the US increased tariffs on electric vehicles from 25% to 100%, and on solar cells from 25% to 50%, to reduce access to Chinese imports of these products in the US market.
... more IPEF members may become recipients of Chinese investments this way. The US would like to avoid this possibility by having firm control over upcoming clean economy projects in the region.
In the context of the US-China strategic competition in clean energy, it is fairly obvious that China will work on identifying markets for more exports of its clean economy products. It will also look at markets where it can invest and produce for supplying to the US market and circumvent the tariffs. Several IPEF members, particularly in Southeast Asia, will be in focus in this regard.
Countries like Vietnam and Indonesia have already attracted Chinese investments for manufacturing locally and exporting to the US. As a further extension of this example, more IPEF members may become recipients of Chinese investments this way. The US would like to avoid this possibility by having firm control over upcoming clean economy projects in the region.
As the IPEF advances, it will have to address these geopolitical implications of the US-China rivalry in green products and ensure that it remains unaffected. This might be a challenging proposition.
