ASEAN is building a competitive clean-technology (cleantech) industry while securing substantial cleantech investment. The key question, however, is whether this momentum can steer ASEAN’s green transition and enhance the bloc’s sustainable competitiveness. ACI’s recent research offers a nuanced assessment: while the bloc has established a presence in the global green economy, carbon-intensiveness remains a feature of its broader industrial and energy system.

The investment landscape reflects this paradox. From 2013 to 2023, ASEAN attracted around $90 billion in cleantech FDI, surpassing those of the USA ($83 billion), India ($54 billion), and China ($53 billion). Nevertheless, despite a surge in green FDI, most capital inflows remain outside of cleantech, as the sector accounted for less than one-fifth of ASEAN’s total inward FDI.

Within ASEAN, specialised investment patterns are visible. Vietnam has risen as a major recipient of renewable energy investment, while Indonesia has secured investments across renewables, battery storage, and electric vehicles.

Similarly, trade reflects both opportunities and bottlenecks in ASEAN’s green economy. The region is an important exporter of environmental goods, led by Singapore, Malaysia, and Thailand. Nevertheless, environmental goods account for a modest share of their national export baskets. This implies that ASEAN has yet to make green trade its dominant source of export specialisation.

Low emissions intensity is another strength of ASEAN cleantech industries, which emit a fraction of the region’s cross-industry average (60.1 vs 242.2 metric tons of CO₂ per $1 million of output). However, ASEAN’s electricity sector remains carbon-intensive, emitting more than 6,000 metric tons of CO₂ per US$1 million of output. This is almost four times the EU level. The sector’s high carbon intensity not only inflates ASEAN’s overall emissions but also increases the region’s exposure to global energy price fluctuations and emerging mechanisms like the EU’s Carbon Border Adjustment Mechanism (CBAM).

Innovation corroborates this concern. From 2001 to 2020, ASEAN contributed only 0.2% and 0.5% of global green inventions and patent applications, respectively. Singapore and, to a lesser degree, Malaysia lead most innovation activities in ASEAN. The findings suggest that ASEAN’s green innovation remains concentrated in environmental management and cleaner production processes rather than frontier technologies in areas such as energy and transport.

Emerging carbon-related trade measures such as the EU’s CBAM may impose additional costs for carbon-intensive exports. This makes ASEAN policymakers increasingly recognise that the bloc’s carbon intensity is becoming a competitiveness issue. Within the region, some domestic initiatives, such as Singapore’s carbon tax and Indonesia’s emissions trading system, aim to encourage cleaner production.

Sustainable finance frameworks are also increasingly shaping capital flows. Singapore’s Finance for Net Zero Action Plan and the ASEAN Green Bond Standards reflect this trend. However, poor alignment and fragmentation across sustainable finance frameworks may impede cross-border investment and complicate investment decisions.

ASEAN’s central policy challenge, therefore, is not simply to expand the green industries. The question remains whether the region is capable of converting its green gains into a broader economic transformation. Thus, ASEAN should direct more investment toward renewable energy, storage, and sustainable infrastructure; strengthen R&D and commercialisation; improve carbon-pricing and sustainable-finance frameworks; and, more importantly, decarbonise electricity. ASEAN has demonstrated its capability to attract green investment and participate in green value chain. The next challenge is to use these strengths to decarbonise the wider economy and convert the green transition into a source of long-term competitiveness.

By CHEW, Zhe Lin

Researchers: BANH, Thi Hang, LIU, Jingting, SENGSTSCHMID, Ulrike, YAN, Bowen