Following in China’s Footsteps: Climate Transition in EM Asia
By Pierce McCrerey
Saturna Capital
Key Takeaways:
• Emerging market countries in Asia face a narrow window to build climate-resilient infrastructure before fossil fuel dependence becomes locked in for decades.
• China’s renewable energy transition shows how coordinated policy, investment incentives, and grid support can accelerate clean energy adoption without impacting economic growth.
• EM Asia’s climate transition will require predictable policy, renewable infrastructure investment, and cross-border financing tools such as development banks, green BRI financing, and Just Energy Transition Partnerships.
Emerging Market countries in Asia are heading quickly toward an inflection point, with a narrow opportunity window to build climate-resilient and clean infrastructure. They are poised with a tremendous global advantage, benefiting from affordable renewables without the drag of archaic infrastructure. This piece examines the region’s potential development trajectory, highlighting the important balance between climate action and economic development
Historically, the gross domestic product (GDP) of a country tends to be highly correlated with the country’s greenhouse gas (GHG) emissions. Typically, as a country develops, so do its total emissions. As the country progresses further, GDP will continue to grow, while emissions tend to stabilize and ultimately decline over time.
The decoupling of GHG Emissions and GDP growth in the United States
We can use the shading on figure 1 to categorize regions around the world into three distinct buckets:
Green – GDP is growing while GHG emissions are declining: United States, European Union, Japan, Korea, Australia, and New Zealand
Yellow – GDP growth and GHG emissions growth trajectories are diverging: China, India, Africa, and Latin America
Red – GDP growth and GHG emissions are growing in tandem: Southeast Asia and the Middle East.1
Emerging Market (EM) economies in Asia confront a dual challenge: sustaining economic growth while limiting emissions that threaten global climate goals. In recent decades, rapid industrialization, population growth, coal-dependent energy systems, and limited environmental regulation have driven increased greenhouse gas emissions in EM Asia. From 2013 to 2023, GHG emissions in Asian EM countries grew at 2.7x the global average, while their GDP grew at only 2.2x the global average.2 This divergence makes EM Asia central to reaching the global goals outlined by the 2015 Paris Agreement. This difficult dynamic creates unique opportunities for investors who recognize that the region’s estimated $1.5 trillion annual financing gap represents not merely risk but an expanding frontier for development-oriented fixed-income investment.3
China’s Impressive Stabilization of Emissions: Renewable Investment Leadership and Cohesive Strategy
China, the world’s largest annual carbon emitter at over 30% of global emissions, has pledged to peak GHG emissions before 2030 and reach carbon neutrality by 2060. Recent analysis suggests it may be ahead of schedule: Climate Action Tracker estimates China’s emissions stabilized and likely peaked in 2025, with absolute emissions projected to decline 10 to 16% by 2035.4 Even with emissions stabilizing before the original target of 2030, work remains to reach long-term carbon neutrality goals, with further emphasis on decarbonizing high-emitting industrial sectors, reducing fossil fuel dependence, and improving the mitigation of non-CO2 greenhouse gases.
China’s success was driven by a comprehensive policy framework that created incentives for renewable investment. Beginning in 2009, its feed-in tariff program made new solar and wind power projects economically profitable, catalyzing a surge in renewable output while pulling grid companies away from coal-powered generation. The tariffs effectively raise renewable energy prices above the prevailing coal-power rates while requiring grid companies to purchase energy generated by renewables, pairing supplier incentives with a demand safety net. The program was wildly successful, with wind and solar supplying 18% of China’s total electricity in 2024, doubling from 9% in 2020 and only 4% in 2015.5 Measured differently, China’s clean-energy sector summed to over 11% of its GDP in 2025 with annual clean energy generation of over 3,300 terawatt-hours (TWh), enough electricity to power the entirety of India. Even after the removal of the renewable energy tariff pricing, China’s annual clean energy investment accounted for nearly one-third of global clean energy investment in 2024, demonstrating that effective policy can alter the path of an entire industry.6
China’s trajectory also benefited from a two-decade strategic transformation prompted by the 2008 Global Financial Crisis. Under their new framework, resources were allocated to higher-value activities such as services, research and development, and high-tech manufacturing. This move up the value chain helped reduce emissions but was not without externalities; a significant portion of the emissions reduction was attributable to the relocation of carbon-intensive production to regional partners, a trend further exacerbated by the launch of the Belt and Road Initiative (BRI) in 2013. In one example, China deconstructed an entire coal plant and shipped it to Cambodia for reassembly, a literal example of exporting emissions.7
From 2014 to 2020, China directed billions of dollars in BRI energy financing projects around the world, with most private and sovereign energy-sector loans supporting fossil-fuel projects.8 In 2021, BRI financing moved away from new coal projects, a notable improvement, even though pipeline projects continue to be developed. However, the impact has been tangible; total annual emissions from Chinese-funded power plants reached 287 MT CO2 in 2023, with an additional 53 MT CO2 in pipeline capacity.
Even as China moves away from fossil-fuel financing, many regional peers continue to invest in heavy-emitting production. Indonesia plans to add 20 GW of captive coal capacity from 2025 to 2032, supplying specific industrial plants rather than the public grid, locking in emissions for decades.9 Similarly, the offshoring of upstream mining and heavy industry, textiles, electronics manufacturing, and other major sectors will make it even more difficult for EM Asia to reach their climate targets. Unfortunately, emerging market countries in Asia will not have the same luxury of exporting their emissions to output-starved peers and instead will have to make changes efficiently to avoid a multi-decade trap.
Lessons for EM Asia: Three Critical Priorities
• Enact decisive and predictable policy that incentivizes investment in transition
• Focus investment on renewable energy infrastructure and grid improvement before carbon lock-in
• Utilize cross-border financing tools to bridge gaps in regional capital pools
The Triangle of Success with each segment reinforcing the others.
On a sovereign level, grid infrastructure development is the top priority. As EM Asia’s manufacturing sector booms, energy demand will continue to surge, leaving energy suppliers in a perpetual state of catch-up. Thailand’s approach could prove useful by adding energy storage capacity and improving grid interconnectivity while incentivizing renewable energy investment. This model ensures that new renewable energy will be immediately integrated upon project completion, reducing the probability that excess renewable energy will be curtailed due to grid congestion and lack of storage.10
Policy consistency is the most important enabler of climate transition across EM Asia. Clear policy focused on long-term renewable targets and faster permitting can signal commitment to Net Zero, attracting capital and creating a multi-decade path to success. Long-term targets are important to reduce volatility across different political regimes. Policy tools like carbon taxes are also helpful to disincentivize fossil-fuel-based generation in favor of renewable alternatives while also providing additional revenue that can be used to subsidize further renewable investment. China’s approach provides a successful model, but each country will need to adjust its policy to its individual constraints. The goal is a multi-faceted policy framework that includes supplier incentives, demand safety nets, and removal of loopholes and barriers to transition. These mechanisms, together, will provide a sturdy foundation that enables regional transition without dampening economic development.
The final pillar of EM Asia’s climate transition is cross-border capital to bridge the financing gap caused by inadequate domestic resources. The International Monetary Fund (IMF) argues that coordinated policy efforts can attract private climate funding, unlocking significant value at a time when public finances are still recovering from pandemic-related depletion.11 For large-scale programs, $1 of public finance investment can pull in $2 to $4 of private capital, emphasizing the need for public investment to catalyze private capital disbursement.12 Three main tools are particularly relevant: national and supranational development banks, Just Energy Transition Partnerships, and China’s Belt and Road Initiative financing.
Supranational and national development banks (SDBs & NDBs) are the most consistent, scalable vehicles for financing climate transition. These sturdy institutions reduce borrowing costs by multiple percentage points in many cases, a critical lever that improves the probability of project success. Many SDBs offer long-term maturities of 20 to 30 years, matching infrastructure lifecycles and reducing refinancing strain in the short term. SDBs and NDBs also reduce the risk of major change during political transitions, creating stickier, less volatile funding. These advantages are critical to attract new capital into the region in ways that traditional domestic finance may not replicate. Supranational development banks are currently delivering over $125 billion per year of climate financing worldwide, with new shareholder initiatives that could potentially increase annual lending capacity by 40% from capital increases and risk management tweaks.13 National development banks globally maintain well over $20 trillion in assets, providing one-fifth of climate finance worldwide, but the share of green assets in their credit portfolios is only 14% on average. SNBs can collaborate and synergize with NDBs via guarantees, credit enhancement instruments, green financing platforms, and other similar measures, helping mobilize the incredible amount of capital tied into these massive institutions.14
China’s Belt and Road Initiative’s green financing program is the largest bilateral provider of pure clean energy finance in the region. It previously financed a considerable amount of coal energy production, but since 2021, new energy project financing has been restricted to renewables. In 2024, the program deployed $1.8 billion to clean energy projects across Southeast Asia, a figure that could expand exponentially into the tens of billions annually if political priorities align. The BRI green financing program has been particularly impactful due to its concessional terms that offer lower interest rates and longer-term tenors, while the speed of capital deployment is much faster than other major funding sources. Additionally, the program inherently transfers green knowledge and technologies due to the emphasis on energy generation and smart grid infrastructure, helping bridge technical gaps across the region. Altogether, the BRI green financing program is a very impactful tool for emerging market countries in Asia, combining favorable terms, speedy deployment, and clear bilateral coordination that strengthens the region’s probability of a successful climate transition.
Just Energy Transition Partnerships (JETPs) are new country-level platforms that combine policy reform with blended public-private finance to create successful long-term clean energy transitions. JETPs are relatively new programs beginning with South Africa (2021), now expanded to Indonesia (2022), Vietnam (2022), and Senegal (2023). JETPs are supported by large, wealthier countries and development banks, aiding in the supply of grants, concessional loans, and guarantees, aggregating to a substantial $20 billion package for Indonesia and $15.5 billion for Vietnam. Each comes with a detailed policy roadmap including tariff reform, PPAs, grid-access rules, coal-contract restructuring, and improvements to permitting, creating a clear path to program success. They are an incredibly powerful tool due to their clear policy framework for energy transition and mapping of buildout (transmission corridors, storage, digital grid upgrades, and capacity analysis), amplified by their goal of multiplying private investment rather than becoming a substitute. Additionally, they are designed to create conditional funding requirements to reduce diversion of capital to non-green-energy projects. Due to the nascent nature of the program, many kinks are yet to be worked out, exemplified by Indonesia’s regulatory loopholes that have allowed for the continuing buildout of captive coal, including the recommissioning of a previously retired coal plant in 2026.1516 JETPs have the concrete ability to reorient each country’s energy transition trajectory toward success, but they require regulatory coherence to mitigate loopholes, enforcement of conditionality by donors, and increased institutional capacity with the technical expertise to adequately monitor progress and adapt if necessary.
Final Thoughts
Emerging market countries in Asia are rapidly approaching an inflection point. As heavy manufacturing continues to relocate from China to regional peers, the opportunity window to build cleaner industrial infrastructure before carbon lock-in narrows. Unlike China in the 1990s, EM Asia now benefits from cost-competitive renewables, with new coal power costing more per kilowatt hour than wind and solar. The tradeoff has moved away from balancing climate action and economic development and has now become asymmetric, with a focus on avoiding costly mistakes. The buildout of fossil fuel generation capacity locks in emissions through 2060, making net-zero targets impossible. Renewable infrastructure creates the opposite lock-in — clean growth for decades to come.
Article by Pierce McCrerey, Fixed Income Analyst, who joined Saturna Capital in June 2021.
He graduated from Montana State University in Bozeman with a BS in Business Finance and a minor in Entrepreneurship. Prior to Saturna, he worked in custom home construction and renovation. Pierce is a Chartered Financial Analyst (CFA) charterholder. Outside of the office, Pierce enjoys skiing, mountain biking, and traveling around the world .
About Saturna Capital Corporation
Saturna Capital Corporation, established in 1989 in Bellingham, Washington, USA, is an independent, employee-owned investment advisor based in Bellingham, Washington, managing approximately $10 billion in assets for clients under management, providing investment advisory services to mutual funds, institutions, businesses, individuals, and endowments. Saturna Capital is adviser to the Amana Mutual Funds Trust, the oldest and largest family of funds in the US that follow principles of Islamic finance. Saturna Capital is also adviser to the US-based Saturna Funds.
EM Asia economies include ASEAN members, China, Taiwan, and India; emissions data from European Commission, Joint Research Centre (JRC), EDGAR – Emissions Database forGlobal Atmospheric Research, 2024 Report, accessed 03/10/2026, https://edgar.jrc.ec.europa.eu/report_2024 , and GDP data from International Monetary Fund, World Economic Outlook Database, accessed 03/10/2026, https://www.imf.org↩︎
Lihuan Zhou et al., Moving the Green Belt and Road Initiative: From Words to Actions, Working Paper (Washington, DC: World Resources Institute and Boston University Global Development Policy Center, 2018), accessed March 10, 2026, https://www.bu.edu/gdp/files/2018/11/GDP-and-WRI-BRI-MovingtheGreenbelt.pdf↩︎
