Deepen Understanding and Move Forward: Energy Market Integration in East Asia

Fukunari Kimura and Xunpeng Shi

from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: Energy Market Integration (EMI) in East Asia has been implemented in the past decade with the emergence of cooperation between ASEAN and its dialogue partners. ASEAN is working towards a single market by 2015, under the guideline of AEC (Bali Concord II, 2003). Considerable progress in the EMI was made as a result of cooperation achieved through the ASEAN plus Three (APT) process and, later through the East Asian Summit (EAS) 1 process (Shi and Kimura, 2010). The main incentives to promote EMI are improving energy security, reducing carbon dioxide emissions, and facilitating regional integration. EMI is also expected to foster economic growth through facilitating trade in energy within the region, optimizing resource allocation across countries, improving the productivity of energy consumption in each country, and protecting the environment. It is therefore widely believed that EMI in East Asia is beneficial for both developed and developing countries. This is partly because rapid economic growth of a country in this region always requires steady energy resource supply and EMI can provide a guarantee for the energy resource supply from an institutional perspective and partly because many East Asian countries are less developed but resource abundant and thus EMI can facilitate their development. However, such benefits are more often stated in qualitative ways than in quantitative ways. Since the benefits of EMI are not without questions, it is useful to do further quantitative studies to deepen our understanding on the impact of EMI. Moreover, even though EMI in the EAS region seems beneficial and promising, the way toward EMI will not be smooth and therefore the implementation of EMI should be carefully studied. East Asia has been pursuing economic integration an effective instrument proved by the European and North American experience to maintain sustainable regional economic development and poverty reduction across countries, for quite a while. However, the progress on EMI so far is limited. This is not exceptional as EMI is often closely related to national sovereignty, energy security, and other sensitive issues such as subsidy removal. It is therefore necessary to find ways to move EMI forward.

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