McKinsey chatted to Michael Zeller about how AI can aid Asia in its journey to net zero. He talked about the vital role AI can play—particularly in addressing the energy challenges that Asia faces as the global manufacturing hub and one of the world’s greatest fossil-fuel users.
McKinsey: What are the key challenges in Asia’s transition to net zero?
Michael Zeller: The first challenge is the diversity of its economic landscape. Asia comprises many different economies, some of which are quite advanced, others just emerging, and the rest struggling to industrialize. Therefore, it might not be realistic to expect these diverse economies to commit the same amounts to net zero. The question here is, how do we develop a varied set of targets that allows growth and prosperity for each economy?
Another factor is the need for regional alignment among sovereign states, cities, companies, and NGOs. Clear targets have to be set up around sustainability and consensus built on how the results are reported and measured.
The second challenge relates to growth. Asia has become the global hub for manufacturing, which is energy intensive and largely dependent on fossil fuels, coal in particular. For example, more than 90 percent of the 195 coal plants being built globally in 2020 were located in Asia. As a consequence, the region has only decarbonized by just below 1 percent, in comparison to Europe’s 9 percent. It is true that both have decarbonization rates that are below the 12.9 percent required for the Paris Agreement’s 1.5°C scenario, yet Asia lags behind Europe significantly.
Balancing economic development and sustainability is one of Asia’s toughest challenges, causing key questions to emerge: How can Asia maintain its growth while meeting a decarbonization rate of almost 13 percent? And, if Asia’s manufacturing is fueling other global economies, how can we distribute the burden of these emissions? Should they be shared by the economies that benefit from the manufacturing happening in Asia?
McKinsey: What role does AI play in addressing these challenges?
Michael Zeller: AI is a key enabling technology that is applicable across every industry and every sector—it can be used to drive efficiencies, reduce waste, optimize energy used in manufacturing, and monitor supply chains for potential disruptions.
For example, it can play a significant role in reducing energy consumption and emissions simply by optimizing how we produce, distribute, and consume energy—even CO2-producing energy sources. AI can be used to boost the use of renewables by forecasting the balance of production and consumption more efficiently. It can also increase efficiency through predictive maintenance and quality control. Data gathered from production and usage patterns and sensors deployed across production and delivery assets can enable us to optimize the entire energy value chain.
Further, AI can be utilized to optimize transport and logistics in the manufacturing sector to help reduce its energy consumption. Real estate or building management can also benefit from AI, where sensors can collect consumption data to be used to improve buildings’ energy consumption, which will have a significant downstream impact.
McKinsey: Given the significant advantages of using AI in the transition to net zero, what can be done to accelerate its use?
Michael Zeller: As AI is fundamentally driven by data, we need to expedite and incentivize the methods of collecting and sharing data, safely and securely, across boundaries. This involves improving sensor technology and data collection methods, and finding easier ways to share data once it’s collected. For example, different businesses, such as real estate developers, could be offered financing incentives by banks to share their consumption data, which may lead to similar sustainability goals being set elsewhere. In addition, appropriate regulations need to be enacted to ensure data security. With secure and available data, financial instruments such as sustainability linked loans (SLLs) can be made available to a broader set of borrowers which will, in turn, more broadly incentivize sustainable business practices.
Public-private partnerships also have an important role to play because they can enable data sharing, regulations, and incentives in a well-governed environment, which would help the many different actors align and work together. An example of this is NovA!, a public-private partnership founded by the Monetary Authority of Singapore, of which Temasek is a participant. Its vision, ultimately, is to enable green financing opportunities by providing access to quality data, a robust and trusted data-sharing environment, and a supportive ecosystem that benefits all parties.
This interview is part of an ongoing series on Shapers of Sustainability, where we convene leaders on sustainability to discuss challenges and opportunities in the Asia-Pacific region’s transition to net-zero.