As Southeast Asia heats up, a Japanese cooling giant sees a major opportunity

With tools and equipment spread out around them, a cluster of trainees watch as their instructor clambers up a ladder to demonstrate the installation of a new air conditioner.

Running the gamut from basic safety protocols to proper communication and coordination, the trainees are in the midst of a weeklong training program at Daikin’s newest sales company and training center in the Cambodian capital of Phnom Penh.

“There is a lot of potential in Southeast Asia, especially in countries like Cambodia,” said Toshiyuki Tanaka, managing director of Daikin Airconditioning Cambodia. “Even though Daikin as a company is a century old, Daikin Cambodia is barely a year old. It is still a baby, but will soon grow up.”

Founded in Osaka in 1924, Daikin is one of Japan’s oldest air conditioning companies, but as Japan’s population — and thus potential customer base — drops, the firm is keying in on overseas growth.

The business’ latest expansion into Cambodia highlights this shift. The kingdom’s fast-growing population and predicted rise in median household income, paired with increasingly extreme heat due to climate change, makes Cambodia a solid bet for companies like Daikin.

But as companies make major investments in Southeast Asia, experts note that more air conditioning access could exacerbate inequality issues rife in the region.

Climate scientists, meanwhile, point to a vicious cycle that is likely to continue if unaddressed: as air conditioner use rises in Southeast Asia and around the globe due to extreme heat, so do emissions.

The global cooling industry is estimated to account for 7% of global electricity demand and 3% of carbon emissions, while the number of air conditioning units worldwide is expected to jump from 2.4 billion this year to 5.6 billion in 2050.

“The demand for air conditioning is so huge, its carbon footprint is equally high. That demand will not go away,” said Sanjay Srivastava, chief of the Disaster Risk Reduction Section within the United Nations Economic and Social Commission for Asia and the Pacific (U.N. ESCAP).

“Air conditioning does still have a role in both climate adaptation and mitigation, but only if technological innovations can catch up and make AC more efficient and reduce its emissions,” Srivastava said. “This is where Japanese companies can play a very important role.”

Emissions loop

The Paris Agreement’s goal of limiting warming to 1.5 degrees Celsius is now impossible according to some leading scientists and a hotter world will mean more reliance on air conditioning.

Amid that reality, dozens of countries, including Japan and Cambodia, and a large group of industry giants, including Daikin, signed the 2023 Global Cooling Pledge at COP28 in Dubai.

But realizing the pledge’s goals to reduce cooling-related emissions by 68% by 2050, increase the global average efficiency of new air conditioners by 50% and significantly increase access to sustainable cooling by 2030 is a daunting task — especially as trends in fast-growing economies in regions, like Southeast Asia, point to a rise in the cooling industry’s electricity consumption.

An International Energy Agency (IEA) report published in 2019 found the energy use for air conditioners increased nearly eightfold over the past 30 years among the members of the Association of Southeast Asian Nations (ASEAN).

While the report found that only 15% of homes in Southeast Asia have air-conditioning, the IEA forecasts higher temperatures and better wages could see the number of air-conditioning units in Southeast Asia jump from 40 million in 2017 to over 300 million by 2040.

This predicted trend is what Daikin is positioning itself to capitalize on.

In the announcement of Daikin’s new Cambodia facilities, the company cited the kingdom as a “promising market” because of its expected population growth. The release said that Cambodia’s overall heating, ventilation, and air conditioning (HVAC) market is expecting 10% annual growth over the next five years.

Hem Vanndy, Cambodia’s minister of industry, science, technology and innovation in Cambodia, said Daikin’s move into the country “represents more than a business expansion, it is a strong affirmation of the confidence that Japanese and other investors place in Cambodia’s economic and industrial potential.”

Japan is one of Cambodia’s top foreign aid donors. Ties between Tokyo and Phnom Penh go beyond the political realm, including partnerships between universities and businesses spanning climate resilient infrastructure, landmine detection technology and a range of business sectors.

Daikin is not the only major Japanese manufacturing company taking advantage of these predicted trends and Japan’s existing relationship with countries in Southeast Asia.

In May, Mitsubishi Electric Group opened a commercial representative office in Phnom Penh as it seeks to boost air conditioner sales in Cambodia. Earlier this year, Panasonic was reported to be boosting its production at its main factory for air conditioner parts in Vietnam and starting sales for HVAC infrastructure in Cambodia.

“With improving living and lifestyle standards in Cambodia, we are witnessing a rapid rise in demand for electrical appliances, air-conditioners and effective cold chain solutions, especially for the food and agro-industrial sector,” said Hem Vanndy.

This “rapid rise” has been seen across the world and has led to the marked increase in the cooling industry’s climate change-causing emissions.

“Our hope and plan is to contribute to Cambodia’s goal to achieve carbon neutrality by 2050, while also growing as a business in the country and across the region,” Tanaka said.

Daikin, like many companies and countries, has vowed to reach net-zero emissions by 2050. Tanaka explained that Daikin’s advancements in energy-saving mechanisms and a more eco-friendly refrigerant were designed to assist global goals to cut carbon emissions.

According to Daikin’s most recent sustainability report, the company’s greenhouse gas emissions in fiscal 2023 totaled nearly 330 million tons of carbon dioxide. About 84% was emitted during the use of Daikin products, with air conditioners contributing 67% of these emissions — or nearly 222 million tons of CO2.

To slash emissions, Daikin aims to switch to inverter products to improve efficiency and promote the use of low “global warming potential” refrigerants, like the new R-32 refrigerant — the use of which contributed to a 19% reduction in residential air conditioner emissions in 2023.

These efforts are gaining added importance as climate change accelerates.

Extreme heat is beginning to outrank Southeast Asia’s many other hazards, said UNESCAP’s Srivastava, who challenged industry leaders to follow through on their ambitions for net neutrality through innovation.

“This is where the role of air conditioning companies becomes so important,” Srivastava said. “The innovation in air conditioning technology needs to have minimum carbon footprints, efficient to reduce energy consumption, if you want air conditioning to be part of combating extreme heat.”

Rising inequality

Heat scholars, meanwhile, point to inequality issues inherent in the rollout of technology that not everyone can afford.

“Air condition can be very good if you can afford it, but that depends on whether or not you can pay the bills,” said Jason Kai Wei Lee, an associate professor at the National University of Singapore’s Yong Loo Lin School of Medicine. “Climate change is an inequality issue. We will further exacerbate inequality because those who are most vulnerable, usually will not have access to technology like aircons.”

As Southeast Asia’s rainy season brings a welcome relief to the extreme heat across the region, Lee, who also leads the university’s Heat Resilience & Performance Centre, notes that “air conditioning is one of the best inventions of humankind, but the problem is that this technology should be allocated to those who need it most and that is not happening.”

He specifically cited farmers, fishers and construction workers, exceedingly common professions in Southeast Asia with a high exposure to extreme heat.

“Heat is a silent killer,” Lee said. “You can feel it for sure, but you can’t see and it comes and goes, like a ghost, which makes people forget about it during certain seasons. But if left unaddressed, extreme heat will continue to creep in as a crisis in Southeast Asia.”