The world’s energy and climate future increasingly hinges on whether emerging and developing economies can successfully transition to cleaner energy systems, a new report from the International Energy Agency's (IEA) new report says Wednesday
The IEA's Financing Clean Energy Transitions in Emerging and Developing Economies report, carried out in collaboration with the World Bank and the World Economic Forum, calls for a step-change in global efforts to mobilize and channel the massive surge in investment needed in emerging and developing economies.
The annual investment needed to put the world on track to reach net-zero emissions by 2050 is over seven times more than the amount last year of less than $150 billion to over $1 trillion by 2030, the report detailed.
The report sets out a series of actions to enable these countries to overcome the major hurdles they face in attracting the financing to build the clean, modern and resilient energy systems that can power their growing economies in the coming decades.
The IEA warned that unless much stronger action is taken, energy-related carbon dioxide emissions from these economies, which are mostly in Asia, Africa and Latin America, are set to grow by 5 billion tonnes over the next 20 years.
"In many emerging and developing economies, emissions are heading upwards while clean energy investments are faltering, creating a dangerous fault line with global efforts to reach climate and sustainable energy goals," said Fatih Birol, the IEA executive director.
"Countries are not starting on this journey from the same place. Many do not have access to the funds they need to rapidly transition to a healthier and more prosperous energy future and the damaging effects of the COVID-19 crisis are lasting longer in many parts of the developing world."
He noted that there is no shortage of money worldwide but it is not finding its way to the countries, sectors and projects where it is most needed. Therefore, he urged governments “to give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing world.”
The report found that recent trends in clean energy spending point to a widening gap between advanced economies and the developing world even though emissions reductions are far more cost-effective in the latter.
"Emerging and developing economies currently account for two-thirds of the world’s population but only one-fifth of global investment in clean energy and one-tenth of global financial wealth," the report said.
The IEA calculated that annual investments across all parts of the energy sector in emerging and developing markets have fallen by around 20% since 2016 and they face debt and equity costs that are up to seven times higher than in the US or Europe.
-International system lacks clear and unified focus on financing emission reductions
Birol called for a major catalyst to make the 2020s the decade of transformative clean energy investment, as the international system lacks a clear and unified focus on financing emissions reductions and clean energy particularly in emerging and developing economies.
Avoiding tons of CO2 emissions in emerging and developing economies costs about half as much on average as in advanced economies, according to the report, which says it is partly because developing economies can often jump straight to cleaner and more efficient technologies without having to phase out or refit polluting energy projects that are already underway.
However, emerging markets and developing countries trying to increase clean energy investments face a range of difficulties that can undermine risk-adjusted returns for investors and the availability of bankable projects, the report said.
“The availability of commercial arrangements that support predictable revenues for capital-intensive investments, the creditworthiness of counterparties and the availability of enabling infrastructure, among other project-level factors are among the challenges. Broader issues, including depleted public finances, currency instability and weaknesses in local banking and capital markets also raise challenges to attracting investment,” the agency said.
"Today’s strategies, capabilities and funding levels are well short of where they need to be," adding the report is a global call to action especially for those who have the wealth, resources and expertise to make a difference and offers priority actions that can be taken now to move things forward fast.
- All parts need to take priority actions
The report's priority actions for governments, financial institutions, investors and companies cover the period between now and 2030, drawing on detailed analysis of successful projects and initiatives across clean power, efficiency and electrification, as well as transitions for fuels and emissions-intensive sectors.
"These include almost 50 real-world case studies across different sectors in countries ranging from Brazil to Indonesia, and from Senegal to Bangladesh," the report said.
"As we expand energy access, we also need a global transition to low-carbon energy. It is critical to develop solutions that make energy systems more resilient to climate change and other crises. With the right policies and investments, countries can achieve lasting economic growth and poverty reduction without degrading the environment or aggravating inequality," the World Bank Global Director for Energy and Extractives, Demetrios Papathanasiou noted.
He stressed that the broader financial sector can and must play a key role in achieving the goals of the Paris Agreement by mobilizing capital for green and low-carbon investments while managing climate risks.
He confirmed that the World Bank would continue to support countries that seek assistance to transition away from fossil fuels and scale up low-carbon, renewable energy, and energy efficiency investments.
Borge Brende, president of the World Economic Forum, said the need to scale clean energy in emerging economies offers a massive investment opportunity.
By Nuran Erkul Kaya