Developing countries need to boost their spending on energy transition to over US$1 trillion by 2030 if the world is to reach net-zero emissions by 2050 according to the report, Financing Clean Energy Transitions in Emerging and Developing Countries, issued by the International Energy Agency in cooperation with the World Bank and the World Economic Forum.
It noted that given their economic and financial situations, developing countries will need external support to achieve global climate neutrality by 2050 and curb climate changes.
While an increase in investments in clean energy in developing countries is needed, this dropped last year by 8% to US$150 billion with the figure expected to rise only slightly in 2021. Meanwhile, it is projected that energy demand in emerging markets and developing economies (EMDEs) will grow threefold in view of the expected increase in population and the fact that almost 800 million people living there still have no access to any energy at all and 2.6 billion have no access to clean cooking solutions.
Source: IEA
“In many emerging and developing economies, emissions are heading upwards while clean energy investments are faltering, creating a dangerous fault line in global efforts to reach climate and sustainable energy goals,’’ said Fatih Birol, the IEA Executive Director.
Investments in renewable energy resources in emerging and developing countries are currently in the minority while those in fossil fuels remain quite high. However, the IEA predicts that this trend will be reversed in the coming 10 years in favor of clean energy, as presented in the graph below.
Source: IEA
Whilst emerging and developing countries desperately need investments in renewable energy, for the most part they can only rely on meagre and limited public budgets. According to the IEA, about 70% of investment in clean energy should therefore come from private equity.
Furthermore, it transpires that the implementation of renewable energy projects in emerging and developing economies is much more expensive than in rich states as the costs of capital finance in the former are higher. It is estimated that the nominal financing costs of green projects in developing and emerging states is almost seven times higher than that of the US or Europe. With the final cost of energy for consumers in poorer countries therefore higher than in high-income states, the former has to pay about half as much again than the latter to avoid the emission of a ton of carbon dioxide.
Fatih Birol pointed out that the rich should be more involved in financing green energy projects in poorer states as the opportunities are not equal.
“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 said.
The IEA assesses those rich countries should mobilize at least US$100 billion every year in climate finance to effectively support poorer nations on their journey to achieving climate neutrality. Apart from financing, political changes are also recommended. The IEA argues that international public finance institutions should have a strategic mandate regarding the financing of energy transition, international climate financing must be improved, private capital should be engaged more in clean energy investments and local entrepreneurs must be empowered to be able to pursue changes amongst other recommendations.
