- As we ramp up the transition to clean energy, we must ensure we do so equitably.
- There is a widening gap in energy spending between developed and developing economies.
- Clean energy investments in developing countries must be increased sevenfold to meet the Paris targets.
All the evidence points in one direction: countries around the world must urgently accelerate their transitions to clean energy. This is critical to stave off the worst effects of climate change – and to build a more healthy and prosperous future in which everyone has access to sustainable and affordable energy supplies.
As we ramp up technologies like solar, wind, electric vehicles and energy efficiency – which will underpin the economies of the future – we must do so in a way that connects the hundreds of millions of people who now lack access to electricity, and that provides cleaner options to the billions who rely on polluting fuels for their daily cooking – at great risk to their health. There are many other benefits: the investments required to install wind turbines and solar panels, to upgrade our electrical grids and to develop new technologies will create millions of jobs.
But we must make sure these advances and advantages are shared globally. Our world already suffers from too many divides – between rich and poor, and between those with access to the latest technologies and those without. We can’t allow the energy transition to create new divisions and deepen existing ones. As things stand today, the bulk of the growth in global carbon emissions in the coming decades is set to come from emerging and developing economies as they grow, industrialise and urbanise. The collective challenge the world faces is enabling these economies to do these things without following the high-carbon path taken by others in the past.
But one major issue is becoming a critical fault line in global clean energy transitions. 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, where avoiding a tonne of CO2 emissions typically costs about half as much as in the developed world. 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.
At the same time, the damaging effects of the Covid-19 crisis are lasting longer in many parts of the developing world: the economic slump is deeper, and the capacity to drive a sustainable recovery is limited. While there’s no global shortage of capital, it’s not finding its way to the countries and sectors where it is most needed.
It’s much harder to finance a clean energy project in Africa or Southeast Asia than in Europe or North America, whose wealthier economies enjoy lower capital costs and more willing private investors. Renewable energy sources may be cheaper to run in the long-term, but they often require high initial expenditure. As a result, private capital often doesn’t see the right balance of risk and reward in clean energy projects in the developing world.
Every country must choose its own energy path based on its specific needs and resources, and there is a lot that countries themselves can do to create and improve the conditions for clean energy investment. That’s one of the key messages from a major new International Energy Agency (IEA) report, Financing Clean Energy Transitions in Emerging and Developing Economies, which was produced in collaboration with the World Economic Forum (WEF) and the World Bank.
As the report shows, clean energy investments in emerging and developing economies need to be multiplied by more than seven – from less than USD 150 billion last year to over $1 trillion annually by 2030 – to put the world on track to reach net-zero emissions by 2050.
The global challenge of climate change demands global solutions: the international community has to ensure that all countries have the support they need to move forward in this critical endeavour. We at the IEA and the WEF call on all stakeholders to work together to develop the smart policies and innovative financial approaches that are necessary to give the developing world better access to the capital that countries require to build their clean energy futures.
And we really mean all stakeholders. The massive scale of the challenge requires major efforts not just from the energy sector but from international financial institutions, their donors, multilateral development banks and many other actors. Many institutions are already seeking to do more. But when we look at the numbers globally today, it is clear that we are nowhere near mobilising the level of funds that’s needed. This is why one of the most urgent recommendations is that governments give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing world.
Our planet’s future depends on meeting this challenge and avoiding deep fractures in global efforts to tackle climate change. The IEA and WEF are ready to play a leading role in bringing governments, investors, companies and other key actors together to share resources and expertise to build a sustainable future for everyone. Now is the time for bold collective action to globalize the scaling up of clean energy.
This agenda blog is part of a series dedicated to mobilising investment for clean energy in emerging and developing economies. Learn more about the related initiative, a project driven by multiple stakeholders associated with the World Economic Forum with the goal to uncover barriers, identify solutions and enable collaborative actions to significantly scale investments for clean energy in emerging and developing markets.
Fatih Birol, Executive Director, International Energy Agency
Roberto Bocca, Head of Shaping the Future of Energy and Materials; Member of the Executive Committee, World Economic Forum
The views expressed in this article are those of the author alone and not the World Economic Forum.