The International Energy Agency (IEA) has called for clean energy investment to be made a “top global priority” in emerging and developing economies.
The energy watchdog’s latest report, in collaboration with the World Bank and World Economic Forum, shows that annual green energy investments in these economies need to increase by more than seven times – from less than $150bn last year to more than $1tn by 2030 to put the world on track to reach net-zero emissions by 2050.
It claims that unless much stronger action is taken, energy-related carbon dioxide emissions from the developing nations – which are mostly in Asia, Africa and Latin America – are set to grow by five billion tonnes over the next two decades.
“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 IEA executive director Fatih Birol.
“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.”
Annual clean energy investments in developing economies have fallen since 2016, says IEA
While Birol believes there is “no shortage” of money available worldwide, he said it is not finding its way to the countries, sectors and projects where it is “most needed”.
The IEA chief has called on governments to give international public finance institutions a “strong strategic mandate” to finance clean energy transitions in the developing world.
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, according to the report.
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 analysis shows that annual investments across all parts of the energy sector in emerging and developing markets have fallen by about 20% since 2016, and they face debt and equity costs that are up to seven times higher than in the US or Europe.
It highlights that avoiding a tonne of CO2 emissions in emerging and developing economies costs about half as much on average as in advanced economies. That 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.
But the IEA notes that emerging market and developing economies seeking to increase clean energy investment face a range of difficulties, which can “undermine risk-adjusted returns for investors and the availability of bankable projects”.
“Challenges involve the availability of commercial arrangements that support predictable revenues for capital-intensive investments, the creditworthiness of counterparties and the availability of enabling infrastructure, amongst other project-level factors,” it added.
“Broader issues, including depleted public finances, currency instability and weaknesses in local banking and capital markets also raise challenges to attracting investment.”
“Major catalyst” needed to make 2020s the decade of transformative clean energy investment
Birol believes a “major catalyst” is needed to make the 2020s the decade of “transformative clean energy investment”.
“The international system lacks a clear and unified focus on financing emissions reductions and clean energy – particularly in emerging and developing economies,” he added. “Today’s strategies, capabilities and funding levels are well short of where they need to be.
“Our 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.”
The IEA’s priority actions – for governments, financial institutions, investors and companies – covers 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.
The report calls for a focus on channelling and facilitating investment into sectors where clean technologies are “market-ready”, particularly in the areas of renewables and energy efficiency, but also laying the groundwork for scaling up low-carbon fuels and industrial infrastructure needed to “decarbonise rapidly growing and urbanising economies”.
It emphasises the need to strengthen sustainable finance frameworks, addressing barriers on foreign investment, easing procedures for licensing and land acquisition, and rolling back policies that distort local energy markets.
The analysis claims clean energy investments and activities can bring “substantial economic opportunities” and jobs in industries that are expected to flourish in the coming decades as energy transitions accelerate worldwide.
It calls for clean energy transitions to be people‐centred and inclusive, including actions that build equitable and sustainable models for universal access to modern energy.
The IEA believes spending on more efficient appliances, electric vehicles, and energy‐efficient buildings can provide further employment opportunities and support the role of women and female entrepreneurs in “driving change and improved gender equality”.
