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IEA: Developing nations present critical fault line on path to net zero

A new report from the International Energy Agency (IEA) highlights that massive investments are required to drive the energy transition in emerging markets, thereby ensuring no country is left behind in the world’s shift to net zero by 2050.

The report, Financing clean energy transitions in emerging and developing economies, published in collaboration with World Bank and World Economic Forum, shows concerted international efforts are needed for a sustainable and resilient economic future in the developing world.

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In fact, the report shows that annual clean energy investment in emerging and developing economies needs to increase by more than seven times – from less than $150 billion in 2020 to over $1 trillion by 2030 to put the world on track to reach net-zero emissions by 2050. 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 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 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.”

“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,” Dr Birol said. “Governments need to give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing world.”

Key report findings

  • 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;
  • 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 United States or Europe;
  • 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.
Image credit: IEA

Priority actions included in the report – for governments, financial institutions, investors and companies – cover the period between now and 2030, drawing on detailed analysis, as well as almost 50 real-world case studies across different sectors in countries ranging from Brazil to Indonesia, and from Senegal to Bangladesh.

Recommended actions

  • Focus on channelling and facilitating investment into sectors where clean technologies are market-ready;
  • 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;
  • Ensure clean energy transitions are people‐centred and inclusive and include actions that build equitable and sustainable models for universal access to modern energy;
  • Spend more on efficient appliances, electric vehicles, and energy‐efficient buildings to provide further employment opportunities, and support the role of women and female entrepreneurs in driving change and improved gender equality.

Emerging and developing countries have notoriously slow-moving policy environments, which can delay the implementation of these actions. However, Tim Gould, IEA’s Head of Division for Energy Supply Outlooks and Investment, makes it clear that many countries are heeding the call to action and experiencing success. Said Gould: “The report provides examples of where countries are taking up these challenges…In presenting these case studies, we wanted to show that it’s possible and the challenges can be tackled.”

Gould emphasises however that we can’t leave everything to the developing world, there must be a commitment from the international community to provide the funding, projects, and opportunities. Furthermore, the IEA will be implementing incentives to spur commitment, a priority for Dr Birol who is working with governments on these issues.

“This report shows that current challenges to get this capital to the right places can be overcome through a combination of smart policies, financial innovation, as well as bold collective action. The World Economic Forum is committed to enabling multistakeholder cooperation to accelerate progress in this important area,” said Børge Brende, President of the World Economic Forum.

The report makes it clear that the world’s energy and climate future increasingly hinges on whether emerging and developing economies are able to transition to cleaner energy systems. An unprecedented surge in investment is required to ensure these nations will not be left behind.

Download the report for more detail.