An “alarming shortage” of clean energy and low-carbon infrastructure projects in developing countries and emerging markets poses a major threat to achieving global climate goals under the Paris Climate Agreement, new research warns.
Achieving global climate finance targets will require a 30 percent increase in the number of low-carbon projects that can attract private investment in developing countries by the end of this decade. Yet the study warns that the number of such projects is actually declining, with an average of ten. percent annual reduction since 2015.
The research, published last week by the Tony Blair Institute for Global Changehighlights a significant gap in the number of investable low-carbon projects in developing and emerging countries, which estimates suggest would need to increase sevenfold annually to meet climate finance targets.
It highlights weak renewable energy markets in many developing economies, with data suggesting that the size of wind, solar and other clean energy pipelines has shrunk overall in recent years, with growth concentrated in a handful leading emerging economies.
Brazil, India and South Africa are collectively home to almost half of all renewable energy projects receiving private investment in emerging and developing countries worldwide, the research shows.
Emerging and developing countries receive only about $85 billion to $114 billion from international sources of private investment.
The situation facing developing countries is in stark contrast to the trends in the economies of the Organization for Economic Development and Co-operation (OECD). While investment in renewable energy projects in the former countries has fallen by an average of 11 percent per year, while the size of project pipelines follows the same trend, it is increasing by four percent annually in OECD countries, the study estimates.
As such, the authors warn that unless much more financing for green infrastructure projects is targeted at emerging and developing countries, the climate finance goals of both richer countries and the broader global net-zero transition are at risk of failure.
“Climate finance is critical to making climate targets a reality in a way that enables a just transition to net zero and recognizes the unique needs of emerging markets and developing countries,” the report said. “But there is a significant gap in the investments needed to finance this transition, and what is available is often not tailored to the sectors and countries that need it most.”
Climate finance will once again be a key point of contention at the upcoming COP28 UN climate talks, which start in Dubai at the end of this month, with richer countries having so far failed to meet their collective commitment of $100 billion a year.
There is an urgent need to secure more private sector investment and climate finance in developing and emerging countries.
Countries are also struggling to agree on the creation of a new loss and damage fund to support countries already dealing with the worst impacts of the climate crisis. If an agreement cannot be reached, there are fears that it could lead to the climate talks at COP28 failing altogether. . a A draft agreement was concluded last weekend after a series of difficult negotiations, but poorer countries remain deeply frustrated by the inability of industrialized countries to come forward with a stronger commitment to support the new fund. Meanwhile, industrialized countries have expressed anger at the inability of the largest emerging economies to commit to the new fund, with one diplomat reportedly noting that if Saudi Arabia can afford to pay millions of dollars a month to footballer Cristiano Ronaldo, can afford that too. in support of the Loss and Damage Fund.
The broad view among diplomatic observers is that securing an ambitious outcome in the final COP28 text on mitigation – such as an agreed deadline for phasing out fossil fuels – will also require richer countries to fulfill their commitments on comply with climate financing and ensure the establishment of robust climate policies. Loss and damage fund.
But as last week’s Tony Blair Institute article also shows, there is an urgent need to secure more private sector investment and climate finance in developing and emerging countries, as well as the capacity and skills needed to deliver investable to realize infrastructure projects, if the The world has a chance of limiting the average temperature increase to 1.5 degrees Celsius or well below 2 degrees Celsius.
In total, the report estimates that needed global annual climate spending from the public sector, international financial institutions and private sources together ranges from $45 trillion to $69 trillion, which the report says is approximately seven to eleven times greater than current annual spending of $630. billion dollars.
But not only is there a large investment gap, a significant portion of that financing should also be directed to countries facing a disproportionate burden of climate change, the study warns.
The number of investable, climate-responsive renewable energy and low-carbon projects should be seven to nine times greater than the current pipeline.
To keep pace with climate goals, the report estimates that developing countries, emerging economies and climate-sensitive economies would collectively need to receive $2.4 trillion annually, representing about 30 to 50 percent of total needed global climate spending.
More specifically, the report claims that – based on an analysis of current financing sources – approximately $780 billion of that $2.4 trillion in annual financing would need to be provided by international sources of private financing, in addition to financing from public sources and financial institutions . However, currently emerging and developing countries receive only about $85 billion to $114 billion from international sources of private investment.
Overall, the study authors therefore estimate that to close the climate finance gap and ensure secure allocation for new investments, the number of investable, climate-responsive renewable energy and low-carbon projects will need to be seven to nine times greater than number. current pipeline.
That means about 3,200 new projects – including renewables, natural resources, utilities and waste management projects – that could welcome much-needed private, foreign investment in developing and emerging countries to achieve the goals of the Paris Agreement, the report estimates.
Africa in particular needs much greater development of renewable energy sources, both to provide access to electricity for millions of people who do not have access to it, and to prevent the continent from becoming locked into carbon-intensive, fossil fuel-based infrastructure development as its economies are developing. points out.
Renewable energy sources such as wind and solar energy can promise to provide reliable sources of electricity at a much lower and less volatile price.
The study authors describe the lack of investable low-carbon projects in developing and emerging countries as “the forgotten element of the energy transition”, which they warn “has the potential to hinder financial action”.
“Emerging and developing countries urgently need to build investment pipelines that attract private investment, as well as investment in public-private partnerships, in climate-related sectors,” the study said. “Bold action is needed today to reverse the current erosion trend and together achieve the goals of the Paris Agreement.”
The challenge of attracting much-needed investment to accelerate the energy transition in emerging and developing countries – many of which have growing populations and growing energy needs, which, if met using fossil fuels, would inevitably result in of global climate goals – is an increasing source of frustration for political leaders in the South.
Not least because in the wake of the global energy crisis, renewable energy sources such as wind and solar power can promise to provide reliable sources of electricity at a much lower and less volatile price.
Yet the capital costs associated with investing in low-carbon projects in emerging and developing countries are often much higher, resulting in a major barrier to green development in developing economies, and fueling calls for reforms to a global financial architecture dominated by institutions such as the World Bank and the International Monetary Fund.
As such, the upcoming COP28 climate summit will be redefined by calls from developing countries for both increased climate financing and sweeping reforms to financial rules and institutions, building momentum behind the Bridgetown agenda championed by Barbados Prime Minister Mia Mottley. As the Tony Blair Institute article makes clear, the failure to overcome these challenges and build the necessary clean energy pipelines will ultimately result in major negative consequences for richer and poorer countries alike.