Developing economies’ energy transition ‘needs $1trn by 2030’

Emerging markets must see sevenfold rise in clean-energy spending for the world to deliver on net-zero goals, IEA says

Annual energy investment in in emerging and developing countries has fallen by around 20% since 2016, according to the IEA (pic: Lekela)

Emerging and developing economies will need a massive increase in clean-energy investment if the world is to achieve its climate goals, according to a new report by the International Energy Agency (IEA).

In the “Financing Clean Energy Transitions in Emerging and Developing Economies”, which it compiled in collaboration with the World Bank and the World Economic Forum, the IEA calls for a series of actions that would enable these countries to attract the finance needed to build modern clean-energy systems.

“Annual clean energy investment in emerging and developing economies needs to increase by more than seven times — from less than $150 billion last year to over $1 trillion by 2030 — to put the world on track to reach net-zero emissions by 2050,” the IEA said in a statement.

“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,” said IEA executive director Fatih Birol. “Governments need to give international public finance institutions a strong strategic mandate to finance clean energy transitions in the developing 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, according to the report. Annual energy investment in these countries has fallen by around 20% since 2016, and they face debt and equity costs that are up to seven times higher than in the US or Europe.

Avoiding a tonne of CO2 emissions in emerging and developing economies costs about half as much on average as in advanced economies. However, clean-energy investment in the former countries is hindered by problems ranging from unpredictable revenues and the creditworthiness of counterparties at project level, to depleted public finances and local banking instability at a broader level.

“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,” said Birol. 

The report urges countries to focus on facilitating investment into sectors where clean technologies are market-ready, especially in the areas of renewables and energy efficiency. “There is a huge opportunity to take advantage of lower-cost clean energy technologies, led by solar and wind, to forge a new low-emissions development model for the developing world,” said Birol.

The report also calls for stronger sustainable finance frameworks, a reduction in barriers to foreign investment, easier licensing procedures, and policies that do not distort energy markets.