Page 14 - REM Annual Review 2021

REM JUNE REM

IEA calls for $1 trillion of annual

investment in clean energy in

developing economies

Private finance is crucial if emerging economies are not to be left behind in the

race to net zero, the IEA warns, writes Richard Lockhart

GLOBAL THE cost of reaching net zero will be signifi- and Asia, although it excludes China.
cantly more expensive for emerging and devel-
WHAT: oping economies (EMDEs), the International Sources of finance
Emerging economies Energy Agency has warned, potentially reducing The report stressed that avoiding a tonne of CO2
need $1 trillion per year the whole world’s chances of decarbonising the emissions in emerging and developing econo-
of investment in clean economy. mies costs about half as much on average as in
energy Without a seven-fold increase in green advanced economies.
investment in EMDEs, up from $150bn per That is partly because developing economies
WHY: year to $1 trillion per year by 2030, developing can often jump straight to cleaner and more effi-
Without this, the economies could be emitting the majority of cient technologies without having to phase out
developed world will the world’s greenhouse gas emissions in future, or refit polluting energy projects that are already
account for the bulk of a report from the International Energy Agency underway.
emission by 2030 (IAE), called Financing Clean Energy Transi- But emerging market and developing econo-
tions in EMDEs, found. mies seeking to increase clean energy investment
WHAT NEXT: The report forecasts that emissions from face a range of difficulties, which can undermine
New investment vehicles EMDEs are projected to grow by 5bn tonnes risk-adjusted returns for investors and the avail-
are needed to attract (per year by 2040, compared to a projected 2bn ability of bankable projects.
private investment and tonne fall in advanced economies and a levelling Challenges involve the availability of com-
loans to the developing off in China, mercial arrangements that support predictable
world The report warned that urgent action was revenues for capital-intensive investments, the
needed to kick-start investment in EMDEs. creditworthiness of counterparties and the avail-
“Clean energy investment in emerging and ability of enabling infrastructure, among other
developing economies declined by 8% to less project-level factors.
than $150 billion in 2020, with only a slight Broader issues, including depleted public
rebound expected in 2021,” the IEA said. finances, currency instability and weaknesses
“The race to net zero is one that nobody wins in local banking and capital markets also raise
unless everyone finishes,” said IEA Executive challenges to attracting investment.
Director Fatih Birol, who is calling on govern- The report calls for a major increase in private
ments to create a “strategic imperative” for inter- investment in clean energy in emerging econo-
national financial institutions, including the mies, but only if it is supported and leveraged by
IMF and the European Bank for Reconstruction the public sector.
and Development, to play a key role in reducing “There is no shortage of money worldwide,
investment risk and unlocking finance. but it is not finding its way to the countries, sec-
Emerging and developing economies cur- tors and projects where it is most needed,” Birol
rently account for two-thirds of the world’s pop- said. “Governments need to give international
ulation, but only one-fifth of global investment public finance institutions a strong strategic
in clean energy, and one-tenth of global financial mandate to finance clean energy transitions in
wealth, the IEA said. the developing world.”
Annual investments across all parts of the Put simply, while more cash from the private
energy sector in emerging and developing mar- sector is needed, the public sector, in the form of
kets have fallen by around 20% since 2016, and multinational development banks (MDBs) and
they face debt and equity costs that are up to DFIs has to reduce risk and create new innova-
seven times higher than in the United States or tive financing instruments.
Europe. While today EMDEs rely heavily on public
The report covers developing economies in sources of finance, the IEA found that if the 2050
Africa, Europe, Latin America, the Middle East global net zero target is to be met, then 70% of

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