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IEA calls on private finance to prevent surge in emerging economy emissions

Highlights

Annual spend needs to increase seven times

Capital 'significantly more expensive' for emerging, developing economies

Focus must be on power sector, electrification

Emerging and developing economies are set to account for the bulk of greenhouse gas emissions growth in the coming decades unless much stronger action is taken to transform their energy systems, the International Energy Agency said June 9.

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Emissions from emerging and developing economies (EMDEs) are projected to grow by 5 gigatons over the next two decades. In contrast, emissions are projected to fall by 2 Gt in advanced economies, and to plateau in China, the IEA said in a report, Financing Clean Energy Transitions in EMDEs.

"By the end of the 2020s, annual capital spending on clean energy in these economies needs to expand by more than seven times, to above $1 trillion, in order to put the world on track to reach net-zero emissions by 2050," the IEA said.

Emerging economies in Africa, Asia, Europe, Latin America and the Middle East include the world's least developed countries as well as many middle-income economies, emerging giants of global demand such as India and Indonesia, and some of the world's major energy producers.

These economies account for two-thirds of the world's population but only one-fifth of investment in clean energy and one-tenth of global financial wealth.

Annual investments across all parts of the energy sector in EMDEs have fallen by around 20% since 2016, in part because of persistent challenges in mobilizing finance for clean energy projects.

"Clean energy investment in emerging and developing economies declined by 8% to less than $150 billion in 2020, with only a slight rebound expected in 2021," the IEA said.

Mobilizing capital on a much larger scale requires a dramatic increase in the role of the private sector, aided by international and development finance institutions, it said.

"For the moment, capital is significantly more expensive in emerging and developing economies than in advanced economies. Nominal financing costs are up to seven times higher than in the United States and Europe, with higher levels in riskier segments. This points to a relatively high bar for projects to raise debt finance and offer sufficient returns on equity," it said.

Investment should focus on transforming power sectors and direct electrification, according to the report.

Electricity consumption in emerging and developing economies is set to grow at three times the rate of advanced economies.

Low-cost wind and solar technologies should be prioritized to meet rising demand, while "innovative mechanisms" to refit, repurpose or retire existing coal plants are "an essential component" of power sector transformation, it said.

"Societies can reap multiple benefits from investment in clean power and modern digitalized electricity networks, as well as spending on energy efficiency and electrification via greener buildings, appliances and electric vehicles," it said.

These investments would drive the largest share of emissions reductions over the next decade to meet international climate goals.