The world’s energy and climate future increasingly hinges on decisions made in emerging and developing economies
This very diverse grouping – spanning countries in Africa, Asia, Europe, Latin America and the Middle East – includes 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. On a per capita basis, energy consumption in these countries is generally low, but expanding economies and rising incomes create vast potential for future growth. The challenge is to find development models that meet the aspirations of their citizens while avoiding the high-carbon choices that other economies have pursued in the past. The falling cost of key clean energy technologies offer a tremendous opportunity to chart a new, lower-emissions pathway for growth and prosperity. If this opportunity is not taken, and clean energy transitions falter in these countries, this will become the major fault line in global efforts to address climate change and to reach sustainable development goals.
Developing and emerging economies account for two-thirds of the world’s population but only one-fifth of investment in clean energy – and just one-tenth of global financial wealth. Annual investments across all parts of the energy sector in developing and emerging markets have fallen by around 20% since 2016, in part because of some persistent challenges in mobilising finance for clean energy projects. The Covid-19 pandemic has weakened corporate balance sheets and consumers’ ability to pay, and put additional strains on public finances. The effects have been felt most severely in emerging and developing economies, and the impacts on public health and on economic activity are far from over, undercutting the prospects for a swift recovery and the means for a sustainable one.
Today’s development pathway for emerging and developing economies points to higher emissions
Emerging and developing economies are set to account for the bulk of emissions growth in the coming decades unless much stronger action is taken to transform their energy systems. With the exception of parts of the Middle East and Eastern Europe, their per capita emissions are among the lowest in the world – one-quarter of the level in advanced economies. In a scenario reflecting today’s announced and existing policies, emissions from emerging and developing economies are projected to grow by 5 gigatonnes (Gt) over the next two decades. In contrast, they are projected to fall by 2 Gt in advanced economies and to plateau in China.
An unprecedented increase in clean energy spending is required to put countries on a pathway towards net-zero emissions.
But a massive surge in clean energy investment in the developing world can put emissions on a different course
Clean energy investment in emerging and developing economies declined by 8% to less than USD 150 billion in 2020, with only a slight rebound expected in 2021. 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 USD 1 trillion, in order to put the world on track to reach net-zero emissions by 2050. Such a surge can bring major economic and societal benefits, but it will require far-reaching efforts to improve the domestic environment for clean energy investment within these countries – in combination with international efforts to accelerate inflows of capital.
Transforming the power sector and boosting investment in the efficient use of clean electricity are key pillars of sustainable development. Electricity consumption in emerging and developing economies is set to grow around three times the rate of advanced economies, and the low costs of wind and solar power, in particular, should make them the technologies of choice to meet rising demand if the infrastructure and regulatory frameworks are in place. Societies can reap multiple benefits from investment in clean power and modern digitalised electricity networks, as well as spending on energy efficiency and electrification via greener buildings, appliances and electric vehicles. These investments drive the largest share of the emissions reductions required over the next decade to meet international climate goals. Innovative mechanisms with international backing to refit, repurpose or retire existing coal plants are an essential component of power sector transformations.
Clean power is central to development and transition strategies but cannot provide all the answers in economies undergoing rapid urbanisation and industrialisation. Transitions in fuels and energy-intensive sectors such as construction materials, chemicals and shipping are essential to achieve deep emissions reductions. This requires improvements in the efficiency of industrial equipment and heavy transport – as well as fuel switching, mainly to electricity and bioenergy but also to natural gas in areas where cleaner energy cannot yet be deployed on the scale needed. In parallel, it will be essential to lay the groundwork for a rapid scaling‑up of low-carbon liquids and gases, including hydrogen, as well as carbon capture technologies, although many of these areas lack viable business models for the moment. Major fuel-importing countries, notably in Asia, stand to benefit from downward pressure on import bills. But among the world’s largest oil and gas producers and exporters, clean energy transitions create huge pressures on economic models that rely on hydrocarbon revenue, raising questions about the finance available for energy and non‑energy investments alike.
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