Global net-zero progress at risk due to shortage of climate-responsive projects in emerging markets

With just under a month to go to the start of COP28 being hosted in the UAE, a new paper from the Tony Blair Institute (TBI) reveals an alarming shortage of climate-responsive projects in emerging markets and developing countries, which potentially poses a threat to global progress towards net-zero targets.

Analysis in the paper, titled ‘Emerging Markets Need Projects That Attract Private Investors to Meet Climate Goals’, shows that in emerging markets and developing countries (EMDCs), the number of climate-responsive projects funded by private sources of capital has been decreasing by approximately 10 per cent per year since 2015. Climate-finance targets require these projects to increase by approximately 30 per cent by 2030.

The UAE's presidency of COP28 has highlighted 'improving climate finance' as one of its four key focus areas for the conference, alongside speeding up the transition to clean energy, promoting full inclusivity, and addressing impacts on lives and livelihoods.

TBI’s analysis suggests that there is a shortfall of projects across EMDCs, requiring a seven-times increase in annual realised projects to meet the estimated target. The primary issue is that the EMDC renewables market is not on strong footing, with the size of pipelines contracting over time and concentrating in Brazil, India and South Africa, which are home to almost half of all EMDC renewable-energy projects that receive private sector investment. 

In the past eight years, investment in these projects has dropped at an average annual rate of 11 per cent, with project pipelines following the same trend. In contrast, Organisation for Economic Development and Cooperation (OECD) countries saw their renewable-energy investments increase at an average annual rate of 4 per cent. 

Increase in private sector investment needed

• To honour the Paris Agreement by 2030 and limit the devastating impact of global temperature rise, TBI estimates the required global annual climate spend from the public sector, international financial institutions (IFIs) and private sources combined ranges from $4.5 to $6.9 trillion, which is seven to 11 times larger than the current annual spend of $630 billion. 

• But honouring climate goals will require targeted funding in countries that face a disproportionate climate-change burden, including EMDCs, rather than an even distribution of finances across the globe. To ensure these countries are able to keep pace with global efforts, EMDCs should receive $2.4 trillion annually, equivalent to 30 to 50 per cent of total global spending.

• According to TBI’s analysis of current sources of finance, approximately $780 billion of the $2.4 trillion annual funding that should be directed to EMDCs must be supplied by international sources of private finance, in addition to funding from public sources and IFIs. At present, EMDCs receive only $85 billion to $114 billion from international sources of private investment. To close the gap and provide secure allocation for new investments, an increase of seven to nine times the current pipeline of climate-responsive projects is required.

The authors of the paper argued that “the development of a reliable pipeline of climate-responsive infrastructure projects – those involving renewable energy, natural resources, utilities or waste management – is the forgotten element of the energy transition that has the potential to bottleneck financial action” and went to recommend that “bold action is needed today to reverse the current erosion trend and achieve the Paris Agreement goals together”.

In particular, Africa is in urgent need of renewable-energy-project development. While the continent’s emissions are still negligible, its extremely low activity in renewable generation implies that it could easily become the next victim of the system unless its nations join the transition pathway. 

The paper states that emerging EMDCs have “an urgent need to build investable project pipelines that attract private investments, as well as public-private partnership investments, in climate-related sectors,” and that they will need approximately 3,200 new investable projects welcoming private foreign investment in order to meet climate goals.

In August this year, the COP28 Presidency convened world-leading economists from the Independent High-Level Expert Group (IHLEG) alongside global financial institutions such as the World Bank, IMF, ECF and IFC, to focus on green financing.

The attendees agreed that finance is the linchpin for facilitating the deployment of solutions to transition towards a net zero, climate-resilient future. They also aligned on the need to expedite the augmentation of international climate finance from now through the close of the decade to bolster emerging markets and developing economies in their mitigation and adaptation initiatives.

The outcome being that they will present to COP28 recommendations on a new framework for international climate finance, as well as a definitive roadmap on how to implement them. Facilitating the energy shift in Emerging Markets and Developing Economies, along with aiding countries most affected by climate change, is central to the ambitions of the COP28 Presidency.