New Analysis Warns Global Net-zero Progress at Risk due to Shortage of Climate-responsive Projects

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% 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%, 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%.

Increase in private sector investment required to honour 2030 Paris climate finance target

• 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 US$4.5 to US$6.9 trillion, which is seven to 11 times larger than the current annual spend of US$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 US$2.4 trillion annually, equivalent to 30 to 50% of total global spending.

• According to TBI’s analysis of current sources of finance, approximately US$780 billion of the US$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 US$85 billion to US$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 argue 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 say ‘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.

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.

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