How Rich Countries Must Help Developing Economies Afford The Clean Energy Transition

It’s hard enough for rich industrialized countries to tackle carbon reduction goals. For emerging economies to do the same can be downright daunting. But rich or poor, it must be done. That’s the sentiment from the International Renewable Energy Agency (IRENA), which is helping countries move from dirty energy forms to cleaner and lower-carbon ones.

But developing countries must have energy-access: India, for example, says that while it is shedding coal-fired power plants, the fuel will still make up 30% of its electricity portfolio in 2040. And emerging countries lack access to finance and technologies — noteworthy, given the $131 trillion that IRENA says is needed to get to carbon neutrality in 2050.

“We need to be clear, we cannot envisage a different path between the developing and the developed world,” Francesco La Camera, director-general for IRENA during a Zoom conference on Monday. “Oil, coal, and natural gas can play a role said. But it is the worst option. The developing countries can leapfrog (over them). This has to be a common effort … New energy systems will be decentralized.”

What then is the path to keeping temperature rises to no more than 1.5% by 2050 and thereby mitigating the worst effects of climate change? IRENA, which released its World Energy Transitions Outlook yesterday, says that renewables and green hydrogen are central to the cause. Renewables, it adds, should supply 90% of all energy needs. If that happens, fossil fuel usage would fall by 75%.

Already, about 170 countries have clean energy targets — made possible by an abundance of sustainable resources that are cost-effective and that can be scaled up. And decarbonization is directly tied to electrification. In 2050, electricity will make up greater than 50% of final energy use compared to 21% today.

The good news is that the world’s major economies are committing to net-zero targets by 2050 while the financial markets are rewarding sustainable technologies: IRENA says that in 2020, the S&P Clean Energy Index of clean energy stocks was up by 138% compared to the fossil fuel-heavy S&P Energy Index that was down by 37%. Moreover, investing in clean tech creates three times more jobs than do fossil fuels for every million dollars of spending.

Technical and Financial Support Wanted 

“We are making this report very clear that our numbers are not wishful,” says La Camera. “These are numbers we can achieve. But we have to speed up our initiatives. What is encouraging is that the new U.S. president is bringing a clear message to the market — that we have abandoned the old system. This year, we will get the political momentum.”

What’s more, key companies are leading the charge, including Barclays, Morgan Stanley, and TD Bank Group, Amazon, Microsoft Corp., and Apple.

To be sure, a lot is standing in the way of IRENA’s ambitions. In 2018, non-renewables comprised 86% of the global electricity mix while sustainable energies made up 14% — and other studies don’t see that flipping because natural gas is replacing coal. Moreover, it will also take $131 trillion to 2050 to get to carbon neutrality. Can emerging countries make this energy transition? Consider also that the International Energy Agency says that energy demand will rise by 30% to 2040 and that the Asia-Pacific region will make up two-thirds of that demand.

To boot, an earlier analysis by Universal Ecological Fund, says that roughly three-fourths of the climate pledges to date are insufficient to meet the goals of the Paris climate agreement. That is, they are unlikely to achieve emissions reductions of 50% by 2030. Of the 184 climate pledges, about a quarter of them were sufficient or partially sufficient. And if the world fails to meet those objectives, the cost will be high: $2 billion a day in economic losses as a result of extreme weather events. It says that international technical support and financial assistance are a must.

The European Union and Canada were the first advanced economies to embrace the Paris climate agreement: Europe committed to reducing its greenhouse gases by 40% by 2030 from a 1990 baseline. And Canada agreed to cut its greenhouse gases by 30% from a 2005 baseline. The United States, meanwhile, is now back to the table: under President Biden, the country is committing to being carbon neutral in 2050 and to run fully on renewable energy by 2035.

Even India, which had settled on coal a decade ago as the fuel that would help it industrialize, is now saying that solar energy is critical to such aims: it plans to meet 40% of its electricity from sustainable fuels by 2030. That’s because it is cheaper and cleaner than coal, while its air and water quality have become almost unbearable. As a result, it has declined to construct several hundred coal plants and it has chosen instead to build 100,000 megawatts of solar, which will be difficult given its current infrastructure.

The Cost of Inaction

Meantime, China’s President Xi told the UN General Assembly that his country would hit peak CO2 releases by 2030 and that it would be carbon neutral by 2060. Key to the effort is China’s commitment to reduce its reliance on coal — now at 66% of its electric generation portfolio. Its immediate aim, however, is to reduce that percentage to 59% and to increase the use of natural gas to 7.5%. And it wants sustainable energy to jump from 15% today to 30% in 2050.

At the same time, the continent of Africa is looking to leapfrog into the renewable energy age — just as it did with cellular phones. To that end, the European Commission has mobilized roughly $50 billion in sustainable investment for Africa. And companies like General Electric, ABB, Alstom, Siemens, and Schneider Electric are working to electrify the continent.

However, the International Panel on Climate Change as well as the Global Change Institute at the University of the Witwatersrand in South Africa says that temperatures in southern Africa could hit 5-6 degrees Celsius by century’s end based on global emissions.

Globally, the number of climate-related disasters, including extreme heat, droughts, floods, and storms, has doubled since the early 1990s, says the UN, with an average of 213 of these events occurring every year from 1990 to 2016. Over the last ten years, in fact, climate-related disasters affected on average 16 million people and have caused billions of dollars in eco-damages.

“The transformational challenge can still be achieved,” says IRENA’s Francesco La Camera. “The energy transition is already happening. Renewables are the cheapest form of energy and makeup one-third of global capacity… But the more we delay the actions, the less effective they will be. We are trying to stress that the path to 1.5 degrees Celsius is very narrow. If we do not start now, we will never succeed.”

The technologies now exist to achieve sizable CO2 reductions over the next 15 years. But the “last leg” to carbon neutrality, or the remaining 20%, is tough. It will take money and research to commercialize those future technologies — resources and expertise that emerging countries do not have. But those same nations realize that inaction also has consequences. And if they can leapfrog over centralized fossil-fueled generation and instead go straight to onsite generation using renewables, they will have a chance to construct modern economies.