There is a grave need for greater international technical, regulatory and financial support to unlock the potential for clean energy in emerging and developing economies
Clean energy generation appears chimerical even as climate changes the world over, particularly in vulnerable and densely populated countries like India and China, is wreaking havoc in terms of welfare loss to the millions of people inhabiting the two Asiatic giants. India and China no doubt sang hosannas over the ideals of clean energy and sans reservation signed the Paris Accord of 2015 to bring down the rising global temperatures even when the then Trump administration in the United States had little qualms in walking out of the pact designed to send a collective call to preserve the planetary balance by polluting less and encouraging the increased use of non-conventional sources of energy to gradually reduce the hefty reliance on fossil fuels that threatens to bring humanity on the brink of a likely climate-inducd apocalypse!
Time and again incredible figures to realise clean energy were trotted out by the international community to help address and minimise the grave existential peril while most of the rich world squirmed and demurred. Presumably so as they were insistent on more action and resources from the emerging and developing economies, which seem to be rising on the development ladder with leaders from the developed world resting on their oars, oblivious to their past depredations of nature by their wasteful consumption of fuels to sustain their luxurious living.
It is against this somber setting that a joint report by the Paris-based International Energy Agency (IEA) and the private sector lending window of the World Bank, the International Finance Corporation (IFC) in Washington, has come out with another set of astounding arithmetic to fix the evasive and ever slippery issue! Titled ‘Scaling Up Private Finance for Clean Energy in Emerging and Developing Economies’, the IEA-IFC jont report contends that annual clean energy investments in emerging and developing economies would need to more than double from $770 billion in 2022 to as much as $2.8 trillion by 2030 to meet escalating energy requirements and align with the climate goal set out in the Paris Agreement.
Without wallowing in otiose words, the report hit the nail on the head, stating that public investment alone would be insufficient to deliver universal access of energy and tackle climate change; it asserted that augmented public funding could be used more effectively in partnership with private sector capital to pare project risks, a concept commonly known as blended finance. The report noted that two-thirds of the finance for clean energy projects in emerging developing economies (outside China) would need to come from the private sector as China is a maverick with the state bearing well-nigh the whole burden! Just how big the resource gap ahead is can be gauged by the grim fact that today’s $135 bllion in annual private financing for clean energy in these economies, including India, would need to rise as much as $1.1 trillion a year within the next decade, a task and feat not feasible in reality, given the resource constraints plaguing the private sector in these countries for other real sector activities to rev up growth and register progress.
Emphatically flagging off a major risk of many countries around the world being left behind in today’s energy world, the report said investment holds the key and sway to ensuring that they benefit from the new global economy that is emerging rapidly, IEA executive director Fatih Birol said. There is a grave need for greater international technical, regulatory and financial support to unlock the potential for clean energy in emerging and developing economies (EMDEs). By reinforcing regulatory framework, energy institutions and infrastructure and improved access to finance, this support can help governments overcome obstacles that discourge clean energy outlays today, including the relatively high upfront cost and a high cost of capital.
It is a paradox today that the battle against climate change will be won in EMDEs, where the potential for clean energy is strong but the level of investments is lamentably low! In order to address the pressing energy demands and emission reduction goals in EMDEs, the international community must perforce have to mobilise private capital at speed and scale and urgently foster more investable projects, IFC managing director Makhtar Diop said. Rightly, the report pitches for concessional financing for projects that entail newer technologies that have yet to reach scale and are not yet cost-competitive in many markets, such as battery storage, offshore wind, renewable powered desalination or low emissions in hydrogen or that are in riskier markets. It estimates $80 billion to $100 billion of concessional finance would be needed annually by the early 2030s to attract private investment a the scale required for energy transition in emerging and developing economies outside China. There is also ample potential for issuing more green, social, sustainable and sustainability-linked bonds, provided that the requisite groundwork for industry guidelines, harmonised taxonomies and robust third-party certification is laid. The report zeroes in on the opportunity in platforms that aggregate and securitise many investments, which could get over the asymmetry between the relatively small size of energy transition projects in emerging and developing economies and the relatively large minimum investment size that major institutional investors require.
The joint report is quite unsparing in its criticism of fossil fuel subsidies that perpetuate pollution without offering any solution for environmentally sustainable energy generation. It said forthrightly that a range of cross-cutting policy issues such as fossil fuel subsidies, lengthy licensing processes, unclear land use rights, rstrictions on private or foreign ownership and inappropriate pricing policies build barriers to investment or heighten the cost of clean energy projects. Lifting these barriers would help emerging and developing economies benefit more fully from the opportunities of the new global energy economy, the report put it point-blank. The moot point is whether such a surgical strike on subsidies is politically feasible as the victims would respond at the hustling in their own harsh ways!
Even as subsidy issues remains intractable and a political tinder-box, there are always low hanging fruits if conscious and focused attention is made to tap unconventional and unorthodox sources of energy. At a mini conference organised by the IEA in New Delhi with energy experts from G20 nations as India holds the presidency currently, Union Minister for Petroleum and Natural Gas Hardeep Singh Puri contended that India would be the epicenter for green hydrogen development with the private sector evincing intrest and acquiring large manufacturing facilities to supply green ammonia. He maintained that many electrolyte manufacturers in the world today have got a tie-up or production units in India. This was endorsed by IEA chief Birol when he remarked that India had the opportunity to become a ‘superpower’ in the green hydrogen segment with its cheap and abundant renewable energy sources.
Despite the hoopla and hype on green hydrogen production, problems on the ground pose considerable constraints. With the production of green hydrogen contingent on vast amounts of resources such as water, land and renewable energy, the room for conflicts in terms of land use and scarce water resources, human rights violations and poverty and energy inadequacy cannot be gainsaid. At the end of the day, it all boils down to how far and fast the government goes the extra mile in facilitating the fruition of new sources of energy while addressing human conflicts and the scarcity of resources. Here apart from dmestic policies, help needs to be harnessed from the global community for fostering the collective common good. The IEA-IFC report has not come a day too soon to sound the bugle for moving ahead by forging strategic energy alliances among all countries in a spirit of cooperation.