A recent UNCTAD study reveals that the energy transition will require an annual expenditure of approximately $5.8 trillion from 2023 to 2030 for the 48 developing economies studied, equivalent to 19% of their GDP. This translates to an individual yearly cost of $1,271 per person to achieve objectives like universal electricity access and improved access to clean energy, including clean cooking solutions. Least developed countries (LDCs) face the most substantial financial burden, necessitating nearly 46% of their GDP for the energy transition. When applying the study's median per capita cost to all developing economies, the total annual spending requirement could reach $7.3 trillion. Compared to a business-as-usual government expenditure trajectory, this creates a yearly deficit of $320 billion.
In 2022, global investments in renewable energy hit an all-time high at $0.5 trillion. However, this amount fell significantly short of the annual average required between 2021 and 2030, as indicated by IRENA's 1.5°C Scenario. Moreover, renewable energy investments continue to gravitate toward low-risk environments. Over 50% of the global population, primarily located in developing and emerging nations, garnered just 15% of the total investments in 2022. Africa, in particular, accounted for a mere 2%. Further, approximately $770 billion is invested each year in clean energy within emerging markets and developing economies, with a substantial portion concentrated in a handful of prominent economies. China constitutes two-thirds of this total, and when factoring in India and Brazil, the top three nations collectively contribute to more than three-quarters of these investments.
These disparities in clean energy investment across countries and sectors underscore the urgency for policymakers to address critical issues and ensure a fair and comprehensive transition. Lower-middle-income and low-income countries' environmentally friendly policies often go unrecognized by credit rating agencies, which don't consider their readiness for a low-carbon transition or their hydrocarbon-related stranded asset risks. To attract investment and secure private climate finance, a mix of policies is crucial. Structural policies that bolster economic stability, deepen capital markets, and enhance governance play a vital role. These policies can improve credit ratings and reduce capital costs. Innovative financing solutions like blended finance and securitization instruments should be used to initiate a phased transition away from coal power production.
Read the full SEH Bulletin 4.