Redirecting private-sector investment into clean energy projects in developing countries will be critical, writes Caroline Varin
The climate finance debate picked up at the World Economic Forum (WEF) in Davos, Switzerland, where it left off during the Dubai Cop 28 UN climate summit, with calls to reform international systems to speed up a global energy transition.
Cop 28 delivered an energy package centred on transitioning away from fossil fuels and tripling renewable capacity by 2030. But words need turning into actions, US climate envoy John Kerry and IEA director Fatih Birol reminded WEF delegates this week. Unlocking investments and getting financial flows where they are needed are crucial. The Cop 28 talks made little progress on how to finance the energy transition in developing countries, according to Birol. Investments in clean energy remain concentrated in the developed world and China.
Cop 29 host Azerbaijan has promised to put reforming finance mechanisms at the top of the talks' agenda. Some progress was seen in 2023 at the New Global Financing Pact summit in Paris and the G20 summit in India, but a lot of ground still needs to be covered. International financial institutions and multilateral development banks (MDBs) "are important partners in the game, and alignment in terms of goals and means seems an obvious solution", Azerbaijan economy minister Mikayil Jabbarov said in Davos. Many leaders in developed and developing countries continue to push to reform the MDBs, with calls to provide more concessional funding and grants and work to stop debt burdening development. But reforms will have to go further to bring private-sector investment into developing countries.
For the private sector, this means getting access to public capital markets and making sure public funds are deployable for sustainable projects, but this is still too complicated, UK bank Standard Chartered chief executive Bill Winters said. What the private sector wants is standardisation and uniform structures, he added. "We need $5.2 trillion for the energy transition [by 2030]," renewables agency Irena director-general Francesco La Camera said. "It is enormous, but we have $150 trillion in financial assets around the world, so we are only asking for 3-4pc of this."
The problem is not a lack of funds but of "political wisdom", La Camera warned. IMF managing director Kristalina Georgieva said that resources need to move away from "where they hurt to where they help", which includes redirecting fossil fuel subsidies and increasing pressure for a global carbon price.
Petro statement
Developing countries will soon account for most of the world's emissions growth but they only receive one-fifth of global investment in clean energy, the IEA says. Some argue that developing countries have no choice but to rely on fossil fuels. Azerbaijan and Cop 30 host Brazil are both looking to expand their oil and gas capacity. Azerbaijan has made a "conscious choice" to use its oil and gas revenues to fund its transition, Jabbarov said.
In contrast, Colombia has ended its plans for further oil and coal exploration, a choice that will be costly, president Gustavo Petro admitted in Davos. He reiterated his call for developing countries' debts to be cancelled in exchange for spending on "climate action", adding that such a move would be a powerful mechanism. The World Bank says that developing countries spent $444bn to service their external public and publicly guaranteed debt in 2022.
"We don't need handouts. We have our own resources but they are subject to debt" at a premium because Colombia is considered a risk, Petro said. Moving away from coal creates a lot of risks for a country, European Bank for Reconstruction and Development president Odile Renaud-Basso told Davos delegates. But such policy commitments are important because they are a good basis to develop projects and attract investment, she said.
