By Maurizio Bezzeccheri, Head Latin America region, Enel; Francesco Ciaccia, Manager, Eni; and Marta Martinez, Climate Change and Alliances, Iberdrola 1
The world is in the midst of an unprecedented and complex global energy crisis. Governments across emerging markets face two apparently conflicting priorities: ensuring immediate energy security and accelerating the energy transition to address the longer-term challenge of climate change. But are these priorities truly conflicting? And what can the private sector do to change the calculus by accelerating the green transition in times of crisis?
First, we need appropriate policies and clear frameworks in place. Even before the current energy crisis, subsidies to fossil fuels and coal had increased. Yet, to achieve our climate goals and the 50% electrification target by 2050 recommended by the International Energy Agency, the private sector must intensify the planning, development and implementation of renewable resources. This requires long-term visibility through stable policy frameworks, national plans and clear targets. In emerging markets, which are also the lowest emitters with the greatest adaptation needs, policies have to be adapted to countries’ development and to the transition of different industries. This requires finding the right policy mix and getting financing right.
Given emerging markets’ abundant resources, national policies and enabling frameworks for renewable energy deployment will be critical for attracting and retaining investment. For instance, Southeast Asia produces a vast share of essential commodities for renewable technologies: Indonesia and the Philippines are the two largest nickel producers in the world; Myanmar accounts for 13% of global rare earth production; and the region provides 6% of the world’s bauxite. The African continent accounts for 60% of the best solar resources worldwide, yet currently holds only 1% of solar PV capacity. Making sure that permitting procedures are not overly complex and allow for rapid deployment will help accelerate the path to zero carbon. Enel has supported the creation of roadmaps in eight Latin American countries exploring emission reduction scenarios and making recommendations to meet Paris Agreement goals. At the international level, development banks could lead the way by supporting riskier infrastructure projects in their planning stage, encouraging investors to diversify their portfolio and enter emerging markets.
We also need to get the financing right. The Sharm el-Sheikh Implementation Plan sets out that global transformation to a low-carbon economy will require investments of at least USD 4-6 trillion a year. Investment in clean energy technologies will need to grow seven-fold, from USD 150 billion in 2020 to reach USD 1 trillion annually by 2030. To meet Southeast Asia’s climate goals alone, total energy investment would need to reach USD 190 billion a year by 2030, up from around USD 70 billion a year between 2016 and 2020. For Africa to attain its energy and climate goals, annual investments of USD 190 billion are needed from 2026 to 2030, with two-thirds going to clean energy. Yet the target of mobilising USD 100 billion per year by 2020 for emerging markets has not yet been met.
Delivering such funding will require a swift and comprehensive transformation of the financial system, engaging governments, central banks, commercial banks, institutional investors and other financial actors. Following COP27, deliberations are ongoing to set a ‘new collective quantified goal on climate finance’ in 2024, taking into account developing countries’ needs and priorities. Much can be done before then.
Fintechs and initiatives driving digital and financial inclusion can channel such investments. Sustainable debt issuances reached more than USD 1.7 trillion in 2021, with green bonds being used to finance renewables and low-carbon buildings and transport. Though these instruments are increasingly deployed across emerging markets to access capital, the absolute values remain low compared to advanced economies. Going forward, existing resources must target and catalyse private sector investment. Harnessing new and existing financial instruments across the bond market, including blended finance tools, is important. Financing more innovative, smaller-scale projects that need lower investments, as well as generating high-quality carbon credits to then invest in adaptation and mitigation, will also help redirect current flows to the developing world.
According to the IEA, without a significant increase in energy innovation, spending, climate goals and long-run economic prospects are at risk. This is especially relevant for emerging markets that need new technologies to find solutions that are adapted to their specific needs. Start-ups could play a crucial role in providing solutions to the challenges we face, as new firms are often vehicles for disruptive technologies to enter the market. However, signs of an “entrepreneurship gap” in the energy field show a need for greater support from both governments and multinationals. Some existing examples of this kind of support include Eni investing in new solutions such as sustainable biofuels, Iberdrola’s Global Smart Grids Innovation Hub; and Enel’s Open Innovability crowdsourcing platform.
For new technologies and innovation to be effective in local contexts, we need to invest in skills and capacity building of emerging markets’ workforce and public administrations. Eni, together with the International Renewable Energy Agency (IRENA), is promoting institutional capacity building by training civil servants on how to support the integration of the African continent into sustainable biofuel value chains. However, capacity building cannot be carried out through individual programmes alone. It requires a long-term strategy, focusing on green and digital skills, and partnering with more actors, such as academia. It also means supporting SMEs’ adoption of digital tools through access to training and infrastructure, and by adopting a gender-lens, in an energy sector where women are underrepresented. In Brazil, for example, Neoenergia (part of the Iberdrola group) launched the Escola de Eletricistas programme to promote women’s enrolment in electrical studies. The programme certified 258 women in 2021, 69% of whom joined Iberdrola’s workforce.
We know that it is not a lack of technology or a lack of capital that prevent progress towards the green transition around the world. However these remain significant barriers to progress in emerging markets. The private sector must leverage the climate finance architecture to drive investments into efficient infrastructure across emerging markets, make use of digital innovation developed over the past years, and keep supporting SMEs and innovation start-ups, to make the energy transition work for emerging markets.