South sets to trial fair energy transformation

South sets to trial fair energy transformation

The global shift towards a net-zero carbon emissions economy is not just an opportunity for high-income countries, but also a significant chance for emerging markets and developing countries to thrive. This transformation, if managed correctly, could bring about immense benefits, including reduced urban air pollution, increased access to cheap renewable energy, and the creation of well-paying union jobs.

President Joe Biden of the United States has emphasised the climate crisis as an opportunity to deliver an equitable, clean energy future. Similarly, the European Union has established a Just Transition Mechanism to mobilise €150bn by 2027 to support regions most affected by its Green Deal program.

However, getting these trillions of net-zero investments to flow into emerging markets requires a realignment of the global financial system. This realignment can be achieved through several strategies.

Firstly, reducing perceived investment risks is crucial. Offering instruments such as first loss guarantees and clearer contracting guidelines can reassure investors about emerging market climate investments. Consistent regulation and standards that phase out financing for fossil fuel expansion and align financial institutions with net-zero targets are also essential.

Secondly, proactive financial sector and regulatory actions are necessary to redirect flows away from high-emission sectors and strengthen risk monitoring frameworks, particularly in carbon-intensive emerging economies. Co-investment approaches combining public and private finance are critical to fund both clean energy infrastructure and address socio-economic impacts of the transition.

Thirdly, government roles must evolve to actively facilitate and lead investment frameworks that address systemic constraints and build investor confidence. Ensuring Just Transition principles by integrating social goals and community resilience with climate policies aligns investments with equitable outcomes, maintaining social stability alongside environmental objectives.

China, a major player in the global economy, has committed to moving from carbon peak to net zero in about 30 years. Governor Yi Gang of the People's Bank of China has observed this shift. However, the trend in high-income country emissions is production-based and does not reflect imports from developing countries, meaning that the global south is increasingly carrying the burden of exposure to carbon risks.

To address this, increased flows of both international public and private sector finance to developing countries will be essential. The world is shifting towards a net-zero economy ahead of the COP26 summit in November. Stern suggests that north-south climate finance flows need to be doubled to ensure that the benefits and opportunities of a just transition are shared widely.

The European Bank for Reconstruction and Development and the World Bank have already introduced dedicated programs for the just transition, which need to be expanded to all Multilateral Development Banks as the momentum to phase out coal and other fossil fuels intensifies.

Africa, with its abundant access to cheap solar and wind power, has the potential to be a 'renewables superpower'. Work is underway in India and South Africa to set out what roadmaps for financing the just transition could contain. South Africa's President Cyril Ramaphosa has committed to contributing to reducing global emissions in the context of overcoming poverty, inequality, and underdevelopment, ensuring that those who are most vulnerable in society do not get left behind.

In conclusion, a just transition to a net-zero carbon emissions economy is not only possible but necessary for the well-being of our planet and its inhabitants. By deploying risk mitigation tools, establishing clear and consistent contracting and regulatory frameworks, and mobilizing a diverse set of capital, we can ensure that emerging markets and developing countries benefit significantly from this shift.

1. The transition to a net-zero carbon emissions economy presents an opportunity for both high-income and emerging markets to thrive.
2. President Joe Biden of the United States emphasizes the climate crisis as a chance to deliver an equitable, clean energy future.
3. The European Union has established a Just Transition Mechanism to mobilize €150bn by 2027 for regions most affected by its Green Deal program.
4. Getting trillions of net-zero investments to flow into emerging markets requires a realignment of the global financial system.
5. Offering instruments such as first loss guarantees and clearer contracting guidelines can reassure investors about emerging market climate investments.
6. Consistent regulation and standards that phase out financing for fossil fuel expansion and align financial institutions with net-zero targets are essential.
7. Proactive financial sector and regulatory actions are necessary to redirect flows away from high-emission sectors and strengthen risk monitoring frameworks.
8. Co-investment approaches combining public and private finance are critical to fund clean energy infrastructure and address socio-economic impacts of the transition.
9. Government roles must evolve to facilitate and lead investment frameworks that address systemic constraints and build investor confidence.
10. China, a major player in the global economy, has committed to moving from carbon peak to net zero in about 30 years.
11. Stern suggests that north-south climate finance flows need to be doubled to ensure that the benefits and opportunities of a just transition are shared widely.
12. By deploying risk mitigation tools, establishing clear and consistent frameworks, and mobilizing diverse capital, we can ensure that emerging markets and developing countries significantly benefit from the shift to a net-zero carbon emissions economy.

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