On November 11, the COP 11 conference officially opened in Azerbaijan, with the participation of nearly 29 countries and territories around the world. The event is the focus of the world due to the political and economic changes in recent years, especially the US Presidential Election.
With the constant “rotation” of extremes around the globe, how will economic and political policies impact developing countries and emerging economies? This was discussed and “dissected” by the Workshop “Unlocking Financing for the Green Transition in Emerging and Developing Economies” chaired by Ms. Palita Clark - from Financial Times Magazine with the participation of leaders from the International Monetary Fund, European Investment Bank, World Bank and Masdar Group.
With the goal of achieving net zero emissions by 0, financing the green transition in emerging and developing countries is of paramount importance. This paper examines the key challenges, innovative solutions, and the role of global cooperation in achieving sustainable energy goals.
The scale of the green transition challenge
As we have seen, the transition to green energy is a difficult problem for the entire global economy. For emerging and developing economies, the problem is becoming more difficult under pressure from many factors. These countries are facing many major obstacles in the transition to green energy, the causes of which may include:
Limited domestic resources: Highly dependent on foreign investment due to tight domestic budget, especially in the context of economic recession after Covid-19 pandemic.
Weak infrastructure: Lack of reliable power grid and transmission system to meet the new situation.
High initial costs: Renewable energy projects such as solar and wind power require large initial investments.
Without interventions, these challenges could prevent countries from tapping their renewable potential, slowing global efforts to mitigate climate change.
The role of foreign direct investment (FDI)
Given the domestic constraints, attracting “foreign” resources is a viable option to ease the burden on governments in developing and emerging economies. Turning to FDI is key in unlocking financial resources for renewable projects. Countries that attract a lot of FDI tend to have the following in common:
Clear policies: Transparent and stable climate policies reduce investment risks.
Incentives: Mechanisms such as power purchase agreements (PPAs) and tax incentives increase the attractiveness of investments.
Open to trade: Countries with open trade and capital markets encourage private sector participation.
Vietnam (along with Uruguay and Chile) was chosen by Ms. Kristalina Georgieva - Managing Director of the IMF as a typical example of success in building a legal framework to attract billions of dollars into the renewable energy sector.
Ms. Kristalina Georgieva - Managing Director of IMF
The recent issuance of DECREE 135/2024/ND-CP REGULATING THE MECHANISMS AND POLICIES TO ENCOURAGE THE DEVELOPMENT OF SELF-PRODUCED AND SELF-CONSUMED ROOFTOP SOLAR POWER shows the efforts of the Vietnamese Government in the journey towards perfecting and making transparent policies, encouraging the "greening" of energy sources throughout Vietnam.
Renewable Potential in Africa
As a continent with abundant sunshine and wind, and large areas of vacant land, Africa has great potential for solar and wind energy, but it has not yet been strongly developed:
Current status: Sub-Saharan Africa has abundant renewable resources but lags behind small countries like Belgium in terms of installed solar capacity.
Economic impact: Investing $25 billion annually could increase GDP growth by 0,8% and electricity production by 18% over the next decade.
However, to achieve this goal, structural constraints such as land access, financial gaps and governance reforms need to be addressed.
Innovations in climate finance
Global initiatives are focusing on filling the green finance gap:
Multilateral Development Banks (MDBs): MDBs pledge to increase climate finance from $75 billion in 2023 to $120 billion by 2030.
Risk Mitigation Tools: Underwriting platforms and hedge funds help mitigate risk for private investors.
Infrastructure investment: Building basic public infrastructure such as the power grid is key to long-term success.
The World Bank and the International Monetary Fund have also launched collaborative initiatives to simplify the financing process and strengthen policy guidance for recipient countries.
The way forward for promoting green transition
With a long-term vision to address green finance gaps and accelerate the Net Zero target, developing countries and emerging economies need to take coordinated action in the following areas:
International cooperation: Developed countries must commit to $100 billion in annual climate finance and increase cooperation with developing economies.
Leadership and governance: Countries like Uzbekistan and Côte d'Ivoire show the important role of leadership and sound policies in attracting green investment.
Private sector participation: Creating a stable investment environment through legal reforms will encourage private sector participation.
Conclusion
The transition to renewable energy is not only an environmental imperative but also an economic opportunity. Through cooperation, improved policy frameworks and resource mobilization, the world can accelerate the shift towards a sustainable future. Emerging and developing economies have a key role to play in this journey, provided they receive the necessary financial and technical support.