Leapfrogging to Green: The world’s energy transition depends on support to developing countries

The world's poorest countries face a double challenge: work towards net-zero without universal access to modern energy services. What policies can support their citizens and the environment fairly? Banner image: Shutterstock/PradeepGaurs

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Developing countries’ energy transitions, and the support donor countries provide through foreign aid to green these systems, are decisive in the fight against climate change. More attention must be paid to them at COP26, when global stakeholders meet with the world’s eyes watching.

According to the International Energy Agency, the world will not reach net-zero emissions by 2050 with the current annual clean-energy investment in developing countries. To make up this deficit, funding from every source would need to increase more than sevenfold—from less than USD 150 billion to over USD 1 trillion by 2030—and any further investment in fossil fuels labelled “junk”. If no action is taken, energy-related carbon dioxide emissions from developing and emerging economies could grow by 5 billion tonnes over the next two decades. To hold on to any hope of reversing the warming of our planet, the international community must invest more in climate finance and end aid subsidies for fossil fuels in developing countries.

This week saw some important shifts on both fronts. On climate finance, the OECD released a report showing developed countries are likely to meet their pledge of providing or mobilising USD 100 billion annually for developing countries by 2023. The previous progress report in September showed a USD 20 billion shortfall and little progress since 2018, spurring a number of commitments to increase bilateral public climate finance.

On aid subsidies, this week the OECD Development Assistance Committee (DAC)—an international forum bringing together many of the largest providers of aid—committed to end Official Development Assistance (ODA) for new, unabated international thermal coal-power generation by the end of 2021. In 2019, the OECD started reporting on the alignment of development co-operation with climate action showing about half of ODA to energy was invested in fossil fuel activity in developing countries. In fact, 2019 saw ODA to new fossil fuel infrastructure surpassed ODA for renewable energy for the first time since 2015. The DAC’s commitment represents a major shift from the world’s standard setter on development finance, helping to green over half of all ODA for energy that was previously brown.

More on the Forum Network: Why on earth align development co-operation with climate and the environment? by Susanna Moorehead, Chair, OECD Development Assistance Committee, OECD

This move should push other development finance providers to do the same. Overall development finance for the energy sector in developing countries is significant—and has the power to steer and catalyse investments in sustainable energy for them. In the last five years, the OECD recorded USD 33 billion of development finance per year for energy related activities; and private finance mobilised by official finance and mechanisms like guarantees provide an additional USD 11.5 billion annually for energy. However, this energy support needs to be more focused: only a small share of development finance—around 30%—reaches the 20 countries with the highest electricity access deficit.

What really matters is what happens beyond commitments made at COP26. The poorest countries are facing a double challenge: they must participate in the global energy transition towards net-zero while they lack universal access to modern energy services—one of the 2015 UN Sustainable Development Goals. But this may also be an opportunity: as they build the new infrastructure they need, developing countries can sidestep outdated technologies and build sustainable systems to power their economies for future decades. Leapfrogging to green energy is a chance to realise the social and developmental benefits everyone deserves—and protect the only planet we have to enjoy them on.

Find more information on policies for climate action in the OECD COP26 Virtual Pavilion

Read the technical note: Forward-looking Scenarios of Climate Finance Provided and Mobilised by Developed Countries in 2021-2025

Read the technical note: Forward-looking Scenarios of Climate Finance Provided and Mobilised by Developed Countries in 2021-2025

Related Topics

Climate Tackling COVID-19 Finance Sustainable Development Goals

Jorge Moreira da Silva

Director of Development Co-operation, OECD

Mr. ‌ Moreira da Silva is since 1st November 2016 the Director of the Development Co-operation Directorate (DCD) at OECD. As Director of the Development Co-operation Directorate (DCD), Mr. Moreira da Silva plays a key role in positioning the OECD’s work on development co-operation at the leading edge. He supports the work of the Development Assistance Committee (DAC) and collaborates closely with other components of the OECD's Development Cluster to strengthen the Organisation’s contribution to the international governance architecture, as well as to OECD-wide initiatives such as NAEC, Inclusive Growth, and work in support of the Sustainable Development Goals (SDGs).