Improved financing structures and implementation could help drive down the cost of the transition to net-zero in developing economies by close to 40%, a new report by Deloitte has claimed.
Deloitte’s report, Financing the Green Energy Transition, found that new cost-reducing finance instruments have the opportunity to de-risk green projects in developing economies.
It noted that achieving net-zero greenhouse gas emissions by 2050 will require an annual global investment of between $5 trillion and $7 trillion in the energy sector, however global economies currently invest less than $2 trillion into the energy transition process.
Underinvestment
According to Deloitte, energy transition projects tend to suffer from underinvestment, with private investors seeking green energy technologies as ‘riskier’ than traditional investments.
It called for governments, financial institutions and investors to develop mechanisms to mitigate risk from green projects, developing blended, low-cost finance solutions to mobilise private investment in these areas.
Taking action now could result in savings of as much as $50 trillion by 2050, reducing the annual investment needed by more than 25%, it said.
‘Accelerate a just energy transition’
“Just as we are continually developing solutions and technology to rapidly decarbonise, we must take definitive steps to remove financial barriers in order to accelerate a just energy transition, especially in developing economies,” commented Jennifer Steinmann, Deloitte global sustainability and climate practice leader.
“Decisive and coordinated policy support and hand-in-hand action across the global finance ecosystem are critical to guiding investments toward green projects and supporting the growth of sustainable economies.”
Investment in developing economies
At present, fewer than half of green investments are directed toward developing economies, primarily because of elevated risks and stringent public budget constraints related to energy transition projects. To achieve net-zero, an estimated 70% of green investments would need to be allocated to developing economies by 2030, Deloitte added.
“To further lighten the financial burden on the Global South, governments, financial institutions, and international organisations must implement concessional finance—a loan made on more favourable terms than the borrower could obtain in the market—through innovative financing structures that mobilize private capital for climate action,” added Hans-Juergen Walter, global financial services industry sustainability and climate leader.
“Major financial institutions, such as development banks and multilateral funds, play a pivotal role in this context.”
Four key actions
According to Deloitte, there are four actions governments can take to make the transition to net zero more affordable.
- Update energy transition policies for clearer climate action direction.
- Establish transparent regulatory frameworks to avoid legal ambiguities and corruption in climate investments, with a focus on setting targets and regulations for green technologies.
- Address market barriers by developing sustainable and green markets for investors, particularly for emerging technologies like green hydrogen.
- Tackle transformation barriers related to infrastructure and human capital by improving electricity infrastructure, fostering skilled labor, and creating employment opportunities in the green sector.
Deloitte’s report, Financing the Green Energy Transition, can be found here.
