Climate Finance Still A Challenge For Developing Countries Amid RE Push

Climate Finance Still A Challenge For Developing Countries Amid RE Push

Amid fears of worsening impacts of climate change and the push towards renewable energy, financing for the transition to greener energy sources remains the pivotal issue. A report by the World Bank that focused on developing countries emphasised that energy transition there will require ‘unprecedented transformation of the power sector infrastructure’. Along with that, it would also require the scaling up of renewable energy sources as well as the phasing down of coal-fired power plants.

World Bank has further estimated that low- and middle-income countries host 89 percent of the approximately $1 trillion in global coal-fired power generation at risk of being stranded. Therefore, implementing the Scaling Up to phase-down approach will require much higher capital flows for low-carbon producing power production methods.

In this regard, Scaling Up to Phase-Down approach as mentioned in the World Bank report becomes crucial for developing countries. Further, 10 multilateral banks have also formed a group with an aim of easing the funding for the projects related to sustainable development goals as outlined during the G20, by generating additional lending headroom on the order of USD300-400 billion over the next decade, supporting country-owned and country-led platforms to make it easier for countries to work with the banks, scaling up private-sector financing for development goals, including by pursuing innovative approaches and financial instruments.

The Asian Development Bank (ADB) has also committed $23.6 billion from its own resources in 2023, including $9.8 billion for climate action, to help Asia and the Pacific progress on sustainable development. Moreover, as per OECD, Public climate finance including bilateral and multilateral almost doubled over the 2013-21 period, from USD 38 billion to USD 73.1 billion, accounting for the vast majority of the total USD 89.6 billion in 2021.

The hindrances faced by developing countries in the energy transition range from high upfront capital costs, inefficient energy subsidies, high cost of capital, and weak energy sector fundamentals. According to ADB, the $23.6 billion comprised loans, grants, equity investments, guarantees, and technical assistance provided to governments and the private sector.

In March this year, India in its latest submission to the UN climate body called for developed countries to provide at least $1 trillion per year in climate finance to developing countries from 2025 for actions pertaining to SDGs.