The UN Conference on Trade and Development (UNCTAD) reported a $4 trillion gap in sustainable development investments for developing countries, signaling a need for considerable increases in renewable energy funding for these regions.
Support for major renewable energy projects in developing countries is crucial for a green future. But although investment in renewables has nearly tripled since the adoption of the Paris Agreement, more than 30 developing countries have not registered any international investment in utility-sized renewable energy generation in that same time.
Foreign direct investment fell by 22% in 2022, with an overall investment of $544 billion, well below what is needed for developing countries’ clean energy transition. The report attributes the recent decrease in investment to multiple crises, including the war in Ukraine and high energy and food prices worldwide.
In order to address the massive investment disparity, UNCTAD emphasized the need for policies and financing mechanisms to be implemented in order for developing countries to attract investment. This includes debt relief to allow countries space for clean energy spending and to lower their risk ratings.
Further, the agency suggested partnerships between international investors, the public sector, and multilateral financial institutions in order to reduce the cost of capital for clean energy.
Another recent report from the International Energy Agency and International Finance Corporation also asserted the need for investments in emerging and developing countries in order to meet climate goals set by the Paris Agreement. Their report specifically stressed the need for the majority of investment to derive from the private sector.
The G7 also recently released its Clean Energy Economy Action Plan, which recognized the impact that developing countries may have on a clean energy transition. The organization promised to step up its efforts in providing such countries with climate financing, especially as the transition to a clean energy economy has the potential to “reduce poverty and advance shared prosperity.”
Such increased investment allows developing countries themselves to benefit from the new global energy transition. But the UN report and similar reports reveal how this investment is also crucial in meeting climate goals globally.
