According to the study, nine EMEs will require $2.2 trillion in climate finance to decarbonise key sectors
Nine emerging markets economies (EMEs) constituting G20 (Argentina, Brazil, China, India, Indonesia, Mexico, the Russian Federation,South Africa, and Türkiye) will require $2.2 trillion in climate finance between 2022 and 2030 to decarbonise their key sectors like power, road transport, cement, and steel sectors.
These findings come from the report titled “Climate Finance Needs of Nine G20 EMEs: Well Within Reach” by Centre for Social and Economic Progress (CSEP), a public policy think tank. The EMEs selected for the study account for 30% of global carbon emissions and 30% of global GDP.
According to the report, of the estimated climate finance requirement, 60% is attributable to China. Excluding China, the climate finance requirement for the eight other economies works out to $854 billion ($100 billion annually or 0.5% of their GDP).
Steel Sector Requires the Majority of the Finance
The report said that the majority of the finance is needed for the steel sector ($1.2 trillion) followed by the road transport ($459 billion), cement sector ($453 billion), and power sector ($149billion). It mentioned that contrary to the common narrative, the transitioning of the power sector from fossil fuel-based sources to renewables does not require large climate finance.
The power sector requires the least amount of climate finance relative to other sectors in the study. This is because the unit capital cost for solar and wind power plants has declined to the extent that it is now lower than that required for installing fossil fuel-based power sources.
However, road transport requires significant climate finance. Most of the capital expenditure requirement in the road transport sector is for developing charging infrastructure rather than transitioning from internal combustion engine vehicles (ICEVs) to electric vehicles (EVs).
Climate investment in the nine emerging market economies (EMEs) across three sectors – power, steel, and cement – has the potential to mitigate 33 billion tonnes of CO2, the report stated. The average cost to mitigate one tonne of CO2 (tCO2) is estimated at $53. In terms of per unit cost, the power sector is the most expensive to decarbonise, at $66 per tCO2, followed by steel at $53 per tCO2 and cement at $49 per tCO2, according to the report.
Current Level of Investments Not Enough to Cover the Finances
In 2022, multilateral development banks (MDBs) allocated 36% of their total annual loan book to climate finance. Within these nine emerging market economies (EMEs), climate finance constituted 16% of their total climate finance portfolio. MDBs’ global climate finance portfolio is projected to grow at a compound annual growth rate (CAGR) of 14%, increasing from US$ 74 billion in 2022 to US$ 215 billion by 2030.
At the same time, climate finance to the nine EMEs is expected to rise from US$ 12 billion to US$ 34 billion during the same period. However, at this level, climate finance provided by MDBs is projected to cover only 7–9% of the estimated climate finance requirement of these nine economies, according to the report.
The report suggested that since the cement and steel sectors in most of the economies are largely in the private sector, which MDBs normally do not finance, they need to treat decarbonisation of the cement and steel sectors as a public good for financing purposes.
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