Letter from COP27: Supporting Climate Solutions in Developing Countries

Sharm el-Sheikh, Egypt

The global climate agenda has reached a paradoxical moment: It is simultaneously the best and worst of times in the push for net-zero greenhouse-gas (GHG) emissions.

First, the positive: President Biden recently signed the most aggressive climate law in U.S. history . Across Europe, governments have accelerated their clean-energy targets , partly in response to concerns over Russian gas supplies. China is dramatically scaling up its renewable-energy capacity , and Japan is promoting a “green transformation ” to become carbon neutral by 2050. Several countries — including Belgium , Germany , Japan , and South Korea — are reversing nuclear phase-out policies, and the World Nuclear Association says that around 30 others are “considering, planning or starting nuclear-power programs.”

In addition, worldwide sales of electric vehicles (EVs) are soaring: People now buy as many EVs in a week as they bought in all of 2012, according to the International Energy Agency (IEA).

Now, the negative: A burgeoning energy crisis has prompted countries throughout the world — including in Europe — to increase their reliance on coal power . A related food crisis and broader economic slowdown could make it even more difficult for emerging markets to reduce emissions. The World Meteorological Organization just announced that atmospheric concentrations of carbon dioxide, methane and nitrous oxide — the three primary greenhouse gases — hit record levels in 2021.

Meanwhile, a United Nations report projects that the current mix of global climate policies will lead to a temperature increase of 2.8 degrees Celsius, far above the 1.5-degree threshold scientists believe is necessary to avoid the worst climate impacts.

All of this points to a harsh but inescapable reality: Keeping the 1.5-degree target within reach will require much faster progress, especially in the global south, which has traditionally been underrepresented in climate-investment flows.

Indeed, the IEA has projected that clean-energy investments in developing countries will have to increase more than sevenfold — to more than $1 trillion a year — by the end of this decade if the world hopes to achieve net-zero emissions by 2050.

As global leaders gather here in Sharm el-Sheikh, Egypt, for the COP27 climate summit, the challenges facing developing economies will top their agenda, especially now that delegates have agreed to make “loss and damage ” part of the official conversation. Here are three ways that rich countries can help speed up the low-carbon transition in Africa, Latin America and emerging Asia.

(1) Fulfill their $100-billion aid pledge while striking an appropriate balance between mitigation and adaptation initiatives.

At the 2009 Copenhagen summit, wealthy nations agreed to provide $100 billion worth of annual climate assistance to the developing world by 2020. They failed to keep that promise: Total climate aid from public and private sources in 2020 stood at just $83.3 billion, per the latest OECD data .

This matters for three reasons.

First, most developing countries bear little responsibility for historical GHG emissions , so it would not be fair to impose excessive climate burdens on them today.

Second, despite this relative lack of historical responsibility, developing countries now account for nearly two-thirds of global carbon emissions and close to four-fifths of methane emissions, according to research from Enerdata , but they cannot afford many of the climate policies embraced by rich countries.

Third, developing countries are far more vulnerable than rich countries to the physical impact of rising global temperatures.

For perspective, the Swiss Re Institute has estimated that if global temperatures rose to 2–2.6 degrees above pre-industrial levels by 2050, total economic output would be about 7% smaller in North America, 8% smaller in Europe, 11–13% smaller in South America, 14–22% smaller in the Middle East and Africa, and 17–29% smaller in Southeast Asia than it would be without any climate change.

Those numbers illustrate the disproportionate effects of climate change on the global south. They also confirm that developing countries need help with both mitigation (reducing emissions) and adaptation (adjusting to a warmer world).

Reaching net-zero emissions must remain our primary objective. At the same time, building climate-resilient infrastructure and food systems can save lives, particularly in the areas most at risk from extreme weather. So rich countries should strike an appropriate balance in their aid programs.

They should also focus on reversing biodiversity loss, which threatens the foundations of human progress, global health, and material well-being. Climate change has exacerbated biodiversity loss — especially in developing countries — by damaging ecosystems. This in turn has made the climate problem harder to solve, because forests, wetlands and oceans collectively absorb a huge amount of carbon dioxide.

(2) Continue investing in renewable energies and low-carbon technologies to bend the cost curve downward.

When rich countries incentivize low-carbon research and development (R&D) at home, the benefits can extend far beyond their borders. Consider the long-term price trajectory of solar and wind energy.

Twenty years ago, America did not have any utility-scale solar-photovoltaic (PV) plants. Today it has thousands , thanks in large part to loan guarantees and other pro-solar policies at the federal and state levels, which encouraged private-sector investment.

During that same period, solar-energy prices fell dramatically. Between 2009 and 2019, the global average levelized cost of energy (LCOE) generated from solar PV dropped by 89%, and the global average LCOE generated from onshore wind dropped by 70%, according to Oxford economist Max Roser . These cost changes made solar and wind more competitive as energy sources, increasing both demand and deployment around the world.

How do we explain the sharp price declines? While many factors contributed, research suggests that government investments and financial incentives have played a key role in reducing the “green premium” over time. A study by three MIT scientists, for example, found that public and private R&D accounted for 59% of the global cost decline in solar panels between 1980 and 2012.

With the right mix of policies and innovation, wealthy countries can continue bending the renewable cost curve downward, thereby making solar and wind energy more affordable for developing countries. Expediting and scaling this process will be essential to reaching net-zero emissions by mid-century.

(3) Use creative financing vehicles to make emerging economies a more attractive destination for capital.

It is important to recognize that developing countries can offer fertile ground for low-carbon energy projects.

Take the greater Horn of Africa region, which encompasses some of the least-developed nations on earth (Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda). As the IEA points out , half the population of this region does not have access to electricity. And yet, the Horn of Africa “has massive, underutilized potential for solar, wind and geothermal power.”

The challenge, of course, is to spur outside investment. One solution is for multilateral development banks and other global entities to provide below-market loans for clean-energy investments in emerging economies, an arrangement known as “blended finance.” Another option is to create joint ventures between different financial institutions that help reduce the risk associated with such investments.

Debt markets can help as well. ”Green, sustainability and social bonds issued by sovereign and sub-sovereign entities,” MSCI researchers have noted , “could all be vectors for job creation and training, speeding the energy transition or implementing adaptation and resiliency measures. Infrastructure bonds, too, could have potential for funding needed adaptation projects.”

The Asian Development Bank has also proposed using an “energy-transition mechanism ” (ETM) to hasten the retirement of coal assets in developing countries and replace them with lower-carbon alternatives. While the exact details are still being formulated, the basic concept is that an ETM would leverage public subsidies to make the transition from coal more financially viable for private investors.

All of these ideas hold promise, but only if governments deliver the necessary resources and political support. Even then, many projects might not succeed. Finding the best approach will require constant experimentation and rigorous analysis.

Ultimately, policymakers must recognize that climate progress in rich economies will mean relatively little if we do not achieve similar progress in developing economies. COP27 represents a unique opportunity to explore net-zero solutions that can work for the global south. Leaders from all countries should seize it.