Southern regions to trial fair energy transformation
The world is gearing up for a significant shift towards a net-zero carbon economy, with central banks in emerging markets, international financial systems, and governments around the globe taking bold steps to address the climate crisis.
A Focus on the Just Transition
Central banks in emerging markets are now incorporating an explicit focus on the just transition. This shift aims to connect their commitment to financial inclusion with their response to the climate crisis. The European Union, for instance, has already established a Just Transition Mechanism, aiming to mobilize €150bn by 2027 to support regions most affected by its Green Deal program.
Scaling Up Climate Finance
International financial systems can be realigned to increase net-zero investments in emerging markets and developing countries. This can be achieved by scaling up both international public and private finance, addressing debt constraints, and instituting robust domestic and international institutional structures to enable ambitious climate investments.
Key approaches include dramatically increasing climate finance targets, strengthening domestic resource mobilization and investment pipelines, expanding innovative financial instruments and partnerships, enhancing transparency, reporting, and compliance frameworks, and ongoing global commitments and replenishments.
Debt Relief and Domestic Resource Mobilization
More than 70 low-income countries are either in debt distress or at high risk of debt distress. Boosting international public finance through grants and concessional mechanisms becomes crucial in this context. Debt relief mechanisms, such as debt-for-climate and debt-for-nature swaps, can help alleviate emerging markets’ debt burdens, making space for green investments.
Innovative Financial Instruments and Partnerships
Combining grants, concessional finance, technical assistance, and private capital mobilization via government-to-government initiatives and public-private partnerships will diversify funding sources and reduce risk. The European Bank for Reconstruction and Development and the World Bank have already introduced dedicated programs for the just transition, which need to be expanded to all MDBs.
A Brighter Future for Emerging Economies
Emerging markets and developing countries could be the greatest beneficiaries of this shift, with Africa having the potential to be a 'renewables superpower'. Getting these trillions of net-zero investments to flow in emerging markets will require a realignment of the global financial system.
The Role of Leading Economies
Leading economies, such as China and the United States, are also taking action. Governor Yi Gang of the People's Bank of China has announced that China will need to move from carbon peak to net zero in about 30 years, and that financial institutions in China should begin their green transition right away. President Joe Biden has made clear that the solutions to the climate crisis offer opportunities to create well-paying union jobs and deliver an equitable, clean energy future.
A Just Transition for All
South Africa's President Cyril Ramaphosa has committed to contributing to reducing global emissions and ensuring that those who are most vulnerable in society do not get left behind during the transition. Stern suggests that North-south climate finance flows need to be doubled to ensure that the benefits and opportunities are shared widely.
Accelerating investments in climate action and the restoration of nature are seen as drivers of economic recovery, job creation, and innovation. Delivering a just transition is an important part of the strategy for achieving net zero across the global south, incorporating the interests of workers and communities.
Increased flows of both international public and private sector finance to developing countries will be essential to address fundamental social imperatives through a just transition. Work is underway in India and South Africa to set out what roadmaps for financing the just transition could contain.
Reaching net zero as soon as possible will reduce the growing burden of damage from climate change impacts, which falls hardest on developing countries who have contributed least to the problem. The world is shifting towards a net-zero economy ahead of the COP26 summit in November.
- Central banks in emerging markets are making an explicit focus on the just transition, connecting it with their commitment to financial inclusion and response to the climate crisis.
- The European Union has established a Just Transition Mechanism, aiming to mobilize €150bn by 2027 to support regions most affected by its Green Deal program.
- International financial systems can be realigned to increase net-zero investments in emerging markets and developing countries by scaling up both international public and private finance.
- Key approaches to scaling up climate finance include strengthening domestic resource mobilization and investment pipelines, expanding innovative financial instruments and partnerships.
- More than 70 low-income countries are either in debt distress or at high risk of debt distress, making debt relief mechanisms, such as debt-for-climate and debt-for-nature swaps, crucial.
- Combining grants, concessional finance, technical assistance, and private capital mobilization via government-to-government initiatives and public-private partnerships can diversify funding sources and reduce risk.
- Africa has the potential to be a 'renewables superpower', with getting trillions of net-zero investments to flow in emerging markets requiring a realignment of the global financial system.
- Leading economies, such as China and the United States, are also taking action, with President Joe Biden making clear that the solutions to the climate crisis offer opportunities for job creation and an equitable, clean energy future.
- South Africa's President Cyril Ramaphosa has committed to reducing global emissions and ensuring that the most vulnerable in society do not get left behind during the transition.
- Increased flows of both international public and private sector finance to developing countries will be essential to address fundamental social imperatives through a just transition.
- Reaching net zero as soon as possible will reduce the growing burden of damage from climate change impacts, which falls hardest on developing countries who have contributed least to the problem.
- Delivering a just transition is an important part of the strategy for achieving net zero across the global south, incorporating the interests of workers and communities.
