Developing nations are currently navigating a challenging economic transition as they attempt to balance urgent development needs with the global requirement to shift towards low-carbon economies. These countries face a structural "trilemma" of reducing carbon emissions, stimulating economic growth to alleviate poverty, and managing high levels of sovereign debt.
Financial Barriers And Investment Gaps
The International Energy Agency has warned that clean energy investment in emerging and developing economies must triple by 2030 to reach international climate targets. This goal remains difficult to achieve, as current global financial systems often categorise these nations as high-risk, resulting in significantly higher costs of capital for green infrastructure projects compared to similar investments in developed economies.
For many developing economies, the cost of capital is the single biggest barrier to clean energy investment.
Speaking on the necessity of policy reform, IMF Managing Director Kristalina Georgieva identified this disparity as a primary obstacle for growth. To mitigate these risks, international finance bodies are increasingly promoting blended finance models that combine public and private investment to secure capital for wind, solar, and battery storage initiatives.
South Africa’s Just Energy Transition
South Africa continues to implement its Just Energy Transition (JET) Investment Plan, which aims to move the country away from its historical coal-dependence while mitigating the potential impact on vulnerable workers and communities. The plan was formalised following the announcement of the Just Energy Transition Partnership (JETP) at COP26 in November 2021.
As international negotiations at COP29 shift focus toward the New Collective Quantified Goal for climate finance, local stakeholders expect these talks to address the lack of affordable funding for the Global South. The success of these transitions hinges on securing finance that takes into account the specific energy security needs of emerging markets.