Climate transition financing- Std Chartered

A recent study by the international banking group Standard Chartered reveals how developed countries can help the world’s emerging economies achieve the climate transition finance of $94.8 trillion, higher than the annual global GDP.

The report establishes ways for the developed countries to boost transition financing and help emerging nations achieve the central goal of the Paris Agreement, which is to limit global warming to below 2 degrees Celsius, preferably below 1.5 degrees.

The report titled “Just in Time: Financing A Just Transition” stresses the need for insurance policies to help the developing countries in this transition to a greener future. It observes that a just transition is possible only when investments by developed nations meet climate objectives without depriving the emerging markets of their opportunity to grow.

Emerging Economies Need $95 Trillion to Achieve Net-Zero Targets: Report

With finance from developed countries, the global GDP will likely be $108.3 trillion higher between 2021 and 2060.


Two ways to raise transition finance

The report suggests two ways for emerging nations to raise the transition finance of $94.8 trillion. One is self-financing, while the other way is developed market financing. If emerging markets raise the capital themselves, at least 75% of the revenue will be derived from households via taxes, and 25% will be borrowed. Such a transition will help reduce household energy consumption by $79.2 trillion.

The developed market financing model suggests a split between the public and the private sector — for investments in power and energy efficiency. The private sector will play a significant role by bringing in loans of over $2 trillion annually, which is$83 trillion between 2021 and 2060. The report claims that such financing will reduce the pain of paying for net-zero, ultimately helping emerging economies transition faster.

Mark Campanale, Founder, of the Carbon Tracker Initiative, said, “The finance community must support existing renewable energy infrastructure platforms in the global south and develop new structures required to enable private sector capital to flow market-by-market. Investors prefer big projects, but emerging markets require financing to support decentralized energy systems – so we need to find a way of mobilizing private sector capital into smaller investments.”

India faces a $12.4 trillion gap

India, for instance, needs $17.77trillion to achieve its net-zero goals by 2070. The country currently faces a financial gap of $12.4 trillion, which is likely to be financed by developed countries. While India intends to invest $8.5 trillion in the power sector, $6 trillion will be invested in energy-efficient projects, $2.7 trillion to offset household carbon tax revenues and heating taxes, and $573.3 billion in other public expenditures.

Emerging Economies Need $95 Trillion to Achieve Net-Zero Targets: Report

Last month, in its 25th report on ‘Financial Constraints in Renewable Energy Sector,’ the Parliamentary Standing Committee on Energy noted that India needs annual investment worth ₹1.5-₹2trillion (~$19.72-~$26.29 billion) in the renewables sector till 2030.

At the COP26 Summit in Glasgow, Prime Minister Narendra Modi said that India set a target of installing a non-fossil energy capacity of 500 MW by 2030. Modi had said that India aims to reduce 1 billion tons of carbon emissions until the end of this decade. To set up the infrastructure and procure the needed raw materials, he said India expects climate finance of $1 trillion from developed countries.

The Indian government is also taking measures to cut emissions. In the budget 2022-23, the Finance Minister of India, Nirmala Sitharaman, said that the central government would issue green bonds to mobilize green infrastructure for public sector projects to reduce carbon emissions.