One planet, two realities: Realizing energy transition in the Global South
Climate change is a global issue that requires global cooperation. This starts with accepting the challenges and realities of the Global South.
Published: March 13, 2024
By Ashutosh Singh and Atul Arya, Ph.D.
Highlights
Climate policies and investments in the Global North alone are not sufficient to solve climate change issues worldwide. Any effective solution will need to engage the developing economies of the Global South.
Expectations of a linear transition in the Global South overlook the complexities of economic development, poverty alleviation, energy security and affordability, which are priorities over energy transition.
The transition will be multidimensional — multifueled, multispeed and multi-technological — with different starting and end points for different countries.
Understanding challenges in the Global South will be key to navigating and charting a successful energy transition and meeting the goals of the Paris Agreement on climate change. Collaboration between the Global North and Global South on technology, financing and capacity building will be critical in addressing climate change.
Climate change is a global issue that requires collective action and solidarity across nations. Developing countries are indispensable partners in addressing climate change, given their vulnerability to its impacts and their potential for emissions reductions and sustainable development. By promoting inclusive and equitable climate solutions, fostering international cooperation and providing support to the Global South, the world can advance along a more sustainable, resilient and just energy transition path.
State of play
Climate change poses a formidable global challenge, transcending borders and affecting every corner of the planet. Its impacts, ranging from extreme weather events to sea level rise and ecosystem disruptions, threaten the stability of economies and societies worldwide. Addressing this complex issue requires a concerted effort from all nations.
The first-ever global stocktake concluded at the COP28 climate conference. This stocktake is a two-year process, scheduled to recur every five years, that is conducted by the UN to assess progress by countries against the goals of the Paris Agreement on climate change.
The global stocktake shows that the world is significantly off track in meeting the objectives of the Paris Agreement, with national commitments falling short by 20.3 billion-23.9 billion metric tons of CO2 equivalent (tCO2e) compared with the levels required to limit warming to 1.5 degrees C by 2030. This is consistent with analysis from S&P Global Commodity Insights showing that current national commitments would only reduce emissions 10% by 2030 instead of the 43% cut needed.
The widening gap between emissions trajectories and the pathway required to achieve net-zero by 2050 is illustrated by S&P Global Commodity Insights emissions scenarios. Current trajectory/baseline scenarios project that emissions will fall less than 25% by 2050; achieving the 1.5 degrees C goal will likely require a reduction of 90% or more. This trajectory includes the recent surge in climate ambition and policy initiatives, especially in the Western world, including the US Inflation Reduction Act and the EU’s Fit for 55 plan (see chart).
But more needs to be done.
Emissions in the US and EU have peaked and are declining, but not fast enough. Chinese emissions have nearly peaked after growing at an extraordinary rate for about 20 years, and they are forecast to plateau before declining later this decade.
However, India, Africa and other emerging markets, often referred to as the Global South, are projected to experience continued emissions growth for the foreseeable future (see chart).
This situation fosters a narrative that the Global South is to blame for the world’s failure to meet climate goals. However, many in the Global South perceive this narrative as unjust, considering their relatively small contributions to historical emissions. For instance, present energy consumption levels in sub-Saharan Africa mirror those of France and Germany in the 1860s. In India, per capita emissions stand at approximately 2.9 tCO2e, much lower than figures of more than 16 tCO2e in the US and more than 7 tCO2e in the EU.
The notion of a linear global transition to net-zero overlooks the complexities of economic development, poverty alleviation, energy security and affordability. S&P Global Commodity Insights believes that the energy transition will be multidimensional: a multispeed, multifueled and multi-technology transition, with different road maps and end points for different countries.
In addition, any realistic solution to climate change needs to involve countries in the Global South, given their continued economic growth and emissions trajectories.
Considering the significant role the Global South must play in addressing climate change, it is crucial to examine the region's challenges. This exploration should stimulate dialogue around developing effective solutions for the energy transition that align with the priorities of the people and governments of the Global South.
Key challenges in the Global South
Affordability of energy
Based on 2024 statistics from the International Monetary Fund, per capita income in India is approximately US$2,900; in sub-Saharan Africa, it is less than US$1,800. This compares with per capita income of more than US$63,000 in North America and more than US$51,000 in Western Europe. The significant disparity in per capita income between the Global North and Global South underscores the critical importance of affordable energy. Solutions feasible in the Western world, such as electric vehicles, carbon capture, utilization and storage (CCUS), and hydrogen production or importation, may be financially inaccessible in the Global South. While governments in developed countries offer incentives, subsidies or mandates to alleviate costs associated with these transition pathways, those in the Global South often lack the financial flexibility to implement large-scale subsidies. Their priority is providing the cheapest available energy, hydrocarbons in many countries, and subsidizing this energy to ensure mass affordability.
Economic growth emerges as the primary solution to bridge this gap, enabling countries in the Global South to offer incentives and subsidies for energy transition akin to those in the developed world. However, access to cheap, affordable energy is crucial to achieving such economic growth, leaving developing nations in a Catch-22 situation.
Economic and political dependence on domestic fossil fuel endowment
Domestically available coal, oil and gas serve as critical pillars for ensuring the security of supply and are primary sources of revenue for numerous countries in the Global South. They are vital in funding country budgets and supporting social programs. Moreover, the sector typically stands as one of the largest direct and indirect employers in this region. Governments cannot afford to swiftly transition away from fossil fuels, which they depend on for national operations, without viable alternative revenue sources.
A rapid phaseout of fossil fuels could result in widespread unemployment, political unrest and destabilization — all counterproductive to addressing climate change.
Infrastructure bottlenecks
Energy is fundamentally an infrastructure business that involves building massive supply nodes (power plants, solar farms, CCUS and hydrogen hubs, nuclear plants) and interconnections (transmission lines, pipelines) over large distances. Such endeavors necessitate land procurement, siting and permitting processes before projects can proceed. In many developing countries, land ownership is fragmented, and procurement and permitting procedures involve multiple layers of engagement with local, state and federal stakeholders. As a result, setting up large-scale solar farms, gas pipelines and electric grids can encounter prolonged delays, especially when projects must navigate multiple jurisdictions and cross county and state lines.
Access to technology and skilled workforce
Lack of access to technology and a skilled workforce present significant hurdles for energy transition in the Global South. Many countries do not have the technological infrastructure and expertise needed to deploy and maintain new energy systems such as carbon capture and storage, direct air capture, and hydrogen projects. Limited access to advanced technologies impedes progress toward sustainability. Additionally, a shortage of skilled workers trained in emerging energy technologies complicates efforts to implement efficient and sustainable energy solutions. Bridging the technology gap through global collaboration and investing in workforce development is essential to overcome these challenges and facilitate a successful transition.
Financing and cost of capital
Financing and the cost of capital pose substantial challenges for energy investment in the Global South. Limited access to capital markets, high borrowing costs, and real or perceived investment risks deter domestic and foreign investors. This problem is even more pronounced in today’s high-interest-rate environment. The lack of creditworthy offtakers and uncertain regulatory environments undermine investor confidence. Currency volatility and political instability amplify investment risks, discouraging long-term commitments. Infrastructure projects require substantial up-front capital, which many developing countries struggle to mobilize independently. Consequently, attracting capital and securing favorable financing terms are paramount for advancing energy infrastructure and transitioning to sustainable energy sources.
Paths to progress
There are a few strategies for policymakers, industry and investors to consider as they design and navigate energy transition pathways in the Global South.
A ‘horses-for-courses’ approach
We need to recognize that each country has its own opportunities, faces its own challenges and must find its own way forward. Regional energy pathways for poorer countries could focus on basic needs in terms of energy access and affordability — and, once these are assured, consider more ambitious climate goals. To meet these needs, many countries in the Global South want to be enabled, and supported, to build their economic and industrial capacity through conventional fossil fuels, especially gas, to meet economic growth needs and to reduce the burning of wood and waste. A “technology leapfrog” from traditional biomass to renewables may be appropriate in some circumstances, but it will be a difficult transition pathway for many low-income economies.
Capacity building to reduce risks
To make clean technology projects in the Global South less risky and attract investments, there is a need to build capacity in logistics, contracting, financing, policies and regulations. Support should also include working together on nonfinancial options such as technology transfer and research and development, as well as providing direct financing. Using the public-private partnership model to develop local workforces to build, maintain and invest in renewable projects will also improve long-term viability and the scaling-up of renewable projects.
Greater role of multilateral development banks
Seed funding from multilateral development banks (MDBs) has the potential to attract significant private finance. Achieving this will demand more effective collaboration, however. Additionally, MDBs can aid developing nations in establishing robust institutional frameworks and mitigating risks linked to renewable investments. The commitment of US$61 billion of climate finance from MDBs for low- and middle-income economies at COP28 is a good first step.
North-South collaboration
Government-to-government collaboration and sharing of technology and best practices can provide a jump start for developing countries on their path to energy transition. For example, learning from on-the-ground execution of policy programs such as the Inflation Reduction Act could help other governments design even more robust policy frameworks. Technology partnerships on carbon capture and storage, hydrogen, EVs, and other cleantech projects would bring the benefits of experimentation, learning and cost reduction from the Global North to the Global South. Government-to-government collaboration would also help to design effective, transparent and integrated carbon markets that will improve confidence in funding offset projects in the Global South.
Looking forward
International cooperation and support are essential to unlock the full potential of developing countries in tackling climate change to meet Paris Agreement climate goals.
Developed nations and international organizations have a responsibility to provide financial aid, technology transfer, capacity building and technical assistance to support climate action in the Global South.
Renewable development, particularly solar, is growing rapidly in developing countries. Removing permitting and infrastructure bottlenecks will accelerate deployment, grid connectivity and decarbonization.
The commitment of US$61 billion of climate finance from MDBs for low- and middle-income economies at COP28 is a good first step, but more needs to be done.
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