BEIJING, January 19, 2022

Global Funding, Cooperation Crucial for Green Transition

AIIB’s financing of green infrastructure projects such as Ibri II, the largest utility-scale independent solar power plant in Oman, supports our Members’ efforts to achieve their climate goals under the Paris Agreement.
Photo © ACWA Power 2020

“Political leaders find themselves currently amid a messy reality. The seemingly irresistible force for clean energy has met the immovable object of an embedded fossil fuel energy system. The question is: What should they do to reconcile this paradox?”

This was the question posed by Vikram Singh Mehta, Chairman and Distinguished Fellow at the Center for Social and Economic Progress and former Executive Chairman of Brookings India, as he listed five trends that will shape the emergent energy landscape in 2022. First on his list is the transition to green energy.

“The fossil fuel-based economic system will have to be redesigned and rebuilt for clean energy to achieve scale,” said Mehta. “The process will take decades and require massive capital infusion.”

2022 moving forward will no doubt be full of discussions regarding the green energy transition and net-zero. While developed countries may have the wherewithal to proceed toward this shift, what options are available for developing economies? This brings to mind discussions during the Asian Infrastructure Investment Bank’s (AIIB) Annual Meeting session titled “Green Transition in Emerging and Developing Countries.”

  

 

Francesco La Camera, Director General of the International Renewable Energy Agency, said that the international community must help ensure that green transition technology becomes more widely available. He noted that in different regions, there is not always a clear plan, and that working with other countries to build a framework is crucial. To manage the transition from fossil fuels, he said, a timeline with clear steps must be set.

“Success will only be possible if the process is inclusive, from the management of citizens at the local level to ensuring all countries of the world have the opportunity to keep pace with and benefit from the transition,” he said.

La Camera added that investment and policy choices are key to success, given the following global numbers:

  • USD150 trillion will be needed to realize the pathway.
  • USD33 trillion more than current strategies and plans in place.
  • USD24 trillion needed to be moved from subsidies to new technologies.

Dr. Ma Jun, Chairman of the China Green Finance Committee, also listed global cooperation as an important factor.

“There are important points that require global coordination,” he said. “We need to include compatibility, interpretability and consistency of taxonomies in the green finance space. Currently, there are already 200 taxonomies—some developed by authorities, some by associations, some by financial firms. This is like speaking in many languages. In the G20 road map, taxonomies need to follow a set of common, converged principles.”

AIIB Chief Economist Erik Berglof added that, in 2021, flash floods and extreme temperatures demonstrated the extent of climate change and that AIIB has committed to aligning with the Paris Agreement by mid-2023.

“Our corporate strategy mandate is to have 50 percent project financing for climate mitigation and adaptation by 2025,” said Berglof, noting that many challenges need to be hurdled for the green transition to be successful. “Last year, flash floods and extreme temperatures demonstrated the extent of climate change. AIIB is committed to helping shape an important journey for our Members. Many of our Members have committed to achieving carbon neutrality emissions by 2050 or 2060. We want to help them achieve this objective in the most efficient way possible and ensure no countries are left behind.”

Global cooperation in 2022 moving forward to hurdle the green transition means more than nations working together. The help of multilaterals is needed as well, particularly when it comes to policy making and green financing.

As Mehta mentioned is his 2022 forward-looking piece on the green transition: “There are varied estimates on the investment needed to scale up the generation of solar, wind, etc. The thread linking them is in the cost range of hundreds of billions. No country or multilateral institution can finance this transition individually. The world will have to collaborate and if it fails to do so, the financing deficit will push back the transition even further.”

 

AUTHOR

Leonardo Magno

Senior Creative Officer, AIIB

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