Money for Carbon Cuts Is Missing the Mark in the Developing World

Nowhere is cutting carbon emissions more crucial than in the world’s emerging and developing economies, where the thirst for energy, and the output of carbon dioxide, is rising the fastest. New power plants there will lock in the trajectory of global warming for decades to come.

But here’s the big problem: Fifty-two percent of new power generation financed in those countries from 2018 through 2020 is on track to be inconsistent with the global goal of keeping Earth’s average temperature from surpassing 1.5 degrees Celsius above preindustrial levels. That’s the threshold scientists have said is crucial to stave off particularly disastrous effects from global warming.

The biggest foreign financiers of these projects were in Japan, China and South Korea. But significant funds have also been coming from banks, utilities and other companies in the countries themselves.

Much has been made of late about capitalism getting religion on climate change. To be sure, financiers of developing-world infrastructure are increasingly forsaking coal-fired power plants, which are becoming economically unattractive and politically untenable. But what they’re largely building in coal’s place is less than pristine: plants powered by natural gas. That’s hardly evidence of the financial world’s conversion.

If the financing of these climate-shaping projects doesn’t get smarter soon, then all that money from corporations and governments claiming it as evidence of progress is likely to end up doing all too little for the planet.

In the three years immediately preceding the current frenzy of corporate and government promises to reach net-zero emissions — a period of supposedly rising climate consciousness — slightly more than half of the projected electricity generation financed in the parts of the globe that most matter to the atmosphere made it harder for the world to make the net-zero pivot. That is a principal finding of a newly published peer-reviewed study I conducted with students at Stanford, where I teach. The bulk of global carbon emissions in coming decades is expected to come from emerging and developing economies, according to the International Energy Agency.

In all, we identified 55 emerging and developing countries where power plants were financed that failed to line up with global climate goals. Those countries include Vietnam, Mexico, Pakistan and South Africa.

Compared to coal-burning plants, gas-fired ones emit, in the best of circumstances, about half as much carbon dioxide for every bit of electricity they produce. Yet studies have raised major concerns about leaks in natural-gas systems — leaks that, particularly in certain countries and regions, may markedly reduce gas’s climate benefit over coal.

Our analysis suggests that, even disregarding gas leaks, so much gas-fired power capacity was financed in emerging and developing economies from 2018 to 2020 that it will emit 80 percent as much carbon annually over its expected lifetime as will the fleet of coal-fired plants financed in these countries during the same period. Virtually none of the gas-fired plants are expected to be equipped with technology to capture the carbon emissions they produce. Instead, their carbon dioxide will simply waft up into the air.

That hardly inspires confidence in a carbon-neutral tomorrow. Those bankrolling energy infrastructure in emerging and developing economies must be made to explain — in detail and soon — how they will shift their money to achieve that goal.

Though renewable energy is plummeting in cost and surging in volume, fossil fuels remain so entrenched in the global economy that they will continue to be burned for decades. The International Energy Agency projects that between 2020 and 2050, if countries follow through with green promises they’ve made — a big if — the portion of global energy coming from renewables will rise to 37 percent from 12 percent, while the portion from fossil fuels will fall only to 49 percent from 79 percent.

Further, the agency calculates that current climate pledges by governments, if met — another big if — will achieve less than 20 percent of the cuts in carbon emissions necessary by 2030 to maintain the possibility of staying below the 1.5-degree threshold by 2050.

The “missing link to accelerate clean energy deployment,” as the agency puts it, is finance. Annual investment in clean-energy projects will have to soar to $4 trillion by 2030, more than triple current spending.

Even if such money materializes, it won’t cool the atmosphere unless it’s spent well. To be politically viable, this shift in spending must avoid eviscerating powerful industries and populous regions that for decades have depended for their livelihoods on profits from carbon-intensive infrastructure in the developing world. It will need the buy-in of those countries. And because, scientists agree, a major planetary window to address global warming will close within a decade, it will need to be done fast.

Yet reorienting this worldwide web of high-carbon finance seems more possible than it has in years. That’s in no small part because a recent spate of climate-related disasters — wildfires in California, hurricanes in Louisiana and New York, flooding in Germany and China — has catapulted global warming to the top of consumers’ minds and of the international agenda.

For the first time in a long time, there’s a will to fight climate change. What has been missing is an economically and politically workable way.

That way is coming into focus. The deep-pocketed players must be pressed to put their money where their mouths are — and, crucially, to disclose enough information about their spending that outsiders can assess the legitimacy and effectiveness of their efforts. All this will have to happen well in advance of the middle of the century.

Curbing climate change is, in the most fundamental sense, not about innovating technology or changing morality. It’s about moving money. The climate conference underway in Glasgow is, with just days to go before it ends, long on vague promises for more clean investment. But it’s short on specifics about precisely what “clean” means and about what details financiers will have to disclose so the public can meaningfully assess their climate progress. If the conference ends with these crucial questions unaddressed, then it will be remembered as having squandered the opportunity to do something serious about global warming.

Like so many climate confabs before it, but more catastrophically, it will have generated little more than hot air.

Jeffrey Ball (@jeff_ball) is the scholar in residence at Stanford University’s Steyer-Taylor Center for Energy Policy and Finance and a lecturer at Stanford Law School. His stories and essays appear in a variety of national magazines.

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