Our energy and climate future increasingly hinges on decisions made in emerging market and developing economies (EMDEs),1 which face the challenge of developing in a way that meets the aspirations of their citizens while avoiding the high-carbon pathway that other economies have pursued in the past. The falling cost of key clean energy technologies offers a tremendous opportunity to chart a new, lower-emissions pathway for growth and prosperity.

EMDEs include a wide range of countries, national circumstances and income levels. Overall, they are home to two-thirds of the world’s population and will see almost all of the world’s expected population growth over the coming decades. However, they currently account for only one-third of global energy investment and an even smaller 20% share of clean energy investment.

Annual energy investments in EMDEs have fallen by around one-fifth over the past five years. While around 70% of this reduction has come from lower spending on oil and gas supply, predominantly in the major hydrocarbon-rich countries, investment has fallen across all regions. This reflects persistent challenges in mobilising finance towards more capital-intensive and lower-carbon assets, even before the economic shock caused by the Covid-19 pandemic.

There are around 785 million people who do not have access to electricity today and 2.6 billion people who do not have access to clean cooking options. The vast majority of these are in EMDEs (with around 15% of those without clean cooking in China), and the pandemic has set back financing of access projects.

With the exception of parts of the Middle East and Eurasia, per capita emissions in EMDEs are among the lowest in the world, one-quarter of the level in advanced economies. However, EMDEs are set to account for the largest source of emissions growth in the coming decades unless sufficient action is taken to transform their energy systems. Action on emissions will have major co-benefits for air quality: 15 of the 25 most polluted cities in the world are in EMDEs (and a further 9 in China), and air pollution is a major cause of premature death.

Clean energy investment in EMDEs is typically a very cost-effective way to reduce emissions on a global basis. All economies need to act on emissions, but we estimate that the average cost of emissions avoidance in EMDEs in IEA climate-driven scenarios to 2030 is around half the level in advanced economies. The opportunity to avoid future emissions is underscored by the fast-growing nature of EMDE economies and the amount of new equipment and infrastructure that is being purchased or built – whether buildings, factories, vehicles or networks.

However, building a low-emissions future for EMDEs will require a massive increase in spending on clean energy technologies and energy efficiency. Clean energy spending in EMDEs declined by 8% to less than USD 150 billion in 2020, with only a partial rebound in 2021. This figure would need to reach around USD 600 billion in annual capital spending by 2030 in the Sustainable Development Scenario, and more than USD 1 trillion in the Net Zero by 2050 Scenario.

If energy transitions are to be successful, then developers and financiers need to increase the allocation of capital towards two underserved asset classes – to clean energy in particular, and to emerging markets and developing economies more broadly. Over the next 10 years, these capital flows have to be enabled by a determined policy push in EMDEs, backed by strong international support.

Energy transitions involve a shift in the allocation of EMDE spending from dollarized, globally traded commodities, such as oil, with fuel price volatility but established risk management, towards capital-intensive clean technologies, where the stability of lifetime revenues depends much more on the quality and predictability of domestic EMDE policy and regulation. The capital intensity of clean energy investment means that keeping financing costs low will be critical to the speed and affordability of this transformation – this shift towards a more capital-intensive energy system is particularly challenging in geographies where capital has traditionally been constrained.