India ‘in strong position’ to close climate finance gap on China
With Western countries’ international standing declining in the developing world, China is capitalising on its dominance of the renewable energy supply chain and strengthening ties with emerging markets on climate finance.
However, India is also set to benefit from geopolitical and economic shifts to become a key player in clean energy and technology.
So argues a new report published this week titled “Strategy and justice: Managing the geopolitics of climate change”. It is authored by Peter Hill, a British civil servant who was chief executive officer of COP26, the global climate summit held in 2021.
Some governments and institutional investors recognise the evolving environmental challenges and opportunities, but the paper says advanced economies need to improve their international cooperation on this front.
“The US, EU, China, and to some extent, the Gulf countries and India are in competition to support climate action in developing countries, with China currently best positioned,” the report said.
“China dominates most of the key technologies and materials of the [energy] transition: dominance that will abate only marginally over the next decade.”
What’s more, the country has invested about $1 trillion in its Belt and Road Initiative (BRI) – an infrastructure project that aims to stretch around the globe – and has committed to “greening” it, the paper added.
“China’s established relationships and export offer give it a major head start on advanced economies.”
WESTERN REPUTATION WANING
Most developed economies “are pursuing energy and industrial policies but in a weakly coordinated manner”, the report noted. This creates the risk of competing approaches, expensive or ineffective domestic industrial measures, and green industrialisation opportunities for emerging markets being missed, it added.
A further issue is that many people in developing countries are disillusioned with Western countries, the paper said. “Climate change is a growing reason, if not the only cause. Many see Western countries as demanding emissions cuts without providing adequate support, subsidising their own industries and raising trade barriers under the guise of environmental protection.”
An example of failed Western support is the 2009 pledge at COP15 by developed countries to mobilise $100 billion a year for climate action in developing countries. The Organisation for Economic Co-operation and Development (OECD) says the target has been missed every year from 2015 (when it started tracking donor spending) to 2021. It was only hit in 2022 for the first time, the latest year for which the figure was published.
Ultimately, the report argued: “A world of intensifying climate impacts will likely be less welcoming of democracy and human rights and more favourable to repressive and autocratic regimes.”
INDIA SET TO BENEFIT
Meanwhile, India is in a strong position to benefit from the shifting geopolitical and economic landscape as an alternative supplier of renewable energy and clean technology, and as a target of US, European and regional investment, said the paper.
However, the country’s required decarbonisation investment is estimated at $223 billion, so it needs external finance at reasonable rates to meet its targets, it noted. “There is some evidence that major investors are increasing investments in India’s transition, particularly in renewables."
Sovereign wealth funds see strong potential for renewable energy investments in Asia and are adapting their approach to emerging Asian assets generally because of geopolitical tensions, according to a recent Invesco survey. The study, published in late July, revealed a dramatic surge in interest in Indian assets, particularly debt.
ALSO READ: SWFs target emerging Asia markets as geopolitical tensions mount
Despite the failure of advanced economies to provide sufficient climate finance, some Western governments are stepping up cooperative efforts.
Australia, Denmark, Sweden, the UK and the US are providing capital guarantees – alongside Japan and Korea – to the Asian Development Bank for its Innovative Finance Facility in Asia and the Pacific (IFCAP). The plan is to launch the $12 billion lending platform at COP29 in November.
ALSO READ: ADB aims to launch $12bn climate finance platform at COP 29
Intra-regional efforts are also underway. In August, Malaysian state pension fund KWAP pledged to commit RM20 billion ($4.5 billion) to transition assets.
Private-sector institutions, such as Japan’s Nippon Life Insurance, and Hong Kong-based insurers AIA and Prudential – are also putting a strong focus on financing the transition in emerging markets.