With the increasing effects of climatic changes, new economies are faced with a daunting task of maintaining growth and at the same time substituting fossil fuels with clean and resilient energy sources. The adoption of renewable energy is not only an international environmental requirement but also an economic savior to nations caught in the snare of escalating energy prices and climate risks as well as economic strains. Climate finance is one of the most important factors that predetermine the success of this transformation.
Climate finance refers to the financing that is raised by the government, the private sector, and international organizations to finance mitigation and adaptation initiatives that respond to the impact of the climatic change. To the emerging economies, whether they can go beyond the promises and pilot projects and on a massive scale implementation of renewable energy depends on the availability of such finance.
However, there is still a wide and continuing gap in financing between the developed and developing countries. The Climate Policy Initiative claimed that the world climate finance is almost USD1.4trillion in 2022. However, a small portion of that amount made it to the developing nations, which collectively form the majority of the world population, and are disproportionately vulnerable to climate hazards. The reason why the development world, in most cases, does not invest in renewable energy projects privately is due to the high costs of borrowing, uncertainty in policy, and the lack of strong institutions to oversee these projects.
The developing economies in Asia, Africa and Latin America are very much in need of concessional funds and technology transfer in order to speed up the energy transitions. The absence of affordable and reliable climate finance keeps too many of us locked in the rut of fossil fuel dependence, and so farther hinders the development of net-zero objectives, as well as exposing millions of people to climate shocks.
An example of climate and economic vulnerabilities is Pakistan. Although Pakistan contributes to less than one percent of the global greenhouse-gas emission, the variety of the climate influenced by climate change are ranked top ten most in Pakistan. Frequent floods, hot waves, and droughts have already taken their toll on the economy and human lives.
National energy mix is still dominated by fossil fuels especially imported oil and gas that are putting pressure on balance of payment and fuel inflation. Although Pakistan has a lot of potential in the solar, wind, and hydropower, the proportion of renewable energy to the total generation is low. Pakistan needs to combine its energy policies with the climate finances mechanisms to reduce the financial risk and coax sustainable investment to unlock this potential.
Once in a few years, Pakistan has also started to move in this direction. The Alternative and Renewable Energy Policy of 2019 aims at increasing the renewable percentage to 30 percent by 2030. Also, the country has been able to tap into green financing with the help of international programmes like the Green climate fund and collaboration with the Asian Development Bank. However, the development has been at a sluggish pace because of bureaucratic challenges, restrictions on governing and also because of low financial means in the country.
Good governance is still a focus area in order to attract climate finance. Countries like Chile and Indonesia have proven that transparency in regulatory systems and a strong signal of policy may help to gain investor confidence and hasten investment in renewable energy. In the case of Pakistan, the enhancement of federal and provincial institutions coordination, project selection transparency, and the monitoring and evaluation system reinforcement are required measures.
Institutional reforms to increase accountability and simplify the approval processes can assist in helping Pakistan to absorb money better. It would also be important in filling in the financing gap by developing a national climate finance framework and encouraging partnerships between the state and business.
An effective energy change in Pakistan and other developing economies should be three pronged; policy coherence, financial innovation and international collaboration. The policymakers need to make sure that the climate objectives are incorporated into the national development strategies and the incentives are offered to investors of renewable energy sources. To appeal to the private capital, financial institutions are advised to increase the application of green bonds, blended finance, and risk-sharing arrangements.
On the international level, the developed countries have a duty to keep their promise on the Paris Agreement through mobilizing at least USD 100 billion per year of the developing states. Multilateral development banks should focus on the capacity building and offer concessional loans which reduce the cost of the renewable energy projects in the high risks markets.
In Pakistan, the way ahead should be the utilization of renewable sources, a greater institutional change, and the expansion of partnership with international climate-finance forces. The need to achieve climate resilience and clean energy development should not be seen as antithetical goals of sustainable development but as two complementary pillars of sustainability. With an energy shift carefully designed and having sufficient funding, Pakistan can achieve economic stability, increase its energy security, and contribute significantly to the global climate change fight.
The writer is an Independent Economic Researcher and can be reached at maf1316@gmail.com