Powering a Sustainable Future: How Nations Are Shifting from Fossil Fuels to Clean Energy

Natalie Jones, a policy advisor on the energy programme at the International Institute for Sustainable Development (IISD), holds a PhD in international law from the University of Cambridge. Her expertise sheds light on a quiet climate success story that has unfolded over the past three years, as countries and public finance institutions have cut their international public finance to fossil fuels by two-thirds.

Unlocking a Cleaner, Greener Tomorrow

Phasing Out Fossil Fuel Financing

At the COP 26 climate talks in Glasgow, UK, 39 countries and public finance institutions launched the Clean Energy Transition Partnership (CETP), committing to end their overseas public support for fossil fuels and instead scale up their support for clean energy. This partnership has since grown to include 41 signatories, with Norway and Australia joining at COP 28.The research conducted by Jones and her team at IISD reveals a historic achievement. The collective fossil fuel financing of CETP signatories in 2023 amounted to $5.2 billion, a decrease of two-thirds from the pre-CETP baseline. This remarkable progress demonstrates the commitment of these countries and institutions to shifting away from fossil fuels and towards a clean energy future.However, the story is not without its challenges. While some signatories, such as the United States, Italy, Switzerland, and Germany, still need to align their policies or address loopholes in their regulations, the overall trend is positive, with fossil fuel finance declining even among these laggards.

Scaling Up Clean Energy Investment

The good news is tempered by the fact that CETP signatories did not scale up their clean energy finance by the same magnitude. In 2023, they financed $21 billion in clean energy, a mere 16% increase from the pre-CETP baseline.Some countries, like Canada and Denmark, have substantially increased their clean energy financing. But others, such as France and Sweden, have actually cut their support for clean energy since 2021. This uneven progress underscores the need for a more concerted and coordinated effort to ramp up clean energy investment.Alarmingly, the clean energy financing that was provided did not flow to the countries that needed it most. Among the top 20 recipients, the majority were high and upper-middle income countries, with only a few lower-middle-income countries like Bangladesh, Angola, and India, and no low-income countries represented.This trend reflects a larger issue in the global clean energy transition. In 2023, China and advanced economies accounted for 90% of new solar PV and wind capacity installations, and 85% of investment in renewable energy. The lack of clean energy investment in emerging and developing economies (EMDEs) outside of China is a pressing concern that must be addressed.

Bridging the Clean Energy Investment Gap

Public finance is critical to bridging the gap in clean energy investment, as it can lower risk and crowd in much larger flows of private investment. The International Energy Agency estimates that for the world to stay on a 1.5°C pathway, annual concessional funding in EMDEs from developed economies and development finance institutions would need to reach $80-100 billion annually by 2030.CETP signatories, as well as other high-income countries and public financial institutions, have a crucial role to play in scaling up concessional finance for the energy transition in EMDEs. They must adopt ambitious and quantitative targets for rapidly increasing good-quality public finance for clean energy, aiming to provide at least as much clean energy finance per year as their average pre-CETP fossil fuel support, if not significantly more.Importantly, these policies must target low-income countries to achieve universal energy access. The cost of capital is often higher in these countries due to a range of fiscal, socioeconomic, and climate risks, but public development finance institutions must not use this as an excuse to underinvest. Instead, they should ensure that a much larger portion of clean energy finance is delivered through grants and highly concessional instruments, rather than loans, to avoid further burdening Global South countries with debt.

Expanding the Clean Energy Transition Partnership

The shift away from fossil fuels is not yet complete. China, the Republic of Korea, and Japan, which are not CETP members, continue to provide an average of $21 billion annually in international public finance for fossil fuels. The next step is to bring these countries, as well as the broader G20 and multilateral development banks, into the CETP initiative.Additionally, domestic public finance for fossil fuels and fossil fuel subsidies persist globally, with subsidies alone exceeding $1.5 trillion in 2022. Ending these subsidies can free up even more public money to invest in solutions for people and planet.As the world prepares for the new climate finance goal to be agreed at COP 29 in Baku, Azerbaijan, every penny counts in the race to a sustainable future. The CETP's progress is a promising start, but much more needs to be done to ensure a truly equitable and inclusive clean energy transition for all.