Scaling up private capital for climate investment in emerging markets
The gap between actual and needed global investment in renewable energy is projected to grow to tens of trillions of dollars over the next ten to thirty years while the costs of climate change continue to compound. Public finance alone—via governments, multilateral development banks, and international financial institutions—is insufficient to meet the challenge. To bridge this widening investment gap and attract private investors that will have to provide most of the funding, what’s needed is a combination of innovative financial tools that are tailored to local contexts and mitigate risk, enhance creditworthiness, and attract private capital at high leverage rates. Guarantees are especially important because of their reputation for their efficacy and effectiveness in mitigating real and perceived risks of projects, which enhances project creditworthiness and often attracts investment from the private sector.
This paper provides a comprehensive overview of investment gaps in the renewable energy industry at the global level as well as in EMDEs to achieve the global net-zero targets and discusses the risks and obstacles facing private investors in the renewable energy industry. It also reviews various de-risking, risk-reduction, and risk-transfer financial mechanisms that could boost private investment in clean energy infrastructure and nature-based solutions projects centered around a discussion of a guarantee proposal called the Emerging Market Climate Investment Compact (EMCIC). The EMCIC is a proposal for a guarantee facility funded primarily by wealthy governments that would provide guarantees to major global investors to mobilize $100 to $500 billion in private investment in climate mitigation investments, namely clean energy infrastructure and nature-based solutions, in EMDEs over ten years. The structure of the facility would be simplified so that qualified investors would assemble portfolios that would be broadly guaranteed (against most political and commercial risks), would do their own due diligence subject to standards set by the EMCIC, and would generally not require recipient country guarantees.
Finally, the paper includes case studies on clean energy investment in Brazil and South Africa—and country-specific mechanisms available for scaling up this investment.
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About the authors
Amin Mohseni-Cheraghlou was the macroeconomist with the GeoEconomics Center (2021-2024) and a Senior Lecturer of Economics at the American University in Washington, DC.
Frank Willey is a program assistant at the Atlantic Council Global Energy Center.
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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.
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