What are the main challenges and opportunities presented by the green transition?

 

Developing countries that can effectively leveragerenewable energy sources and green technologies will be better positioned to capitalize on the green transition, attracting investment and integrating more seamlessly into GVCs. The energy transition presents a unique opportunity for sustainable industrialization for LICs and LMICs. The emergence of new industries related to solar and wind energy, EVs, battery production, and innovative technologies such as hydrogen and advanced biofuels, offers these countries a pathway to integrate into Global Value Chains (GVCs). With global investments in clean energy reaching USD 1.8 trillion in 2023 alone, developing countries can capitalize on their natural resources, such as minerals needed for green technologies, to secure a foothold in these high-growth sectors. However, they also face financial challenges, as only 15% of global renewable energy investments are directed towards these countries, with a paltry 2% allocated to Africa. Demand for critical minerals essential to theenergy transition, such as copper, lithium, nickel, cobalt and rare earth elements, is projected to grow by 3.5 times by 2030. These materials are essential components in many of today’s fast-growing clean energy technologies – from wind turbines and solar panels to EVs and battery storage. As the world transitions from fossil fuel use to RE (renewable energy), with the aim of achieving netzero CO2 emissions by 2050, the sustainable sourcing of these inputs becomes increasingly important. For developing countries, these Critical Minerals represent a significant opportunity for development, fostering job creation, diversifying the economy and substantially increasing government revenues. However, realizing this potential hinges on the renewable energy industry responsibly sourcing these materials, taking the rights and concerns of local communities into account. The EV industry exemplifies how the energy transition can benefit developing countries. The global EV market is expanding rapidly, with sales projected to reach 17 million units by the end of 202440 and a cumulative value of all EV sales anticipated to reach USD 9 trillion by 2030 and USD 63 trillion by 2050. This growth creates significant opportunities for developing countries to participate in various stages of the EV supply chain, from mineral extraction to battery production and vehicle assembly. Several countries, including Indonesia, Nigeria and Thailand, are already taking steps to boost local EV production and encourage consumer adoption. Beyond the direct production of green goods, the energy transition also fosters a host of related goods and services that can contribute to local job creation and economic growth. For example, the EV industry’s expansion will require the development of charging infrastructure, including new charging stations and electricity management systems. Similarly, the deployment of wind and solar power requires transportation services, installation equipment and ongoing maintenance work. The recycling of EV batteries is expected to emerge as a major industry, with projections estimating a market size of USD 95 billion by 2040. Moreover, the decarbonization of energy-intensive industries offers new opportunities for developing countries to attract new investment and to create jobs. Technologies such as hydrogen, carbon capture and storage (CCS), and electric arc furnaces are transforming industries such as steel production, which currently accounts for 8% of global emissions. By adopting these new technologies, developing countries can reduce emissions while generating employment in emerging industries and position themselves as key players in the global effort to fight climate change. Lastly, the relocation of energy production and industrial production to regions with abundant renewable energy resources offers significant benefits. While developed countries are investing in domestic energy transformation initiatives, directing a greater share of green energy funding to developing countries could yield greater impacts. This strategy would not only ensure substantial environmental returns but also accelerate the global transition to a sustainable energy future. As regards the relocation of industrial production, data centres and industrial plants, for instance, are increasingly being built near geothermal or hydropower sources to minimize emissions. Countries such as Chile and Kenya, which possess vast renewable energy potential, are attracting investment in industries that depend on sustainable energy sources. Despite the opportunities presented by the energy transition, several challenges remain. First, the benefits of renewable energy may not be evenly distributed, with some regions benefitting more than others. Infrastructure deficits, particularly in energy transmission and distribution, can limit the ability of many developing countries to fully exploit their renewable energy potential. Moreover, financing for clean energy projects remains inadequate, and without greater international support, many developing countries may struggle to mobilize the resources necessary to build the infrastructure required for green energy. Furthermore, concerns about resource overuse persist, as the production of renewable technologies still relies heavily on materials such as rare earth metals, which may lead to environmental degradation in some regions.