Goal 7: Affordable and clean energy
Lack of access to clean and sustainable energy constrains human and economic development. Without electricity, women and girls must spend hours fetching water, clinics cannot store vaccines, schoolchildren cannot do homework after dark, and businesses remain uncompetitive. Indoor air pollution from dirty fuel sources like wood, charcoal and animal dung causes over four million premature deaths every year. Fossil fuels are the largest producers of greenhouse gases, creating climate change and harming the environment. Expanding infrastructure and upgrading technology to provide clean energy in all developing countries is therefore crucial for powering economic growth and reducing development gaps between the richest and poorest countries.
SDG 7 aims to ensure access to affordable, reliable, sustainable and modern energy from clean sources such as solar, wind and thermal for all by 2030. Efforts to encourage clean energy have resulted in more global power being generated by renewable sources than fossil fuel. However, progress has been slow. The share of renewable energy in final energy consumption increased by only 0.4 percent between 2012 and 2014. Access to electricity increased 0.3 percent between 2012 and 2014, still leaving approximately 1.1 billion people without electricity. At these current growth levels, demand for clean energy will continue to outstrip supply, depriving millions of opportunities for progress.
Financing Affordable and Clean Energy
While progress is being made to scale up financing, the world still needs to triple its annual investment in sustainable energy infrastructure, from around US$500 billion to $1.25 trillion by 2030. Renewable energy capacity additions are exceeding fossil fuel with a renewable power’s share of 60 percent of all new power capacity in 2016. However, capital is not invested equally or where it is most needed. The bulk of this financing comes from domestic resources, particularly private investments, meaning regions facing the greatest challenges-e.g. sub-Saharan Africa and South Asia-will continue to need external financing.
Renewable energy financing requirements to meet SDG 7 are estimated at $442-650 billion per year until 2030 compared to $263 billion in 2016. Energy efficiency requirements are estimated at $560 billion against $231 billion in 2016. The requirements for universal electrification are estimated at $52 billion per year to 2030, half of which is covered by planned investments. The gap is primarily faced by India and sub-Saharan African countries. In clean cooking, current levels of access are far behind the stated SDG 7 targets. The financing requirements for the latter are estimated at $4.4 billion per year to 2030 with current investment estimated under $240 million.
The above gaps are to be filled by public and private resources with private financing playing a critical role in all, with clean cooking the only partial exception. Reforming harmful subsidies--global fossil fuel consumption subsidies in 2016 are estimated at $264 billion--and disinvesting from fossil fuels will continue to be central to shift the energy mix and rebalance incentives. Regulatory interventions along with increased investment in equity, debt and other financing solutions will be required.
Renewable energy green bonds issuances totalled $51 billion in 2017, but non-investment grade countries still face enormous challenges in accessing global financial markets. Green bonds for energy-efficient buildings are estimated at $45 billion. Public risk reduction measures through policy (energy policy design, capacity building) or financial (loan guarantees, political risk insurance) risk reduction are also ways of using ODA catalytically to increase effective financing for Goal 7. USAID’s Power Africa is one of the many example of how ODA can also be used to directly co-finance investments.
The number of new mechanisms, asset classes and innovative business solutions to expand affordable clean energy access is growing. Impact investment in energy is the second largest sector after housing. Social entrepreneurs are testing new business models in developing countries, such as M-Kopa Solar providing mobile pay-as-you-go plans to poor customers to purchase solar lighting and electricity systems. Since 2011, the company has connected over 600,000 homes to its off-grid solar systems. Crowd-funding platforms have started to mobilize resources for renewable energy both in the form of grants and loans in the range of hundreds of millions of dollars a year. New asset classes for clean and responsible energy projects are being developed.
Financing solutions related to SDG 7
The solutions listed below provide a wide range of options to significantly increase resources that can help expand the access and the affordability of sustaible energy. These reviews do not however constitute an exhaustive or comprehensive list of financing solutions for SDG 7.
Carbon markets aim to reduce greenhouse gas emissions cost-effectively by setting limits on emissions and enabling the trading of emission units.
Climate Credit Mechanisms
Market mechanisms that enable entities, for which the cost of reducing emissions is high, to pay low-cost emitters for carbon credits that they can use towards meeting their emission-reduction obligations. An example is the Clean Development Mechanism.
Approach for projects, organizations, entrepreneurs, and startups to raise money for their causes from multiple individual donors or investors.
Enterprise Challenge Funds
Funding instrument that distributes grants (or concessional finance) to profit-seeking projects on a competitive basis.
Bonds where proceeds are invested exclusively in projects that generate climate or other environmental benefits.
Investments made with the intention to generate a measurable social and environmental impact alongside a financial return.
Governments and civil society groups use lotteries as a means of raising funds for benevolent purposes such as education, health, preservation of historic sites and nature conservation.
Guarantees can mobilize and leverage commercial financing by mitigating and/or protecting risks, notably commercial default or political risks.
Remittances (Diaspora Financing)
Private unrequited transfers sent from abroad to families and communities in a worker's country of origin.
Social and Development Impact Bonds (Results-Based Financing)
A public-private partnership that allows private (impact) investors to upfront capital for public projects that deliver social and environmental outcomes in exchange for a financial interest.
Taxes on Fuel
The sale tax any individual or firm who purchases fuel for his/her automobile or home heating pays. Fuel taxes can reduce the consumption of fossil fuels and greenhouse gas emissions while generating public revenues.
Taxes on Renewable Natural Capital (water; timber)
Any fee, charge or tax charged on the extraction and/or use of renewable natural capital (e.g. timber or water).
Voluntary Standards (finance)
Standards applicable to the financial sector that capture good practices and encourage the achievement and monitoring of social and environmental outcomes.
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