Energy Reports (Nov 2023)
Role of climate finance beyond renewables: hard-to-abate sectors
Abstract
This paper investigates the role of climate finance for hard-to-abate sectors in developing countries. It focuses on international transport, heavy industries and greenhouse gas removal technologies. The research is conducted in two parts: firstly, qualitative documentary-based secondary analysis through evidence reviews of the academic literature, landscape reviews of existing Funds in multilateral organisations, and legal reviews of OECD DAC Codes were undertaken to determine the degree of academic literature and practitioner activities on climate finance for hard-to-abate sectors, and the aid-eligibility of these groups of sectors; secondly, qualitative primary research is undertaken using the Delphi technique to identify the applicability of pull mechanisms previously undertaken for vaccine development to industrial decarbonisation in developing countries, analysing a case study of the applicability of an Advance Market Commitment (AMC) for cement decarbonisation in India. The outputs from the first part of the analysis produced a theoretical and conceptual framework for mapping the impacts of decarbonising hard-to-abate sectors against the Sustainable Development Goals and three common goals of climate finance-badged Official Development Assistance (ODA): economic development, poverty reduction and climate action. The paper finds that industrial decarbonisation is ODA-eligible, decarbonising international transport is only ODA-eligible in very specific applications in relation to poorer local communities surrounding airports and ports, and the theory of change for the ODA-eligibility of greenhouse gas removals is weak. The outputs from the second part of the analysis found that an AMC’s design needs to act as a large enough incentive (marked by the size of the funding committed to the AMC) and remain credible (through credible funding sources and transparent and trustworthy relationships between the actors involved), which are influenced by the type of actors involved, as well as their relationships, and that the process design needs to be tailored to the specific context of the industrial sub-sector and country. The paper argues for a greater role of pull mechanisms, such as AMCs, to address deep decarbonisation challenges in heavy industries in developing countries, and that (ODA-badged) climate finance can help to facilitate this.
