Emerging economies driving clean energy innovation: what can we learn?

At a glance

Clean Energy Innovation Policies in Emerging and Developing Economies. International Energy Agency (IEA). October 2024. 

Emerging markets and developing economies (EMDEs) can often be a greater risk from climate change and many of them also have ambitious plans to confront this challenge through clean energy innovation. This report from the International Energy Agency (IEA) examines their critical role in this space through case studies of 11 emerging economies: Argentina, Brazil, China, Colombia, India, Kazakhstan, Kenya, Mexico, Morocco, Nigeria and South Africa. Authored by national experts, these case studies reveal how targeted policies enable these countries to overcome resource challenges and drive clean energy transitions.

Despite receiving just six per cent of global public energy R&D funding, EMDEs are making significant progress by leveraging local capabilities and fostering international co-operation. Achieving global net-zero emissions will hinge on the innovation and adaptation of clean technologies across the world. The success of EMDEs in this can accelerate the global energy transition, reduce emissions, and unlock economic opportunities, particularly in regions poised for renewable energy growth.

Key findings

• R&D spending imbalance: Emerging economies (excluding China) received only six per cent of global public energy R&D spending in 2023, underscoring the urgent need for increased investment to achieve clean energy targets.
• Fundamentality of innovation: To reach net-zero emissions by 2050, over 35 per cent of necessary global emissions reductions must come from technologies that are not yet commercially available, highlighting the critical role of innovation.
• Investment inequality: Investment in clean energy is starkly unequal; emerging markets outside China receive just one cent for every dollar invested in battery storage compared to advanced economies and China.
• Supportive policies: The case studies demonstrate that these 11 countries are prioritizing clean energy innovation through supportive policies aimed at developing local renewable technologies.
• Integrating initiatives: Many emerging economies are integrating clean energy initiatives into broader economic and development strategies, focusing on local adaptation and domestic manufacturing opportunities.
• International co-operation: Successful clean energy innovation in emerging economies often depends on global partnerships, knowledge sharing, and financial support from advanced economies.

Bigger picture

The issue of climate finance is set to be a major focus of the United Nations climate change conference in Azerbaijan next month (COP29). Rich countries had pledged $100 billion a year to help developing countries confront global warming, but that goal expires next year. The amount is also considered insufficient. Much of the discourse surrounding climate inequity between advanced economies and the developing world focuses on adaptation. This report underscores the role that EMDEs can play in mitigation by reducing greenhouse gas emissions and developing clean technologies to get there.

But it also shows they face significant barriers, including limited research funding and inadequate infrastructure. The 11 successful case studies illustrate how innovative policies and international collaboration can foster clean energy adoption, even in resource-constrained environments. The global shift to sustainable energy cannot succeed without the active participation of these economies. The report is a useful reminder for stakeholders in developed countries — including those who would contribute to climate financing — who may see themselves leading the way and prioritizing their own energy transitions.

This also comes with economic potential. As EMDEs integrate renewable technologies into their development strategies, they create new markets for clean energy products and services. This trend has implications across various sectors, including manufacturing and finance, as companies seek to expand operations into these rapidly evolving markets. Different socio-economic priorities in these countries, particularly around energy access and affordability, have also led to alternative yet successful experimentation in initiatives and innovation.

The report stresses that international co-operation, knowledge sharing, and targeted investments are vital for scaling renewable technologies. As more countries prioritize sustainable energy solutions, industries worldwide must adapt to a landscape where EMDEs play a central role in driving clean energy innovation, despite limited financing. This shift could enhance resilience in global supply chains and contribute significantly to achieving international climate goals.

Challenges and opportunities

Key barriers to energy transition progress for emerging and developing economies identified in the report:

• Insufficient R&D investment: Emerging economies receive only six per cent of global public energy R&D funding, limiting their capacity for clean energy innovation. Policymakers should increase investment through international partnerships and targeted government initiatives.
• High capital costs and limited financing: Enterprises in emerging markets face high interest rates and scarce financing options for clean energy projects. Governments and financial institutions must develop risk-sharing mechanisms and tailored financing models, such as green bonds and concessional loans.
• Weak intellectual property protections: Many developing countries lack robust intellectual property enforcement, deterring clean energy investments. Strengthening legal frameworks and fostering collaboration between public research institutions and private sectors can mitigate this issue.
• Limited research infrastructure: Emerging markets often lack advanced laboratories and skilled researchers, hindering innovation. Policymakers should prioritize building technical capacity through educational programs, research grants, and university partnerships.
• Uncertain domestic markets: Low demand for clean technologies within developing economies restricts large-scale investments. Governments should stimulate demand through public procurement programs, market incentives, and regulatory frameworks that support local clean energy industries.

To address these challenges, the report recommends:

• Cross-border innovation co-operation: Fostering “innovation co-operation” between emerging markets and advanced economies can accelerate knowledge sharing and technology transfer. Policymakers should promote regional collaborations and south-to-south partnerships to share context-specific solutions.
• Leveraging existing industrial expertise: Countries like Kenya and Mexico are capitalizing on strengths in digital finance and manufacturing to drive clean energy adaptation. Industry leaders should explore synergies between existing sectors and clean technologies to enhance local innovation.
• Adapting technologies to local contexts: Customizing clean energy technologies to meet local needs — such as off-grid solar PV solutions in Kenya — can facilitate deployment. Stakeholders should prioritize low-cost, adaptable technologies that align with local economic conditions.
• International financing mechanisms: Multilateral financial support can help strengthen clean energy ecosystems in developing economies. Governments should engage in international initiatives to access funding and expertise from global financial institutions.
• Policy experimentation: Small-scale pilot projects can provide valuable insights for broader implementation. Policymakers should encourage flexible frameworks that allow for iterative learning to refine clean energy initiatives based on real-world results.

In their own words

Emerging economies have a wealth of innovation experiences to share, and all countries have much to learn from them. Many already have extensive experience in technology R&D and deployment, whether for energy or in adjacent areas, but it is rarely considered collectively.

Clean Energy Innovation Policies in Emerging and Developing Economies by International Energy Agency (IEA). Oct., 2024. 

Final thoughts

The report shows that despite facing challenges like limited funding and infrastructure and energy access and affordability hurdles, there are EMDEs making strides in localizing renewable technologies, providing valuable lessons for developed countries. The report could have further explored systemic barriers such as political instability and weak governance, which often impede progress. In a broader context, parallels can be drawn with other sectors where emerging markets have leveraged unique strengths, such as digital finance in Kenya. By fostering innovation in clean energy, these economies are contributing to climate objectives and creating equitable growth opportunities worldwide, reinforcing the interconnected nature of global efforts to combat climate change.

Download the full report originally published by the International Energy Agency in October 2024.