Very rapid increases in renewable power, efficiency and electrification are central to climate-driven scenarios, but on their own will not secure the emissions reductions required without complementary transitions in fuels and emissions-intensive sectors. The latter issues are particularly challenging in EMDEs because they are undergoing rapid industrialisation and urbanisation and, in many cases, the abatement options are less mature and affordable.

Demand for unabated coal, oil and natural gas and low-emissions fuels and CCUS in EMDEs in the Sustainable Development Scenario, 2020-2050

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Demand for unabated coal, oil and natural gas and low-emissions fuels and CCUS in EMDEs in the Stated Policies Scenario, 2020-2050

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Demand for unabated coal, oil and natural gas and low-emissions fuels and CCUS in EMDEs in the Net-Zero Emissions by 20250 Scenario, 2020-2050

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Changes in fuel use and in emissions-intensive sectors in IEA climate-driven scenarios in the 2020s focus on improvements in efficiency and fuel switching, mainly to electricity but also, in some sectors for a limited timeframe, to natural gas. In parallel, it will be essential to lay the groundwork for a rapid scale-up of low-emissions liquids and gases. Established bioenergy supply chains can be developed further with well-designed incentives, while hydrogen and carbon capture are some of the fastest-growing areas for investment in rapid transitions, although for the moment they lack viable business models in many EMDEs.

EMDEs include major fuel-importing countries, such as India, that stand to benefit during transitions from reduced import bills. However, this grouping also includes some of the world’s largest hydrocarbon resource-owners and exporters, and net income from these sources (domestic sales and exports) has averaged around USD 1 trillion each year. We estimate that the pandemic has already reduced the present value of future income from oil and gas in EMDEs by around 20%, and an acceleration of energy transitions would bring it down still further. This creates huge pressure for changes to development models in hydrocarbon-reliant economies, and raises questions about the finance available in these countries for energy and non-energy investments alike.

Strategies to mitigate these risks involve the diversification of energy mixes and broader economic structures. Despite an outstanding resource, as of 2020 only around 10 GW of solar PV has been installed across the whole of Middle East and Africa, less than in Viet Nam. Getting price signals right is essential to encourage more sustainable investment; 90% of the global fossil fuel consumption subsidies tracked by the IEA are in EMDEs, distorting investment incentives.

State-owned enterprises play central roles in fuel markets and heavy industrial sectors in many EMDEs. Ensuring transparent governance and disclosure can help to avoid risky bets on polluting or inefficient technologies. Strategic shifts by these companies are a necessary condition to meet sustainability goals. National Oil Companies have options to make their fuel production compatible with energy transitions, including the production of low-carbon hydrogen.

Natural gas occupies a difficult space in EMDE clean energy transitions. It is seen in many cases by these countries as an ally in the push for national development and lower-emissions growth, but projects will need to demonstrate a strong alignment with transition objectives; financing criteria for gas projects are tightening. Around 90% of project debt for large-scale natural gas infrastructure projects in EMDEs over the last decade has been raised internationally, and 70% of the total came from entities domiciled in countries that now have net zero targets.

For many EMDEs, fuels such as biofuels and biogases can foster domestic industries with major benefits for emissions, if sustainability criteria are met. Latin America accounts for almost half of total EMDE investment in bioenergy over the next decade, but markets in Africa and Asia also have major potential.

Deployment of low-carbon hydrogen and CCUS are at a very early stage, although 4 out of 22 large-scale CCUS facilities capturing more than 40 MtCO2 are located in EMDEs. Resources and technical abilities are strong for these technologies; growth will rely on international joint ventures and partnerships, commercial arrangements to secure debt and demand for clean products and fuels in advanced economies.

Coal continues to play a significant role in the energy economies of many EMDEs, especially among developing countries in South and Southeast Asia. In these economies the age of the existing coal fleet is relatively young, with most of the capital invested yet to be recovered. Innovative financial mechanisms and international support are required to help to refit, repurpose or retire such assets.