The Growing Demand for Sustainable Cooling
As global temperatures continue to rise, the demand for cooling solutions in homes, workplaces, and supply chains is accelerating, particularly in developing economies where the impacts of extreme heat are already being felt most acutely. Heat-related deaths are running at an annual average close to 500,000 globally, highlighting the urgent need to boost access to cooling solutions that can protect human health and well-being.
Ensuring populations have access to cooling isn’t just about averting fatal outcomes; it also means workers can be more productive, farmers can deliver produce to market before it spoils, and healthcare services can provide life-saving vaccines. However, the increased use of energy-intensive refrigeration and air conditioning could lead to surges in energy demand, putting stress on power grids and potentially generating higher greenhouse gas emissions that further fuel the warming crisis.
To address this challenge, new cooling solutions must be sustainable, based on energy-efficient technology and maximizing the use of passive strategies, such as making use of shade or building with reflective materials. These sustainable approaches come at a cost, however, with passive design and efficient equipment for space cooling and refrigeration often beyond the reach of many firms and households in developing countries.
Unlocking the Sustainable Cooling Investment Opportunity
A recent analysis from the International Finance Corporation (IFC) and the United Nations Environment Programme (UNEP) finds that the market for sustainable cooling in developing economies is set to more than double over the next 25 years, from around $300 billion in annual demand currently to at least $600 billion in annual demand by 2050. This means the business opportunity for investors will be substantial, with most of the growth attributed to active cooling solutions.
The study also finds that adopting sustainable cooling solutions, as opposed to inefficient equipment that uses more power, could cut emerging economy consumers’ electricity bills by as much as $5.6 trillion over the next 25 years. It will also reduce the amount of new investment needed in additional power generation to meet peak electricity demand by $1.8 trillion.
Achieving these outcomes, however, will depend on consumers in developing economies being able to access the finance they need to adopt new technologies and practices. Closing existing shortfalls in access to cooling in emerging market countries will require between $400 billion and $800 billion in funds, according to the report. Accounting for projected future demand will drive this need higher still.
Creating an Enabling Environment for Sustainable Cooling Investment
While the $600 billion business opportunity in sustainable cooling solutions for developing countries by mid-century presents a significant opportunity for the private sector, governments, regulators, and multilateral financial institutions have a critical role to play in creating an enabling environment to make these solutions more attractive to investors.
The report finds that many appropriate financing facilities and business models that help consumers alleviate challenges such as high upfront installation costs already exist. But more are required to address the varying demands of a diverse range of industry sectors and markets. This will depend on multilateral organizations, governments, local businesses, and financial sector actors working together to boost supplies of capital, bolster regulation, and create workable incentive structures for adopting new technologies and practices.
Financing Mechanisms for Sustainable Cooling
To unlock the sustainable cooling investment opportunity, a range of financing mechanisms and business models will be needed to address the diverse needs of consumers and industry sectors in developing countries. Some of the key approaches include:
Leasing and Pay-as-You-Go Models
Leasing and pay-as-you-go models can help overcome the high upfront costs of sustainable cooling equipment, making it more accessible for households and small businesses. These models allow consumers to pay for the cooling service over time, rather than having to purchase the equipment outright.
Green Bonds and Climate Bonds
Green bonds and climate bonds can provide a source of low-cost, long-term financing for sustainable cooling projects, such as the development of energy-efficient cooling infrastructure or the deployment of passive cooling strategies in buildings.
Concessional Financing and Blended Finance
Concessional financing and blended finance, which combine public and private capital, can help de-risk sustainable cooling investments and make them more attractive to private investors. This can include loan guarantees, interest rate subsidies, or other forms of risk-sharing.
On-Bill Financing
On-bill financing, where the cost of sustainable cooling upgrades is added to the consumer’s utility bill, can help overcome upfront cost barriers and align the repayment of the investment with the energy savings realized.
Energy Service Company (ESCO) Models
ESCO models, where a third-party provider installs and maintains the cooling equipment, can also help address upfront cost barriers and ensure the ongoing performance and maintenance of the systems.
The Role of Governments and Multilateral Institutions
Governments, regulators, and multilateral institutions have a crucial role to play in creating an enabling environment for sustainable cooling investment. This includes:
Policy and Regulatory Measures
Implementing policies and regulations that promote energy efficiency, set standards for cooling equipment, and incentivize the adoption of sustainable cooling solutions can help drive market transformation.
Capacity Building and Technical Assistance
Providing capacity-building support and technical assistance to local financial institutions, project developers, and consumers can help build the knowledge and expertise needed to scale up sustainable cooling solutions.
Coordinated Financing Mechanisms
Multilateral institutions and development finance institutions can work together to design and deploy coordinated financing mechanisms, such as blended finance facilities, that can mobilize private capital at scale.
Awareness and Education Campaigns
Targeted awareness and education campaigns can help consumers, businesses, and policymakers understand the benefits of sustainable cooling and the available financing options.
Conclusion: Unlocking the Sustainable Cooling Opportunity
The growing demand for cooling solutions in developing countries presents a significant investment opportunity, with the potential to more than double to $600 billion in annual demand by 2050. Unlocking this opportunity will require a concerted effort from governments, multilateral institutions, local businesses, and the financial sector to create an enabling environment for sustainable cooling investment.
By leveraging a range of financing mechanisms, from leasing and pay-as-you-go models to green bonds and ESCO arrangements, and by supporting policy, regulatory, and capacity-building initiatives, stakeholders can help make sustainable cooling solutions more accessible and attractive to consumers and investors alike. This, in turn, can drive significant economic, social, and environmental benefits, from reduced energy bills and power grid stress to improved human health and well-being.
As the world grapples with the challenges of a warming climate, investing in sustainable cooling solutions represents a critical opportunity to advance both development and climate goals. By mobilizing the necessary financing, we can unlock a cleaner, more resilient, and more equitable cooling future for all.
