Cooler Finance

Rising global temperatures mean demand for cooling in homes, workplaces, and across supply chains is accelerating, particularly in developing economies where the impact of extreme heat is already being felt most acutely.

Heat-related deaths are running at an annual average close to 500,000 globally, highlighting the urgency of boosting access to cooling. As well as averting fatal outcomes, ensuring populations have access to cooling – for human comfort as well as preserving perishable goods – means workers are more productive, farmers can deliver produce to market before it spoils and healthcare services can provide lifesaving vaccines.

But more intensive use of refrigeration and air conditioning could trigger surges in energy demand, putting stress on power grids and potentially generating higher greenhouse gas emissions that fuel yet more warming. That means new cooling solutions must be sustainable, based on energy efficient technology and maximizing reliance on so called passive strategies, such as making use of shade, or building with reflective materials.

These come at a cost, however, with passive design as well as new and efficient equipment for space cooling and refrigeration beyond the reach of many firms and households in developing countries. But effective interventions by governments, multilateral institutions, and donor organizations could make the financing and provision of sustainable cooling solutions in developing economies an attractive opportunity for private investors.

A new analysis from IFC and the United Nations Environmental 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. That means the business opportunity for investors will amount to at least $600 billion in annual demand by 2050, most of which will be attributed to active cooling.

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 such outcomes will depend on consumers in developing economies being able to access the finance they need to adopt new technologies and practices. Indeed, 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.

Therefore, sustainable cooling must become as much a fixture of development finance as established climate-related areas such as carbon capture, renewable energy infrastructure or battery technology which benefit from embedded institutional support from governments and multilateral institutions.

While demand for sustainable cooling solutions in developing countries will bring that $600 billion business opportunity to the private sector by mid century, governments, regulators, and multilateral financial institutions have a critical role to play in creating an enabling environment to make sustainable cooling 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.