Report Cooler Finance Mobilizing Investment for the Developing World’s Sustainable Cooling Needs SEPTEMBER 2024 COOLER FINANCE Page 1 The designations employed and the presentation of material in this Work do not imply the expression of any opinion whatsoever on the part of the United Nations Environment Programme (UNEP) or International Finance Cooperation (IFC) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by UNEP or IFC in preference to others of a similar nature that are not mentioned. The views expressed in this Work are those of the authors and do not necessarily reflect the views or policies of UNEP or IFC. ISBN: 979-8-9915515-0-2 © UNEP and IFC, 2024 Some rights reserved. 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UNEP information products are available on the UNEP website (www.unep.org). Queries regarding rights and licensing should be submitted to: unep- info@un.org.” Cooler Finance Mobilizing Investment for the Developing World’s Sustainable Cooling Needs COOLER FINANCE Page 3 Acknowledgements This report is the result of a joint effort between Technical expertise and insights were provided by the International Finance Corporation (IFC) and the partners from the Cool Coalition, including Omar United Nations Environment Programme (UNEP)-led Abdelaziz (American University in Cairo), Zhuolun Cool Coalition. It was prepared under the guidance of Chen (UNEP Copenhagen Climate Centre), Gabrielle Jamie Fergusson, Director of IFC’s Climate Business Dreyfus (Institute for Governance and Sustainable Department, and Dechen Tsering, Director in the Development), Christine Egan (CLASP), Sam Grant Climate Change Division at UNEP. Denis Medvedev, (CLASP), Matt Malinowski (CLASP), Victor Minguez IFC’s Chief Economist for Global Industries, Diep (UNEP United for Efficiency), Toby Peters (University Nguyen-Van Houtte, Senior Manager in IFC’s Climate of Birmingham and Birmingham Energy Institute), Business Department, Gulnara Roll, UNEP’s Head of Rajan Rawal (Centre for Advance Research in Building the Cities and Buildings Unit within the Mitigation Science and Energy and CEPT University), Ari Reeves Branch of the Climate Change Division, and Lily (CLASP), Kimberly Roseberry (UN Economic and Social Riahi, Global Coordinator, Cool Coalition, all provided Commission for Asia and the Pacific), Leyla Sayin leadership for the research. (University of Birmingham and Centre for Sustainable Cooling), Richard Scotney (World Wide Fund for The authoring team was led by Camilo Mondragón- Nature), Fabian Voswinkel (International Energy Vélez, IFC Global Industries Economics Unit Principal Agency), and Martha Wakoli (CLASP); as well as Research Economist, and comprised Alan Miller Thomas Bauer (IFC), Johannes Heister (World Bank), (IFC Consultant), Ana Luiza Dutra, (IFC Global Mehul Jain (World Bank), Prashant Kapoor (IFC), Tom Industries Economics Unit Associate Economist), Ian Kerr (World Bank), Rajesh Kumar Miglani (IFC), Quyen Crosby (IFC Consultant), Rusmir Musić (IFC Climate Nguyen (IFC), Laila Nordine (IFC), Dipta Shah (IFC), Business Department Operations Officer), Marco Kristina Turilova (IFC), Mengjia Wan (IFC) and Gina Duran (Cooling Advisor at UNEP), and Benjamin Deanne Wilkinson (IFC). Hickman (Technical Advisor, Cool Coalition). Other contributors to the report included Daniel Magallon The authors would like to extend particular thanks to and Alana Valero from BASE; Ray Gluckman and Tim peer reviewers Benjamin Hickman (UNEP), Radhika Thurnham from Gluckman Consulting; Alexander Khosla (University of Oxford and Oxford India Centre Sharabaroff and Upasana Varma from IFC; Rajkumar for Sustainable Development), Tuyen D. Nguyen (IFC), Balasubramaniyan, Clement Charnaillat, Kanagaraj Rakesh Shejwal (UNEP), Selçuk Tanatar (IFC) and Ganesan, Souhir Hammami, Gennai Kamata, Priscah Clemencia Torres de Mastle (World Bank and ESMAP) Osir, Minni Sastry, and Manjeet Singh from UNEP; for their insightful comments and suggestions. Aditi Maheshwari from C40 and formerly IFC, and Issa Faye from the Islamic Development Bank and Chris Vellacott and Irina Sarchenko at IFC edited and formerly IFC. designed the report while Daniel Guidera provided the cover illustration. Morgan Graham (IFC), Sophie Loran (UNEP), Nadezda Nikiforova (IFC) and Sajni Shah (UNEP) supported the production and dissemination of the report. Page 4 Table of Contents Table of Contents Acknowledgements 3 Abbreviations and Acronyms 5 Foreword 7 Executive Summary 9 1. The Urgent Need For Sustainable Cooling Solutions in Developing Countries 16 1.1 Implementing Sustainable Cooling is Critical to Addressing Urgent Adaptation Needs and Meeting Sustainable Development Goals 22 1.2 The Importance of Financing Sustainable Cooling 27 1.3 How this Report Contributes to the Global Cooling Agenda 30 2. Diverse Sources and Sectors Imply Diverse Cooling Financing Needs 36 2.1 Mapping the Investment and Financing Landscape for Cooling  37 2.2 Estimating the Cooling Market Size in Developing Economies 43 2.3 The Economic and Business Case for Accelerating the Adoption of Sustainable Cooling 49 2.4 Estimating Cooling Financing Gaps Across Developing Economies  55 3. Challenges and Response Strategies for Promoting Sustainable Cooling 70 3.1 The Challenges to Private Investment in Sustainable Cooling in Developing Economies 71 3.2 Strategies for Addressing Challenges to Investment in Sustainable Cooling 82 4. Financing Solutions and Innovations 104 4.1 From Cooling and Financing Needs to Business Models and Financial Instruments   105 4.2 Business Models Addressing Affordability and Financial Constraints 106 4.3 Program Design to Address Market Barriers to Sustainable Cooling Finance 112 4.4 Financing for Different Stages of Business Maturity 112 4.5 The Role of Concessional Funding to Support Sustainable Cooling 123 4.6 Financing Instruments for Sustainable Cooling 126 4.7 Development Finance Institutions as Key Mobilizers 136 5. Conclusions and Recommendations 140 5.1 Conclusions 141 5.2 Recommendations 146 Annexes 152 Annex 1: Technical Description of the Global Cooling Emissions and Investment Model 153 Annex 2: Methodology for Estimating the Total Cost to Close Cooling Gaps 166 Bibliography  177 COOLER FINANCE Page 5 Abbreviations and Acronyms ACES Africa Centre of Excellence for Sustainable Cooling and Cold-Chains AFAWA Affirmative Finance Action for Women in Africa ASF Avaana Sustainability Fund BAU Business as Usual BOO Build-Own-Operate BOOT Build-Own-Operate-Transfer B2C Business to Consumer B2B Business to Business CaaS Cooling-as-a-Service CCAC Climate and Clean Air Coalition CAPEX Capital Expenditures CDD Cooling Degree Day CDM Clean Development Mechanism CIF Climate Investment Funds COP Conference of the Parties CO2e Carbon Dioxide Equivalent EPC Energy Performance Contract ESCO Energy Service Company ESMAP Energy Sector Management Assistance Program GABC Global Alliance for Buildings and Construction GCCA Global Cold Chain Alliance GCF Green Climate Fund GDP Gross Domestic Product GEF Global Environment Facility GIZ German Society for International Cooperation GWP Global Warming Potential HFC Hydrofluorocarbon IEA International Energy Agency IFC International Finance Corporation ILO International Labour Organization Page 6 Abbreviations and Acronyms IRENA International Renewable Energy Agency K-CEP Kigali Cooling Efficiency Program MEPS Minimum Energy Performance Standards MLF Multilateral Fund for the Implementation of the Montreal Protocol MP Montreal Protocol MSME Micro-, Small, and Medium-sized Enterprises NCAP National Cooling Action Plan NDC Nationally Determined Contribution NGO Non-Governmental Organization OBF On-Bill Financing OEM Original Equipment Manufacturer OWF On-Wage Financing PAYG Pay-As-You-Go PPP Public-Private Partnership R&D Research and Development SECO Swiss Secretariat for Economic Affairs SEforALL Sustainable Energy for All SDG Sustainable Development Goals SME Small and Medium-Sized Enterprises SWAC Seawater Air Conditioning TE-SCI TechEmerge Sustainable Cooling Innovation TES Thermal energy storage UNDP United Nations Development Programme UNEP United Nations Environment Programme UNIDO United Nations Industrial Development Organization U4E United for Efficiency WBG World Bank Group WMO World Meteorological Organization WWR Window-to-Wall Ratio COOLER FINANCE Page 7 Foreword A s the world heats up, rapidly increasing access to sustainable cooling has become a global development priority. While 3.5 billion people, mostly from developing countries, live in hot climates, most do not have access to thermal comfort. Health-related impacts are increasing morbidity and mortality and generating substantial productivity losses. Insufficient vaccine cold chains are costing lives. About one-third of global food production is lost or wasted, in part due to inadequate cold storage and transportation. However, increasing access to cooling must not Perhaps the most important element, however, come at the price of higher emissions, especially is a massive increase in investment from the across developing economies that account for private sector. Critical to this rapid scaling of two-thirds of global cooling-related greenhouse investment will be greater global collaboration gas emissions. and ambitious policy changes. This report on scaling up private financing, from the As highlighted in the earlier Global Cooling International Finance Corporation (IFC) and Watch report and the Global Cooling Pledge— the United Nations Environment Programme signed by governments, businesses, and other (UNEP)-led Cool Coalition, is a step towards organizations at COP28—increasing access while achieving this goal. slashing emissions is feasible through joined- up sustainable cooling policies that integrate The report quantifies sustainable cooling passive cooling, energy efficiency and a faster investment needs and financing gaps, phase down of climate-warming refrigerants. highlighting many opportunities for private This includes developing national cooling investors in a market that could grow to plans, establishing and enforcing standards, more than half a trillion dollars per year by holistic building energy codes, smart urban 2050. Accelerating the adoption of passive planning, fiscal incentives, public funding, as cooling, energy efficiency and refrigerant phase well as financing and technical assistance from down, would reduce electricity consumption, international organizations. spending on equipment, and future power sector investments by more than $8 trillion in developing countries over the next 25 years. Page 8 Foreword The report lays out barriers to scaling up private finance, showcases financing solutions and innovations and provides recommendations to deliver on the Global Cooling Pledge. These include improving market data and evidence, promoting the business case for investable projects, prioritizing financing for passive cooling, expanding financial instruments for technological innovation, improving policy and regulatory frameworks and enforcement capacities, and increasing the use of concessional finance to support sustainable cooling solutions for those most in need. IFC and UNEP are committed to working with governments and the private sector in these areas. Millions of lives are at stake, so we are pleased to launch this report to help jumpstart concrete commitments and actions to scale up private finance for sustainable cooling across developing countries. INGER ANDERSEN MAKHTAR DIOP Executive Director, Managing Director, United Nations International Finance Environment Corporation Programme Executive Summary W ith many of the world’s poorest populations living in regions prone to episodes of extreme heat, it is clear that governments, multilateral institutions, and investors seeking to foster development should put sustainable cooling at the center of their plans. Indeed, with the global climate continuing to warm and dangerous weather events becoming increasingly frequent, that priority is becoming ever more urgent. This analysis shows that meeting expanding air conditioners and refrigeration systems mean needs for cooling solutions in developing higher demand for power, and generating more economies presents a business opportunity power threatens to trigger an increase in fossil to private investors and providers of cooling fuel emissions that warms the climate further. products and services, amounting to annual To avoid this vicious cycle, therefore, cooling demand that will reach at least $600 billion solutions must be sustainable, prioritizing by 2050. energy-efficient technology and maximizing reliance on so-called passive strategies like using Ensuring populations have access to cooling— reflective materials to keep heat out or planting for human comfort as well as preserving trees for shade. perishable goods—means workers are more productive, farmers can deliver produce to This report builds on the United Nations market before it spoils, and healthcare services Environment Programme’s (UNEP)-led Global can provide life-saving vaccines. These are Cooling Watch, released in 2023, that highlighted desirable development outcomes and especially the urgency of adopting “accessible, affordable, benefit the most vulnerable members of society and scalable” cooling solutions that do not harm such as women and children. the planet. But meeting existing shortfalls in cooling is not This new analysis finds that the market for enough. Demand for cooling is rising, not just sustainable cooling in developing economies is because of economic and population growth, but set to double in size by 2050 from around $300 also due to expected increases in global average billion in annual demand currently. Much of this temperatures. This presents a dilemma. More will be attributable to so-called active cooling Page 10 Executive Summary solutions that use power sources such as fans, efficient refrigeration, fans, and air conditioning air conditioners, and refrigeration equipment. could also reduce cumulative spending on Passive measures currently account for about cooling equipment by around $800 billion. 10 percent of the market for cooling solutions Successful outcomes will depend on adequate in developing economies, according to this access to finance, meanwhile. Indeed, simply analysis. Uncertainties about future regulation closing existing shortfalls in access to cooling and other trends make it difficult to forecast in developing economies will require between how the market for passive solutions will evolve. $400 billion and $800 billion, according to the But while this report stops short of making such estimates in this report, without accounting for predictions, it acknowledges their role will be future increases in demand. fundamental. But low awareness of the business case for Currently, the biggest market segments are investing in sustainable cooling as well as a lack the provision of space cooling to both homes of knowledge about the available financing and commercial premises, and non-residential solutions is limiting the amount of capital refrigeration. The fastest growth in cooling is available for sustainable cooling in markets that expected in Africa, which will see the market need it most. This study aims to address some of multiply by a factor of seven, and South Asia, these gaps. which will quadruple in size. Sustainable cooling needs to become as much Meanwhile, scaling up the adoption of of a fixture of development finance as other sustainable cooling across developing countries established climate-related areas such as carbon could cut consumers’ electricity bills by as much capture, renewable energy infrastructure, as $5.6 trillion over the next 25 years, and reduce or battery technology which benefit from the amount of new investment needed in new embedded institutional support from power generation to meet peak electricity governments and multilateral institutions. demand by $1.8 trillion. Greater reliance on passive measures and the use of more energy COOLER FINANCE Page 11 Governments and regulators have a critical role and international financiers, identify the to play in creating an enabling environment commercial potential in sustainable cooling, to make sustainable cooling in developing and respond with appropriate business models economies more attractive to investors. The and financing mechanisms. It makes a business Global Cooling Pledge, agreed at the COP28 case for adopting or transitioning to sustainable climate conference in 2023, amounted to a cooling solutions and aims to help financiers commitment by governments, businesses and better analyze the growth potential and other organizations to enhance energy efficiency market risks. In short, its purpose is to close while ensuring equitable access to cooling. This the knowledge gaps that are stymying private report recommends that governments should investment flows into an area that is as vital for also, with support from multilateral agencies, nurturing development as it is for supporting focus on financing underlying infrastructure and global efforts to confront and mitigate address the cooling needs of challenging market climate change. segments affected by affordability constraints. Other key findings in the report include: Another step would be for national and sub- national governments to lead by example in A variety of financing mechanisms prioritizing sustainable cooling in their own are available to address the distinct public procurement activities. requirements of the cooling market’s diverse segments. The market landscape While developing country governments have includes residential and non-residential limited spending power due to fiscal constraints, space cooling, multiple uses of refrigeration, they can pursue public-private partnerships and and transportation. So-called cold chains— encourage concessional funding, backstopping supply chains for delivering perishable goods risk for private investors and attracting more to market—are made up of multiple stages capital to their economies. controlled by many different operators, each This report aims to help investors and providers of which has its own distinct features and of cooling solutions, as well as private, public, needs. Participants in cooling markets include Page 12 Executive Summary equipment manufacturers, service providers, and financing to demonstrate the feasibility of designers of passive solutions in construction or certain cooling markets and business models, urban design. They range from innovators and and ways for development finance institutions startups to multinational enterprises. Finance to act as sources of leverage and private solutions must therefore be varied enough to capital mobilization. reflect such disparities. While startups require There are several response strategies already seed capital and equity to fund innovation, in place throughout developing countries more established equipment manufacturers, that promote private and public investment developers of green buildings, and suppliers of in sustainable cooling and mitigate some of insulation materials are more likely to need debt the barriers to widespread adoption. These financing to fund expansion plans and meet include regulatory measures like enforcement working capital needs. From the perspective of of minimum energy performance standards consumers, more efficient equipment promises and new building codes, systems approaches to lower long-term costs because it consumes less supply chains, incentives to promote innovation, power but it is often more expensive to buy and and the adoption of nature-based solutions for install. Providing household and small firms with outdoor heat reduction. finance facilities to help them spread these high upfront costs will encourage wider adoption. Complementing these, different business models that encourage wider adoption of sustainable It is clear, therefore, that in terms of finding cooling are also becoming increasingly solutions for sustainable cooling needs in established. These include bulk procurement emerging markets, one size does not fit all. to reduce prices per unit, as well as initiatives The report outlines a variety of financing to lower the burden of upfront costs such as mechanisms applicable to sustainable cooling, the provision of cooling-as-a-service, on-bill such as revolving funds, working capital loans, financing, and pay-as-you-go programs. results-based finance, risk-sharing facilities, conventional equity, cooling bonds, and carbon But multiple challenges remain around offsets. It also highlights the role of concessional affordability, poor access to electricity, skills COOLER FINANCE Page 13 shortages, and the inherent complexity of Improve underlying data on cooling by cold chain systems. Another major problem building consensus around definitions, to overcome is the fact that cooling is not metrics, and methodological assumptions, traditionally regarded as a standalone concept so differentiating sustainable cooling much as a component within broader projects, applications as well as providing much less the defining feature of a standalone information on capital costs and financing. financial asset class. Developing economies are Develop and implement a comprehensive also often burdened with weak institutions, strategy, led by coordinated efforts in making effective regulation, administration, and the public sector, which addresses issues enforcement of standards difficult. identified in this report as hindering To address these challenges and ensure the mobilization of private finance for that adoption of sustainable cooling gains sustainable cooling. momentum in developing markets, the Amplify dissemination strategies targeting report offers a series of recommendations key local cooling market stakeholders aimed at public and private sector to improve awareness of business stakeholders. They focus on financing and opportunities presented by the transition are complementary to the prescriptions to sustainable cooling, including those outlined in the Global Cooling Watch report. related to financing. The recommendations are: Provide technical assistance to national Multilateral organizations, development finance and subnational governments as well institutions, and Cool Coalition members should as regulators, donors, investors, and work with local businesses and financial sector financiers on: associations as well as national and subnational governments to: • Prioritizing financing for the adoption of passive cooling strategies. Page 14 Executive Summary • Incorporating blended and Development finance institutions should work concessional finance in the design with entrepreneurs and mobilize local and of business models and funding international investors to: mechanisms to address barriers to Increase seed and risk capital funding for scaling-up tested technologies and pilot technologies and business models and affordability constraints. disseminate results to relevant audiences. • Adapting existing business models Multilateral organizations, development finance and financing instruments to support institutions and Cool Coalition members should: transitions to sustainable cooling. Create a Sustainable Cooling Finance • Promoting the development and Partnership to foster international financing of large cooling cooperation. infrastructure services with development finance institutions also providing funding to financiers and co- financing opportunities to donors and investors in these areas. Photo by PradeepGaurs via Shutterstock 1 The Urgent Need For Sustainable Cooling Solutions in Developing Countries COOLER FINANCE Page 17 G lobal temperatures are rising. The year 2023 was the hottest ever, each decade since the 1980s was warmer than the previous one, while the average temperature over the past nine years was the highest on record.1 Rising temperatures are highlighting shortfalls in cooling that have fatal consequences, particularly in less-developed economies. Currently, around 3.5 billion people live in climates defined as “hot,” the majority of these in developing countries.2 However, only a small fraction of this population has access to cooling. Only 15 percent benefit from air conditioning3 while even ‘passive’ low-tech solutions such as insulation or design that incorporates more efficient orientation or shading are out of reach for poorer groups. Heat-related deaths are already running at an must involve global adoption of sustainable annual average close to 500,000 while the rate cooling solutions. among over 65s is projected to increase almost This is why cooling is now widely recognized four-fold by 2050 from around 300,000 per as a global challenge due to the vicious cycle year in 2018.4 At the same time, poor access that inadequately addressing rapidly increasing to refrigeration makes it difficult to store adaptation needs may imply for climate perishable vaccines, resulting in thousands of change. The 2023 Global Cooling Watch report6 preventable deaths from disease—particularly shows that without additional measures to among children—while about one third of food improve existing solutions, annual emissions produced is lost.5 from cooling will double by 2050 and account There is an urgent need, therefore, to close for the equivalent of more than 10 percent of cooling gaps in developing countries. However, global greenhouse gas output (see Box 1.1). air conditioning and refrigeration require Furthermore, the problem is aggravated as energy and generating the power to meet rising cooling demand increases peak power that extra demand threatens to create more requirements, which makes it more difficult to greenhouse gas emissions. Therefore, addressing retire fossil fueled power plants.7 shortfalls in developing world cooling access Therefore, it is imperative to accelerate the without undermining climate commitments transition toward sustainable cooling solutions 1 WMO (2024). Defined as locations with yearly Cooling Degree Days exceeding 2,000 (See Footnote 9). 2  For air conditioning penetration see IEA (2023); Basic passive cooling measures include shading, insulation and cool roofs, among others. 3  For global heat-related estimated deaths see Zhao et al. (2021); For estimates of heat-related deaths for those over 65, Watts et al. (2020) 4  estimated 296,000 heat-related deaths by 2018. In addition, Romanello et al. (2023) estimated that heat-related mortality of people older than 65 years would increase 370 percent by 2041–2060, compared to 1991–2014. See FAO (https://www.fao.org/nutrition/capacity-development/food-loss-and-waste/en/) and Shann and Steinhoff (1999). 5  6 UNEP (2023a). In early 2024, Mexico City and other states throughout the country experienced high temperatures leading to a surge in energy demand 7  that triggered widespread blackouts. Cenace, the country’s national energy authority, declared a state of emergency. This followed reported power plant shutdowns in the Philippines due to a heat wave that impacted the region. Page 18 The Urgent Need For Sustainable Cooling Solutions in Developing Countries FIGURE 1.1 The World Is Heating Up at an Accelerated Pace Global mean temperature difference (compared to 1850-1900 average) +. °C . °C Source: World Meteorological Organization Note: This graph uses data from Berkeley Earth, one of six datasets used by the WMO to monitor global temperatures, alongside HadCRUT5, NOAA, GISTEMP, JRA-55, and ERA5. All datasets show similar patterns. using technologies that are accessible, Economy,’ Peters and Sayin (2022) showed affordable, and scalable, cause minimal impact that the deployment of sustainable cooling on people and the environment, and reduce contributes simultaneously to the United greenhouse gas emissions.8 This includes passive Nations’ Sustainable Development Goals, the design strategies for cooling to provide thermal Kigali Amendment to the Montreal Protocol, and comfort indoors—through insulation, coating, the Paris Agreement. use of selected materials—and outdoors—using One of the key implications of the Global nature-based solutions like trees as well as Cooling Watch (see Box 1.1), is that accelerating cool surfaces. It also includes active cooling the transition toward sustainable cooling will with energy-efficient equipment free of HFC require, not only policy action from governments refrigerants that contribute to global warming. alongside financing and expertise from When discussing the concept of the ‘Cold “Cooling technologies and approaches that are accessible, affordable and scalable but that minimize the impacts on people and the planet, 8  including through large reductions in greenhouse gas emissions.” Definition used in the 2023 Global Cooling Watch report, based on Khosla et al. (2021). COOLER FINANCE Page 19 international organizations, but also massive private sector investment in both passive BOX 1.1 strategies and efficient equipment. Global Cooling Watch The majority of people exposed to extreme heat Report: Cooling-Related events are among the poorest populations in Emissions Projections developing countries for whom affordable and sustainable cooling solutions are largely out The 2023 Global Cooling Watch report, led by UNEP and prepared through the collaborative of reach. Out of 21 countries in Africa (with an effort of Cool Coalition members, looks at average of 2,900 Cooling Degree Days)9 where three action areas to deliver sustainable data on ownership rates for air conditioning is cooling: deploying passive cooling measures available, only four exceed 10 percent and none to reduce cooling loads, higher efficiency are higher than 60 percent. In contrast, almost standards, and a phase down of climate- 90 percent of households in the United States warming hydrofluorocarbon (HFC) refrigerants used air conditioning in 2020.10 Access to reliable at a faster rate than is required under the Kigali Amendment to the Montreal Protocol. The power, a key feature of the UN’s Sustainable report undertakes, for the first time, modeling Development Goals,11 is an underlying structural of the totality of emissions, both direct and factor affecting to the availability of cooling indirect to provide a pathway to near-zero across emerging economies.12 Data from the emissions from cooling. The underlying Global World Bank shows that in more than 80 percent Cooling Emissions model is calibrated with of low-income countries and one-third of lower data up to 2022, to generate cooling demand middle-income countries, less than 70 percent projections up to 2050. The emissions baseline is defined as “business as usual” (BAU) cooling of the population has access to electricity. demand growth and considers additional The 2023 Global Cooling Watch report demand growth from improved access to stresses that in a warming world, cooling is a cooling services. fundamental necessity and there is increasing In 2022, cooling-related emissions amounted consensus about highlighting access to to 4.1 billion tons of carbon dioxide equivalent adequate cooling, especially for the most (CO2e), representing 7.1 percent of total global greenhouse gas emissions, which were approximately 57.4 billion tons.1 Under the BAU “Without Measures” scenario, cooling 9  Cooling Degree Days (CDDs) are defined as the cumulative emissions are estimated at 9 billion tons number of degrees that the daily average temperature over a given period (here a year) is above a specified threshold (here 18 by 2050. This could constitute 16.3 percent °C), adjusted for humidity. of global emissions by 2050, assuming the 10  U.S. Energy Information Administration (2022). median projection under current policies 11  Sustainable Development Goal 7, to ensure access to affordable, from the UNEP 2023 Emissions Gap report, reliable, sustainable, and modern energy for all, available at https://sdgs.un.org/goals/goal7. Sustainable Energy for All (SEforALL) works across countries in 12  this area to ensure universal access to affordable and reliable energy services, increase the share of renewable energy in 1 UNEP (2023c). the global mix, and double the rate of improvement in energy efficiency. For more details see https://www.seforall.org/. Page 20 The Urgent Need For Sustainable Cooling Solutions in Developing Countries highlighting the urgent need for cooling- loads, high efficiency active cooling equipment related mitigation efforts. The analysis and improved operation of existing equipment. presents a "BAU Cooling Measures" scenario The strategies outlined in the Global Cooling steadily reducing emissions via existing Watch report could decrease cooling loads cooling-related policy measures that slowly (from active cooling equipment) by 24 percent improve energy efficiency. It also showcases (through the adoption of passive design a pathway to near zero cooling-related strategies) and deliver near-zero carbon emissions, defined as "Best Cooling Measures" programs (through on-site renewables and plus a rapid power grid decarbonization. The grid decarbonization), while simultaneously Best Cooling Measures scenario is achieved increasing access to cooling for 3.5 billion through measures in the three key areas for additional people. On the policy side, the sustainable cooling, an HFC phase down report also provides a comprehensive overview that goes faster than the Kigali Amendment, of national policy and regulatory actions across passive design strategies to reduce cooling all cooling sectors for 192 UN member states. Global Pathway and Key Steps to Achieve Near Zero Emissions from Cooling, 2022-2050 COOLER FINANCE Page 21 FIGURE 1.2 Developing Countries Are the Most Exposed to High Temperatures Annual Cooling Degree Days (CDDs, 18.3 °C-day), 2021 0 1,000 2,200 Source: IEA (2024) vulnerable, as a human right.13 Sustainable areas, which must adapt to rising heat amid cooling is not only a climate mitigation issue an absence of cooling for human health and centered on emissions reduction through food value chains. However, even the most greater efficiencies, it is also critical to climate efficient cooling technologies cannot entirely adaptation and the safeguarding of food safety prevent public safety emergencies for vulnerable and health for disadvantaged populations. populations if they are plugged into an unreliable and collapse-prone power grid during episodes There is an interplay between urban areas, of extreme heat. In this regard, when featuring which face the challenge of heat island effects cooling as an infrastructure service—alongside and large numbers of poor households with electricity, water, or gas—the evidence of large no access to cooling solutions, and rural cooling gaps across developing economies is Mutiso et al., (2022). 13  Page 22 The Urgent Need For Sustainable Cooling Solutions in Developing Countries and implement sustainable cooling, FIGURE 1.3 and are often characterized by insufficient regulation and Sustainable Cooling in Developing enforcement capacity. Countries is Critical for the Moreover, implementing Global Cooling Agenda sustainable cooling across Greenhouse gas emissions from cooling by country groups developing countries is a key pillar of the global cooling agenda. Following the baseline analysis in the 2023 Global Cooling Watch report, about two thirds TOTAL of emissions related to cooling A regions % . Billion tons % A regions in 2022 came from developing countries and this share could CO e grow above 80 percent by 2050 (see Figure 1.3). The expected increase in the share of cooling- driven emissions is underlined by higher average temperatures in Source: UNEP (2023a) Note: A2 and A5 regions are defined under the Kigali Amendment to the developing countries (see Figure 1.2) Montreal Protocol. Article 2 (A2) countries are mostly developed nations with immediate HFC reduction targets, while Article 5 (A5) countries are primarily coupled with expectations of developing nations with extended deadlines. A complete list of countries is available at https://ozone.unep.org/classification-parties. higher economic and population growth as well as urbanization in the coming decades, compared to developed economies. clear in suggesting that infrastructure is insufficient where it is needed the most. There is a significant risk that climate adaptation and 1.1 Implementing Sustainable cooling gaps will be addressed with inefficient Cooling is Critical to Addressing conventional cooling technologies, as opposed Urgent Adaptation Needs to sustainable alternatives over the coming and Meeting Sustainable decades. Therefore, it is crucial that access to cooling solutions follows a sustainable pathway. Development Goals This is an enormous challenge. Many developing The importance of addressing needs for cooling countries face significant shortages of the with sustainable solutions is critical to enabling necessary technical skills to innovate, produce developing countries to meet climate targets COOLER FINANCE Page 23 as well as development goals in areas such as 3.5–5 million deaths every year while data from health, food security, and productivity, as shown UNICEF show that low and middle-income in Figure 1.4.14 countries have the lowest vaccination coverage among children.18 With regard to health, access to cooling helps prevent deaths amid increasingly extreme With respect to food security, according to and frequent heat waves. It enables the the Food and Agriculture Organization of the distribution and storage of vaccines in regions United Nations (FAO) most of the 702 to 828 with hot climates, thereby preventing a variety million people that experienced hunger in 2021 of diseases, as well as improving provision of lived in Asia, Africa, and Latin America and other healthcare services.15 Analysis from the the Caribbean.19 Yet paradoxically, developing 2023 Lancet Countdown report shows that economies in these regions see substantial food under a scenario where global temperatures loss in part due to the lack of adequate and rise to 2°C above pre-industrial levels, annual integrated cold chain20 infrastructure and access heat-related deaths among people older than to refrigeration by households. In addition, heat 65 could increase 370 percent by 2050 if no and animal stress in the dairy sector is causing substantial progress is made on adaptation, lower productivity. According to another report with populations across developing countries from the FAO in 2019, global post-harvest facing more days of exposure to life threatening food losses before distribution are about $400 temperatures.16 Moreover, evidence from billion per year, which corresponds to 14 percent Falchetta et al. shows a significantly higher of total food production.21 Food loss across exposure to heat across the global south.17 developing countries is as high as 20 percent Meanwhile, according to the World Health in Central and Southern Asia, while the rate in Organization, vaccines—which are perishable Africa is in line with the global average. Latin and require effective cold storage—prevent America and the Caribbean as well as Western For a detailed discussion about cooling and the Sustainable Development Goals see Khosla et al. (2021). 14  A group comprising some of the largest development banks formed the “Development Bank Working Group for Climate-Health Finance“ 15  and issued a ”Joint Roadmap for Climate-Health Finance and Action” in June 2024. See Romanello et al. (2023). Figure 2 in the report shows that Small Islands Developing States, Africa, Asia, and South and Central America 16  are the regions with the highest rate of exposure to days in which temperatures exceed a threshold over which heat-related deaths are more likely. Falchetta, et al. (2024). 17  See WHO at https://www.who.int/health-topics/vaccines-and-immunization#tab=tab_1, and UNICEF at https://data.unicef.org/topic/ 18  child-health/immunization/. 19 FAO et al. (2022). A cold chain is the set of procedures to coordinate temperature control across a supply chain for perishable goods such as food and medical 20  supplies. Following FAO (2019), food loss is all the food produced that completely exits the post-harvest/ slaughter/catch supply chain by being 21  discarded, incinerated, or otherwise disposed of. On the other hand, food waste also occurs between the retail and final consumption stages. UNEP (2021a) estimated food waste to be equivalent to an additional 17 percent of global food production. Page 24 The Urgent Need For Sustainable Cooling Solutions in Developing Countries FIGURE 1.4 Sustainable Cooling is Fundamental to Countries’ Development Impact of sustainable cooling on the Sustainable Development Goals Food security People's health Children's learning Heat effects on women Energy efficiency Workers' productivity Technological innovation Urban heat islands Sustainable demand and supply GHG emissions Source: Authors Collaboration Note: For a full list of the UN’s Sustainable Development Goals, see: https://sdgs.un.org/goals/ COOLER FINANCE Page 25 Asia and Northern Africa see food loss marginally hazardous working conditions for agriculture above 10 percent.22 Furthermore, UNEP workers who constitute more than 60 percent of estimates that annual household food waste in labor in low-income, and close to 40 percent of lower-middle income countries is 91 kilograms workers in lower-middle income countries.27 per capita, which is 15 percent higher than in Workers in other important industries for many high-income countries.23 In addition, food losses developing economies like manufacturing and at the farm gate to retail stage of distribution construction, are also exposed to hazardous lead not only to income losses for farmers (and conditions due to work being carried out governments) but also to more organic waste at in direct exposure to the sun or because of landfills, resulting in methane emissions.24 inadequate cooling.28 In addition, heat stress Adding to structurally low levels of productivity also affects the well-being of children, implying across developing economies, increasing lower school attendance in addition to physical temperatures in already warm countries pose and mental health effects. In this regard, UNICEF additional challenges to workers’ and students’ estimates that by 2050 “almost every child productivity. According to the latest estimates in the world—nearly 2.2 billion children—will from the International Labor Organization (ILO). be exposed to frequent heat waves.”29 Thus, over 70 percent of workers around the globe are resilience to these conditions will be highly exposed to excessive heat.25 In its 2019 study, the dependent on schools’ and children’s access ILO estimated that heat stress would imply a loss to adequate cooling. Unfortunately, education of working hours equivalent to 80–136 million systems in developing economies are not yet full-time jobs and a loss in global gross domestic well prepared to respond appropriately to product (GDP) of $2.4 trillion in 2030, with “the extreme heat events.30 impact of heat stress being most pronounced in High temperatures have differentiated effects lower-middle and low-income countries.”26 For for women across developing economies, adding instance, extreme heat, which tends to be more to existing inequalities. In line with one IFC probable in developing economies, generates See Figure 3 in FAO (2019). 22  See Table 1 in UNEP (2021a). 23  It is worth noting that methane emissions are about eighty times more powerful than those from CO2. 24  25 ILO (2024b). 26 ILO (2019). Authors’ calculations using ILO data. 27  For instance, Chinese provinces have issued guidance about workers’ training on heat-related illness, provision of cooling measures, as 28  well as ”high temperature allowance standards”. See (https://www.china-briefing.com/news/high-temperature-allowance-standards-in- chinas-major-cities-and-provinces/) and (https://www.gd.gov.cn/gkmlpt/content/0/140/post_140318.html#6). 29 https://www.unicef.org/stories/heat-waves-impact-children#:~:text=High%20temperatures%20are%20linked%20to,disorder%20more%20 likely%20to%20occur. 30 See a recent blog published by Nagesh, Hares, and Leite for the Center of Global Development (2024). Page 26 The Urgent Need For Sustainable Cooling Solutions in Developing Countries study,31 a key driver of women’s vulnerability to vulnerable to gender-based violence.35 climate change effects is the lack of resources Furthermore, a recent study by the Addrienne to adapt. Munoz Boudet et al.32 show that girls Arsht-Rockefeller Foundation Resilience Center and women of reproductive age are more likely provides evidence of a disproportionate effect to live in poor households, which according of heat on unpaid domestic laborers, which not to the evidence presented in this report are only substantially increases total heat-related unsurprisingly those with the largest cooling productivity losses, but has important impacts access gaps (see Annex 2). Moreover, social on their families.36 Along these lines, IFC, UNEP, structures, especially in poor countries, can and other organizations are fostering gender- also increase women’s vulnerability to climate responsive climate policies and actions.37 change.33 Women’s resilience to heat is not only Improving access to sustainable cooling affected by well-documented wage gaps, but solutions will have important effects in cities and also due to being over-represented in heat- communities across developing countries,38 for exposed occupations such as primary agriculture instance through integrated passive and active and the garment industry where people often cooling solutions to address the challenges of work in insufficiently cooled factories. Over- urban heat island effects in rapidly growing exposure to heat poses even higher risks for urban centers.39 Adopting sustainable cooling pregnant women. will also promote responsible production and The ILO in a 2019 study estimated that women in use of cooling equipment through innovation, Sub-Saharan Africa accounted for about half of regulation, incentives and consumer education.40 the agricultural workforce.34 In addition, women It will ultimately be an important element of the and girls responsible for collecting water and world’s response to the need for greater energy wood, occupations that are typically unpaid, efficiency and to the challenges of climate are not only heat exposed, but also increasingly change,41 as featured in the 2023 Global Cooling 31 IFC (2024). 32 Munoz Boudet et al. (2018). 33 IPCC (2022). 34 ILO (2019). 35 Romanello et al. (2023). Adrienne Arsht-Rockefeller Foundation Resilience Center (2023). 36  See IFC (2024), ILO (2024a), IPCC (2022), Agoncillo and Woods (2024), and van Daalen et. al (2020). 37  38 See SDG 11: “Make cities and human settlements inclusive, safe, resilient, and sustainable.” A good specific example is the C40, which brings together large cities from developed and developing countries to share experience and 39  technical assistance (for details see https://www.c40.org/). Additionally, the “Beating the Heat: A sustainable Cooling Handbook for Cities” report, by the Cool Coalition, UNEP, RMI, Global Covenant of Mayors for Climate & Energy (GCoM), Mission Innovation and Clean Cooling Collaborative provides 80 case studies and examples with strategies to help cool cities. See SDG 9: “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation,” and SDG 12: “Ensure 40  sustainable consumption and production patterns.” 41 See SDG 13: “Take urgent action to combat climate change and its impacts.” COOLER FINANCE Page 27 Watch report. Collaboration through the Cool estimates that implementing sustainable cooling Coalition—a network of members assembled measures could generate $1 trillion in electricity by UNEP from government, multilateral savings for end users and reduce required organizations, business, and academia42—to investments in power systems by $5 trillion by support the Global Cooling Pledge launched 2050. Given the large underlying demand and during COP28 will further all these efforts and associated monetary benefits for consumers contribute to achieving SDG17.43 across developing countries, it is crucial to understand what the investment requirements are. It is also important to identify the barriers to 1.2 The Importance of mobilizing enough private financing to support Financing Sustainable Cooling such investments and find effective approaches Despite growing international recognition of to overcoming them. the need for much greater financial support for Fiscal challenges, inadequate infrastructure, climate adaptation, mitigation, and resilience, perceived risks, high upfront costs, lack of so far limited funding has been allocated to awareness of the market potential, and sustainable cooling. While it is encouraging inadequate regulation are key deterrents to to see tens of billions of dollars in private and financing sustainable cooling at scale across public investment going toward improving developing economies. battery technology, hydrogen fuels, carbon capture, and many other climate solutions, it is Many developing economies are facing fiscal imperative to increase substantially the limited constraints which are particularly acute for low- funding dedicated to supporting sustainable income countries. That means strategies that are cooling technologies.44 Furthermore, while predominantly dependent on public financing promising sustainable cooling solutions have are not feasible. Therefore, it is imperative been demonstrated, there are no dedicated to mobilize private sector investments for funding sources for their scaling and product sustainable cooling in these countries, at development, investments that would typically scale, to effectively address current and future range between $1 million to $10 million. challenges.45 There are sizable cooling needs and high Public and concessional funds should prioritize potential demand across many sectors and support for business models that close cooling applications with important economic and social access gaps that are predominantly caused by effects. For example, the Global Cooling Watch affordability constraints. Regarding commercial The Cool Coalition includes more than 140 partner organizations (for further details see https://coolcoalition.org/). 42  See SDG 17: “Strengthen the means of implementation and revitalize the global partnership for sustainable development.” 43  A stock take of disclosed funding and target financing of programs focused on cooling totals about $1.5 billion in financing, of which 85 44  percent comes from two specific programs. World Bank (2023). 45  Page 28 The Urgent Need For Sustainable Cooling Solutions in Developing Countries funding sources, the lack of financing for and help establish a framework for generating sustainable cooling is rarely caused by an cooling market investment estimates. absence of large pools of capital for investing, A lack of understanding of the business case for but rather a perception of high risk among adopting sustainable cooling solutions deters investors. Risk aversion prompts lenders to raise potential consumers and the financiers who borrowing costs while equity investors demand would back cooling providers. There is often a higher projected rates of return as a condition lack of knowledge about financing solutions for extending new financing.46 that would help address challenges related A key driving factor of perceived risk is a lack of to upfront costs. There is also a shortage knowledge around potential levels of demand of commercial incentives for making the and market size for sustainable cooling across transition to sustainable cooling, including by countries, sectors, and applications. Without embedding cooling in the design of products clear evidence of sizable market opportunities and projects, even when doing so would be offering attractive potential returns, it cost neutral. As will be discussed in this report, will remain difficult to attract innovators, the range of cooling applications is matched entrepreneurs, and investors to sustainable by a correspondingly diverse set of sustainable cooling. Similarly, small- and medium-sized cooling solutions, business models, and financing enterprises (SMEs) looking for funding to structures. While some sustainable cooling scale-up cooling solutions will need to be able solutions have higher initial capital costs, to demonstrate to prospective financiers the they also bring potential monetary benefits. commercial feasibility of their businesses. A In addition, there are many passive solutions fundamental challenge highlighted by many based on changes in building design, materials, experts and reports in this area is a general and colors that may not require large upfront scarcity of data on cooling. Meanwhile, such investments and could even reduce initial information that does exist is usually only capital costs. There are also emerging business available in selected market segments and models to address affordability issues for low- countries. For instance, hard data on the stock of income households, SMEs and agricultural installed cooling equipment, the share of stock smallholders, including the use of off-grid that would be considered sustainable, and how power. Furthermore, these groups, who often that stock is distributed across different markets face difficulties accessing capital markets, are has not been historically collected nor estimated seeing increased availability of new financing systematically. Hence, this report seeks to structures that involve combining private and improve the availability of underlying data concessional funding. The fact that cooling is usually a relatively small component of a larger investment often leads to it receiving less attention regarding the 46  adoption or use of best technology. Additionally, the uncertainty surrounding new, relatively untested cooling technologies contributes to the perception that risks associated with cooling are higher than those in other areas like renewable energy. COOLER FINANCE Page 29 The availability of appropriate financing for They also include cross-cutting and sector- sustainable cooling is also shaped by local specific policies to meet different demands conditions in areas such as regulation, policy, and for cooling, which should be embedded in incentivization. For example, a growing number government strategies for individual sectors. of developing countries are including cooling These national plans also amount to tools for in their Nationally Determined Contributions addressing an important barrier pertaining (NDC)—commitments to reduce greenhouse to the public sector, namely the lack of inter- gas emissions made to the United Nations institutional coordination and capacity between Framework Convention on Climate Change. different government agencies and departments. Other countries including, notably, India have Since cooling is used in different sectors (as made commitments to address cooling needs discussed in more detail in Chapter 2), if there through a national cooling action plan.47 In is no active buy-in and coordination from addition, more countries are now improving government ministries, just having a national regulation around cooling and over 70 have plan in place will not get very far in terms of already joined the Global Cooling Pledge, an effective implementation. initiative set up at the 2023 UN Climate Change For instance, coordinated action is fundamental Conference (COP28) involving a commitment to to the systemic approach required to develop sustainable cooling.48 end-to-end cold chains through a multi-sector The Role of the Public Sector and multi-modal infrastructure lens, as discussed in Chapter 3. For implementation, it is critical As mentioned above, financing is one of several that public sector entities have the appropriate important elements of a broader strategy to technical and enforcement capacities, and the scale up the adoption of sustainable cooling funding, to effectively deliver on the actions across countries. Governments and other public and programs formulated in the plan. It is sector entities should be formulating as well as also essential that implementation is done supporting the implementation of this broad in partnership with relevant private sector strategy across different dimensions and sectors, entities—firms and industry associations— in collaboration with the private sector. that represent the main providers and users The cooling action plans being adopted by of cooling solutions, as well as investors and various countries such as India outline national financiers. Multilateral development banks and and subnational government strategies across other development finance institutions have the sectors for understanding and quantifying requisite knowledge and experience in many the multi-faceted development impacts of of these areas and can therefore help countries sustainable cooling (discussed in Section 1.1). with technical assistance and funding. 47 World Bank and Global Facility for Disaster Reduction and Recovery (2022). 48 See UNEP (2023a) and the Global Cooling Pledge (https://coolcoalition.org/global-cooling-pledge/). Page 30 The Urgent Need For Sustainable Cooling Solutions in Developing Countries Along these lines, many of the dimensions Regarding regulation and policy, it provided a required to support transitions to sustainable comprehensive landscape of national cooling cooling—like policies, regulations and standards, policies, analysis of market readiness, and underlying infrastructure, enforcement capacity, regulatory instruments to improve access. supply of intermediate goods and services for The report also highlighted the importance of cooling—also impact the capacity to mobilize scaling up financing to support the transition to private financing as they determine potential sustainable cooling, an overview of challenges, sources of risk for a variety of cooling providers opportunities, financing instruments, and and users. This is why throughout this report, recommendations for moving forward. and especially in Chapter 3, issues around these This report builds on the discussion about areas are outlined as among the principal financing sustainable cooling outlined in the challenges to financing sustainable cooling in Global Cooling Watch report, and provides a developing countries. more in-depth analysis around the following A key role for the public sector is setting three questions: conditions and supporting programs to make What are the priority actions needed—and financing for sustainable cooling accessible, by in which key cooling market segments—to fostering demand, supporting urban planning, accelerate private financing for sustainable and incentivizing procurement of sustainable cooling across developing economies? solutions in public areas and buildings. The influence of public sector actions on private What are the main barriers holding financing and mobilization for sustainable back the scaling-up of private finance cooling is examined in more detail throughout for sustainable cooling in developing this report. economies? What existing business models, 1.3 How this Report Contributes innovations, and financial instruments to the Global Cooling Agenda can be used to scale up the adoption of sustainable cooling across developing The 2023 Global Cooling Watch report made economies? a significant contribution to reinforcing the case for sustainable cooling by providing a To address these questions, the report is scenario analysis and outlining pathways toward structured around the following objectives: achieving near zero cooling-related emissions. It Provide credible estimates of the highlighted key actions to achieve this goal, such investment opportunities that cooling as increasing the use of passive strategies for markets offer across developing cooling, raising energy efficiency standards and economies; rules for cooling equipment, and accelerating the phasing down of HFC refrigerants. Highlight the key challenges and opportunities around financing sustainable COOLER FINANCE Page 31 cooling in the context of developing Refrigerated Transport Vehicles economies; Next, through an expanded and updated version Provide a blueprint for financing of the Global Cooling Emissions Model used in sustainable cooling across developing the Global Cooling Watch—labeled the Global economies, covering business models, Cooling Emissions and Investment Model— financing instruments as well as sector- this study estimates current and projected specific and cross-sector interventions. cooling market size based on expected satisfied demand in developing economies. In these Cooling is not a traditional industry sector estimates, passive strategies for cooling are but rather comprises a set of applications the first layer of energy efficiency measures, across multiple sectors. Therefore, it is not determining the remaining cooling load that straightforward for many entrepreneurs, needs to be addressed through active cooling. investors, firms, and financiers to identify the Estimated investment opportunities in active potential of investing in or financing cooling. cooling provision of up to $600 billion per year Thus, as discussed in other reports, the lack of by 2050 (in constant US$) implied by different systematic cooling data collection and market scenarios outlined in this report, amid growing estimations poses a challenge to the effective populations and economies, highlight major scaling up of capital mobilization for cooling, opportunities for entrepreneurs, investors, especially across developing countries. To and cooling provider firms across developing address this issue, Chapter 2 outlines different countries. Market size calculations along with cooling segments and applications within a the scenario analysis of monetary benefits also market landscape that incorporates a variety of imply ample investment opportunities in passive firms providing cooling solutions and different cooling, which would be additional to, or in some types of consumers across segments. It also cases replace, investments in active cooling. offers an overview of the different financing Targeted commercial financing is an effective needs they have. The market segments include: channel to support the adoption of sustainable Residential Space Cooling cooling solutions to address market needs and avoid persistent vicious cycles with negative Residential Refrigeration climate effects. Space Cooling for Small Vehicles In addition, the study provides estimates of Non-Residential Space Cooling the total costs required to close some of the existing cooling gaps. These shortfalls affect the Non-Residential Refrigeration49 most vulnerable groups and underline some of Non-residential refrigeration includes cold chain logistics. However, the estimations in Chapter 2 mainly capture the most developed 49  portion of cold chain systems across developing economies, from aggregation centers to retail storage and display. See the graphic in The Clean Cooling Network website: https://cleancooling.org/; and the ACES March 2024 report. Data collection and estimation of the potential growth of the cold chain portion going from farm and farm gate to aggregation are a critical area for future research. Page 32 The Urgent Need For Sustainable Cooling Solutions in Developing Countries the negative societal effects in areas such different strategies to accelerate passive and as health, heat-related mortality, education, active cooling. Furthermore, this differentiates worker productivity, and food waste. Cooling between adoption of sustainable cooling and gaps are also barriers to achieving sustainable the transition to near-zero emissions in different development goals. Estimated cooling economic sectors, which may require additional investment gaps focus on space cooling and support.51 refrigeration for households and SMEs, and While effective solutions to financing sustainable predominantly reflect affordability constraints. cooling are dependent on context, there The estimated total costs required to close are several experiences of investments and current cooling gaps across developing programs in cooling as well as in related areas economies range between $400 billion and $800 like energy efficiency or off-grid distributive billion.50 It is important to note that there are energy, that offer lessons to incorporate in the additional cooling gaps related to cold chains design of future strategies. Chapter 3 identifies in rural areas that were not estimated, as well the challenges of mobilizing private investment as cooling gaps generated by other drivers, like into sustainable cooling in developing economies access to electricity and regulation. Commercial based on existing initiatives and experiences. business opportunities in closing cooling gaps These include systemic issues like affordability driven by affordability issues would require across different households and firms as well not only innovations that bring down costs as varying levels of electricity access and significantly, but also appropriate regulation skills. Other challenges to consider include that incentivizes providers and in many cases the complexity of cold chain systems, lack of additional support in the form of concessional consumer literacy in cooling and finance, as financing. well as weak regulatory and administrative In addition to baseline market sizing, the analysis environments. The chapter offers examples of considers scenarios where the adoption of strategies to address some of these challenges sustainable cooling is accelerated—through as well as major gaps in some of the current passive strategies and higher energy efficiency approaches. in active cooling—implying sizable positive Following the discussion of key challenges, gains for consumers, as well as for economies Chapter 4 provides a blueprint to design more broadly. These benefits signal that financing approaches for sustainable cooling. there is ample space to design commercially The proposed approach includes identification of viable business models as well as economic the specific financing needs of cooling solution justification for governments to support This range was estimated under the assumption that existing cooling access gaps would be addressed with active cooling solutions only 50  (either fans or air conditioning equipment). However, it can be expected that addressing these gaps will imply a combination of different kinds of active cooling solutions and passive cooling strategies. See Chapter 2 for details. An analysis by BloombergNEF (Farhat and Rathi (2024)) shows that the level of sectors’ emissions by 2050 when relying only on 51  economically competitive technologies would bring global temperature increases to 2.6 °C above pre-industrial levels. COOLER FINANCE Page 33 BOX 1.2 IFC Sustainable Cooling Initiative To address some of the challenges outlined throughout this report and noting the important role of the private sector in transitioning toward more sustainable cooling, IFC launched the Sustainable Cooling Initiative with the support of the U.K. Government. IFC’s sustainable cooling strategy addresses five cooling-intensive sectors through five areas of engagement: 1) district cooling; 2) cooling for green buildings; 3) consumer and SME finance; 4) innovation for agribusiness and manufacturing; and, 5) cold chain and temperature-controlled logistics, while paying particular attention to the growing field of cooling-as-a-service. This strategy will be executed through five modes of engagement: 1) providing thought leadership; 2) developing transformative cooling systems; 3) enhancing investment readiness of innovators and adopters of cooling solutions; 4) de-risking finance; and, 5) operationalizing and investment scale up. IFC is collaborating with several international organizations through the work of the Cool Coalition, not only setting the global agenda, but on implementation of practical solutions in countries of focus that effectively contribute to the objectives of the Global Cooling Pledge. The "Five by Five" Plan 5 focus sectors X 5 engagement pillars DISTRICT COOLING THOUGHT LEADERSHIP & MARKET MAPPING COOLING FOR GREEN TRANSFORMATIVE COOLING COOLING AS A SERVICE BUILDINGS SYSTEMS CONSUMER & SME FINANCE INVESTMENT READINESS INNOVATION FOR MANUFAC- TURING & AGRIBUSINESS DE-RISKING FINANCE COLD CHAIN LOGISTICS OPERATIONALIZING AND INVESTMENT SCALE UP Page 34 The Urgent Need For Sustainable Cooling Solutions in Developing Countries suppliers and consumers shaped by their varying initiatives at various stages of development, characteristics. Practical examples that include implementation, and evaluation. First, it outlines existing business models and programs are the need to increase capacity and dedicate featured to show how this approach applies to funding to the improvement of systematic data financing sustainable cooling applications and collection across countries, build a centralized activities in different contexts. The discussion library of global cooling data, and establish a includes financing approaches for different methodology for market projections. Second, it stages of business maturity, including research identifies ways to meet challenges to providing and development, innovation, and the scale-up sustainable financing for sustainable cooling. of new technologies, as well as how specific These include raising awareness among investors financing instruments can be used to finance and firms of the potential business opportunities, sustainable cooling applications. These include informing consumers about the benefits and revolving funds, working capital financing, avenues for financing sustainable cooling, and results-based financing, risk sharing facilities, increasing the capacity of governments to equity investments, grants, and concessional improve regulation and enforcement. The third finance. set of recommendations focuses on the roles that can be taken by governments, the private With these challenges in mind, addressing sector, and multilateral institutions. sustainable cooling is becoming more and more central to the mission of development finance Governments are pivotal in the design of institutions and multilateral development banks. effective programs to promote and partially These international institutions continue to finance sustainable cooling initiatives through play important roles in climate finance, and participation in public-private partnerships while sustainable cooling is no exception. They bring providing the right incentives for consumers, important resources and institutional support entrepreneurs, providers, and investors. The for due diligence, the management of country private sector leads in the provision, adoption, and technology risk through concessional and funding of sustainable cooling solutions finance instruments, and resources for enabling while multilateral financial institutions bring activities like country climate diagnostics and expertise to the design of programs and national cooling action plans. Finally, they also financing structures that help scale up private offer expertise and experience in launching investment in sustainable cooling markets. innovative financial instruments and could drive Together, these elements can steer the adoption the establishment of so-called cooling bonds of innovative business models, financing which would join the growing universe of labeled instruments, and mechanisms that have the sustainable debt instruments alongside green, potential to foster the growth of sustainable blue, and biodiversity bonds. cooling in the coming decades. Finally, the report provides a series of recommendations, including ongoing Photo by Barbara Walton/EPA via Shutterstock 2 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs COOLER FINANCE Page 37 B oosting the supply of financing for sustainable cooling in developing economies requires an understanding of the magnitude of the potential demand for cooling in these countries. Market size estimates, as well as projections of demand growth, are critical for entrepreneurs, potential product providers, and financiers to assess potential returns. This chapter starts with a description of the cooling market landscape, outlining variations in the nature of supply and demand for broad types of cooling applications. It examines different market segments, the types of entities (firms and households) behind the demand and supply within each segment, as well as their broad financing needs. This is followed by estimates of the current and future size of cooling markets across developing economies, focusing on segments across applications and regions. The business and investment opportunities around cooling markets include both ‘passive’ strategies—such as architectural design, nature-based solutions, and the use of new materials such as reflective coatings—and ‘active’ methods like space cooling with fans or air conditioning, and refrigeration. Additional projections to quantify avoided costs cooling solutions as well as the end consumers and net monetary gains from accelerating who buy their goods and services. The goods the adoption of sustainable cooling— they provide include active cooling equipment through increased use of passive strategies as well as products used to implement passive and penetration of high efficiency cooling cooling strategies. The services they offer include equipment—make a clear economic case for the design and implementation of passive the financing of sustainable cooling. Finally, strategies, cooling services for end-customers, there is a discussion of estimates of the total as well as the provision of ongoing services cost to close existing cooling gaps caused by related to active cooling equipment such as affordability constraints. Closing cooling gaps maintenance and training. and expanding access through the design Suppliers and buyers require different kinds and provision of affordable solutions to more of financing mechanisms for their respective households could emerge as a major business activities, to fund production and distribution, or opportunity for innovators, private investors, and to pay for the acquisition of cooling solutions. firms. In some cases, these activities will require additional support from concessional financing The lower panel of Figure 2.1 describes broad mechanisms. cooling market segments. These include residential and non-residential space cooling 2.1 Mapping the Investment and with passive design strategies for buildings centered on architectural design or insulation Financing Landscape for Cooling materials, and active cooling with fans and air Cooling Market Landscape conditioning systems. They also incorporate refrigeration, using refrigerators and freezers, for Cooling markets are complex, comprising households as well as non-residential functions multiple components to meet diverse needs. ranging from large industrial operations to Each market segment incorporates suppliers of supermarkets, restaurants, or laboratories. The Page 38 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs FIGURE 2.1 Cooling Markets Landscape SUPPLY DEMAND Cooling Solutions Providers Cooling Solutions Consumers BY SOLUTION TYPE: ▶ Households ▶ Firms ▶ Hardware/equipment ▶ Public sector entities ▶ Cooling as a Service (CaaS) provider ▶ Ancillary services BY STAGE: ▶ Innovator/Start-up ▶ Growth phase ▶ Mature business MARKET SEGMENTS SPACE COOLING REFRIGERATION MOBILE COOLING Residential Residential Passenger vehicles Non-residential Non-residential Refrigerated transport vehicles Source: Authors COOLER FINANCE Page 39 lower panel also highlights mobile applications, processing—including solutions for smallholder namely space cooling for small vehicles, buses, or farmers and large agribusinesses—as well as trains, as well as refrigerated transport vehicles. healthcare which requires temperature control for the storage of vaccines and other medical The supply side of these cooling markets, supplies. Finally, it covers refrigeration for described in the top left panel of Figure 2.1, industrial and commercial businesses such as includes firms that contribute to cooling small markets, restaurants, and supermarkets.52 solutions with design, materials, equipment, cooling services, maintenance, or training. These Section 2.2 provides market sizing estimates and firms can also be differentiated by their business projections of investment opportunities for these development stage, from startups to well- cooling market segments across developing established companies with mature operations. economies. Section 2.3 discusses the monetary Cooling solution providers may cover more than benefits from accelerating the adoption of one market segment whereby, for example, sustainable cooling, while Section 2.4 estimates a refrigeration equipment manufacturer may the total costs to close existing and future supply both residential and non-residential cooling gaps for various types of consumers, customers. including some of the households and small and medium-sized enterprises (SME) that cannot The top right panel of Figure 2.1 describes afford the cooling solutions they need. demand for cooling solutions, comprising households, different kinds of businesses— Financing for Cooling Markets from smallholder farmers and micro, small As discussed throughout this report, different and medium-sized enterprises (MSME), to kinds of entities supplying or acquiring cooling large corporations—and public sector entities. solutions in these markets have different Households constitute the demand side of financing needs as well as gaps in terms of residential space cooling and refrigeration, their access to financing. The type of financing and some of the market for space cooling of required—seed financing, equity, or debt— vehicles. Firms of varying sizes across sectors varies according to the entity’s characteristics. account for demand in areas such as non- Therefore, a startup will have different needs to residential property and buildings that require an established company with mature operations. space cooling. This includes spaces that house A firm’s finance requirements will also reflect the operations of micro, small and medium- the cooling-related activities it is engaged in, sized enterprises, as well as larger firms like whether it is bringing new technologies to hotels, hospitals, data centers, and the offices market, developing integrated passive cooling of larger commercial and public entities. It also measures for construction projects, or producing incorporates cold chains for agriculture and food cooling equipment. Real estate developers, public sector programs, and energy service companies, among others, are cooling market intermediaries that 52  acquire cooling solutions and incorporate them in a project or program directed at consumers in other markets. Page 40 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs In addition, the financing instruments available the market (see Chapter 4 for specific business in specific markets are determined by the models and financing mechanisms). type of financing required, the business model Once sustainable cooling products or services underlying the transactions between suppliers reach a certain level of maturity and market and buyers, and the context in which such adoption, a Growth phase gets underway as the transactions take place. This section provides an market transforms with the relevant sustainable overview of the varieties of financing required by cooling products and services becoming different kinds of suppliers and buyers. accepted as the new standard.53 Supplying sustainable cooling solutions Figure 2.2 shows how the business development comprises several different phases of activity. stage and specific activities being developed The first of these, Research and Development in the cooling space underline supplying firms’ (R&D), involves the carrying out of research, investment and financing needs. design, and testing of new products and technologies, as well as the conceptualization Innovators providing disruptive cooling of business models. R&D is conducted by teams technologies require seed funding in the form of academics or researchers working in small or of grants and risk capital. New manufacturers large companies. and providers of cooling as a service need equity and loans to finance expenditure and boost Next comes the Innovation Phase, which their working capital as they expand into new amounts to the initial testing in real-world and uncertain markets. Meanwhile, established conditions of a new design, technology or businesses producing or distributing cooling business model that has demonstrated its equipment will typically have more access potential. The innovation phase can also include to traditional debt financing from financial conducting feasibility studies for the new intermediaries and capital markets that they can product, technology, or business model. use to maintain and grow their operations. The third activity is Adoption, or Scale-Up, In active cooling markets, the manufacturing whereby sustainable cooling innovations of air conditioning equipment and domestic are taken to market following a commercial refrigerators is dominated by a few very large strategy. At this stage, expanded private sector companies, while production of refrigeration participation is critical if the new product or equipment for food retail and industrial method is to successfully disrupt and compete in process cooling, includes a significant number the market. It is also important to either leverage of medium-sized firms. A small number of existing strategies to incentivize adoption from large multinationals dominate the supply of the demand side, or better, coordinate efforts refrigerants and mass-produced equipment to provide adoption incentives to both sides of These include products for passive strategies (e.g., new insulation materials) as well as services related to the design and implementation of 53  passive strategies for cooling (e.g., architectural design). COOLER FINANCE Page 41 FIGURE 2.2 Diverse Cooling Provider Firms Require Diverse Financing Solutions Examples of cooling supplying firms’ financing needs by development stage and activity 1 2 3 4 R&D INNOVATION ADOPTION GROWTH INITIATIVE OR START-UP Seed funding grants, subsidies, risk capital GROWING Equity and debt COMPANY short-and long-term MATURE COMPANY Traditional financing Combined funding Financial Institutions and OR LARGE sources Capital Markets PROJECT Source: Authors such as residential air-conditioning units, while R&D and innovation and will combine internal approximately 80 percent of the world’s room and external seed funding with other sources air conditioning units are made in China.54 of finance in the form of grants, concessional Furthermore, major companies also dominate funding, or subsidies set up to support such production of key components like compressors activities. and heat exchangers, leveraging significant Conversely, equipment installers and contractors R&D resources for product development and are typically relatively small companies operating innovation. These mature companies engage in 54 ChinaIOL (2022). Page 42 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs within a single country or region, with a large households, a fraction of MSMEs with limited or proportion categorized as SMEs or MSMEs. no access to financing, and smallholder farmers These smaller firms have limited R&D capability that lack access to cold chain infrastructure. and require extensive training and support to Closing the cooling gaps for these kinds of adopt and sell newer, innovative products. In consumers with sustainable cooling solutions addition, there are also differences across market can represent a sizable business and investment segments. While residential refrigerators are opportunity for cooling providers, as shown mass produced and do not require specialized by the estimated costs associated with closing installation, residential air conditioning, though cooling gaps for households and SMEs presented also manufactured on a large scale, does usually in Section 2.4. Moreover, as will be discussed require specialized installation. Meanwhile, some in subsequent chapters, closing the gaps for non-residential refrigeration solutions need to consumers with no access to cooling may be custom made and require extensive additional require financing mechanisms that include work on installation, mostly carried out by SMEs. concessional finance, subsidies, as well as public- Along these lines, a fraction of companies will private partnerships, all of which face significant have access to traditional financing sources challenges in many developing countries. depending on the stage of development of The second group of consumers, including their business and that of the financial and higher-income households, established SMEs, capital markets where they operate. Chapter 4 and large firms, requires financing conditions provides specific examples of existing financing that maintain the affordability of cooling mechanisms for companies across different solutions and provide the appropriate incentives stages of development and engaged in different to make the transition to sustainable solutions. cooling activities. In other words, the right financing mechanisms On the other hand, companies offering passive to foster the transition toward sustainable cooling approaches range from small businesses cooling are those that make a good business providing architectural design and other case for these entities. The types of financing kinds of technical consulting services, to large for the demand side include mostly debt-based firms manufacturing special materials, with instruments, including revolving short-term a correspondingly wide variance in financing facilities to support those that transition to requirements. cooling-as-a-service (CaaS) solutions, which may be combined with concessional finance that On the cooling market demand side, consumers’ incentives adoption of sustainable cooling. financing needs can be initially differentiated between those that cannot afford cooling and The next sections in this chapter use this entities that can afford cooling but need the landscape as a framework to estimate the appropriate incentives and financing to upgrade current and future size of cooling markets across to sustainable cooling solutions. The first developing economies, and to assess the total consumer group is comprised of lower-income cost to close existing and future access gaps. COOLER FINANCE Page 43 Cooling market sizing is key to the identification different countries.56 of focus areas for firms, investors, and financiers, Therefore, it is critical to consolidate available as well as governments, to increase access cooling data through a systematic estimation to cooling and foster the transition toward effort that keeps track of market trends for sustainability. both passive and active cooling.57 An important step forward in this regard was taken in the 2.2 Estimating the Cooling Market Global Cooling Watch report launched at COP28. Size in Developing Economies This introduced a Global Cooling Emissions Model58 to estimate greenhouse gas emissions Credible and consistent evidence on the state from global stocks of refrigeration and space of cooling and cooling financing as well as up- cooling equipment, and project possible future to-date projections, are critical for effective trajectories until 2050.59 The modeling results policy design and mobilization of private included estimated savings in electricity investment. However, as identified by various consumption and power sector investments reports and organizations in recent years, from the accelerated adoption of passive one of the critical challenges to scaling-up strategies and new technologies that improve investment in sustainable cooling is the absence energy efficiency, both of which further reduce of systematic data collection and analytics to emissions from refrigerants.60 track and evaluate solutions in terms of place, market size, and financing gaps.55 Recognizing The Global Cooling Emissions Model is a the limitations on cooling data availability, bottom-up model for estimating the stock the Global Cooling Pledge launched during of refrigeration, air conditioning and heat COP28 in 2023, includes a commitment by pump cooling equipment across countries. It governments “to review progress towards the uses three main drivers—climate, economic target of the Global Cooling Pledge on an annual growth, and population growth—to project the basis,” which implies improving the availability increase of equipment stock across 40 different of underlying data on the state of cooling in technologies, spanning residential, commercial, Research conducted in 2019 by the Economist Intelligence Unit remains the most up-to-date market size estimate available. See EIU (2019). 55  See the Global Cooling Pledge, led by UNEP in 2023 (https://www.unep.org/resources/report/global-cooling-pledge). 56  An initial effort in this direction is the GCI data dashboard (https://www.green-cooling-initiative.org/country-data#!total-emissions/ 57  all-sectors/absolute), which includes estimated unit sales and market value in addition to data on emissions, giving values for 2016 and projections thereafter based on a model. See Gluckman Consulting’s Global Cooling Emissions Model, a greenhouse gas modeling platform for refrigeration, air-conditioning and 58  heat pumps, available at http://www.gluckmanconsulting.com/hfc-outlook-modelling/. See Chapter 2 of UNEP (2023a). 59  The Economist Intelligence Unit implemented in 2020 a similar estimation of potential reductions in electricity demand from adoption of 60  sustainable cooling solutions, focusing on space cooling. See EIU (2020). Page 44 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs industrial, and transport space cooling and cold The baseline estimates of the current market chain sectors.61 The approach considers passive size for active cooling are based on available strategies as a first layer of energy efficiency historical data on cooling solutions traditionally measures, which determine the cooling load used by different economic sectors and that would need to be addressed through active households, along with cross-country data on cooling solutions based on electrically-powered GDP, population and average temperatures.62 equipment. While there is currently an uncertain underlying proportion of cooling provided through passive For this report, the approach was expanded strategies in developing economies which to construct a Global Cooling Emissions and affect the estimated levels of active cooling, Investment Model that projects active cooling this is difficult to quantify. Without such passive market size and total costs to close existing strategies, the active cooling load, electricity cooling gaps. usage and greenhouse gas emissions would be It uses three elements: much higher. Along these lines, data collection and further research to estimate the current Active cooling solutions capital costs usage of passive strategies worldwide should be which include cooling equipment costs, a priority, given their importance for reaching complementary component costs (e.g., near-zero cooling-related emissions. pipes), as well as installation costs. Despite the uncertainties and data limitations, Microdata on households, including their high-level estimates of current passive cooling ownership of cooling equipment, and activities for new builds and retrofits are firms. This data establishes their capacity quantified (see Annex 2 for details). Current to finance the acquisition of cooling passive cooling capital investments in new builds equipment, reflecting household income across developing economies are calculated and firm size. to be between $15 billion and $25 billion per Assumptions from the Global Cooling year.63 An estimated 3.5 billion square meters Watch report, underpinned by available of floor area are added every year in developing data and studies, to incorporate the countries, but less than 20 percent of this is adoption of passive strategies through subject to effectively enforced building energy scenario analysis. codes. As a result, low uptake and enforcement of passive cooling requirements is limiting this Additional granularity, like estimates by industry sectors or urban-rural splits are not addressed by this model, as this would require 61  additional data for calibration that is generally not available across countries. For instance, the urban heat island effect is captured at the country level as urban population and GDP are underlying drivers but is not modeled or estimated separately in this framework. A technical description of the model can be found in Annex 1. See Annex 1 for details. 62  This is in line with IFC analysis showing that investment needs for green buildings in developing countries account for $1.5 trillion over the 63  next decade (for further details, see https://www.ifc.org/en/insights-reports/2023/building-green-in-emerging-markets). COOLER FINANCE Page 45 market in many geographies. As codes expand Given current levels of passive strategies and enforcement improves, this annual market adoption, the estimated market size for active potential could increase substantially.64 Along cooling solutions across developing economies these lines, there is significant potential for local in 2023 totaled $272 billion,66 which represents private sector development to deliver passive 43 percent of the worldwide active cooling cooling as part of green building construction market. Almost half of this market, or $129 and developing countries can seize the billion, is for building space cooling. Stationary opportunity to build a domestic industry as they refrigeration followed at $96 billion or 35 percent expand application of building energy codes. of the cooling market, while mobile cooling solutions made up the remaining 17 percent at The current building stock in developing $47 billion. Within space cooling, commercial and countries has an estimated floor area of 162 industrial uses represented the largest market billion to 170 billion square meters, the vast at $79 billion, while residential uses accounted majority of which requires retrofitting for for $50 billion. In refrigeration, non-residential passive cooling. This represents a significant uses also represent the largest market, at $64 potential market for entrepreneurs offering billion, compared to $32 billion for residential use. ways to enhance thermal comfort in buildings The mobile cooling market was dominated by that will also lead to lower energy bills for their passenger vehicles, with a $44 billion market size. customers. Current investments in passive cooling retrofits are estimated at $10–$15 Geographically, Asia represents the largest billion per year. However, due to limited data, market, with-two thirds of the cooling market uncertainty about the pace of regulation, and in developing economies, at $188 billion. Within significant cost differences across markets, it is Asia, China was the most significant contributor, not possible to make meaningful projections for representing 46 percent of the total developing these investments up to 2050.65 Going forward, economy cooling market. South Asia accounts delays in policy implementation will lead to for an additional 10 percent, 85 percent of increased retrofit costs as the stock of buildings which is attributed to India. This is influenced with minimal passive cooling measures in place by warmer climates across Asia, combined with increases. relatively high levels of income across several countries in the region. Emerging Europe, Latin America, and the Middle East each contributed Considering an accelerated adoption of building energy codes by 2030 across developing economies, it is possible to reach an annual 64  market size of $150 billion in 2050. This estimate is based on a 24 percent cooling demand reduction for all buildings. Similar to new builds, this estimate is in line with IFC analysis showing that the potential for green building retrofits amounts to a $1.1 trillion 65  investment opportunity in developing economies in the next decade. Furthermore, the cumulative market potential for passive cooling retrofits in buildings can reach between $5–$15 trillion by 2050, if the policy environment is enabled for accelerated retrofit of existing building stock. This estimate considers adoption of passive cooling solutions which can reduce cooling demand in buildings up to 15 percent. All estimates in this chapter are in constant 2024 US$. 66  Page 46 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs FIGURE 2.3 Sustainable Cooling in Developing Countries Represents a Major Business Opportunity Estimated active cooling market size for 2023 across emerging market economies ($ Billion) TOTAL: BILLION SPACE COOLING REFRIGERATION Non residential Non residential Residential MOBILE COOLING Residential Passenger vehicles Refrigerated transport vehicles Source: Global Cooling Emissions and Investment Model 7–10 percent of the total.67 These figures reflect percent of the total. This is attributed to lower a mix of warmer climates in the Middle East and per capita income levels that limit affordability, the presence of higher-income economies with but it also implies additional business and cooler climates in Europe and Latin America. investment opportunities to close existing gaps Despite its warmer climate, Africa represents the (see Figure 2.4). smaller market, at $15 billion, contributing to 6 East Asia (excluding China) is primarily driven by Indonesia, Thailand, and Viet Nam. Central Asia’s market is notably influenced by Turkey. 67  In the Latin America and Caribbean region, Brazil and Mexico are the dominant markets. Given the nature of the model, we only highlight estimates at the regional level. Further work is needed at the country level. COOLER FINANCE Page 47 FIGURE 2.4 The Cooling Market in Developing Countries Is Expected to More Than Double by 2050 Estimated active cooling market size across emerging market regions ($ Billion) Billion + China + South Asia Billion + Africa + East Asia excluding China + Latin America + Middle East Emerging Europe Central Asia and Türkiye Source: Global Cooling Emissions and Investment Model To build active cooling market size projections cooling technologies, the baseline projection to 2050, we consider a business-as-usual assumes a gradual improvement in active baseline scenario that assumes continuing cooling technologies through a mid-efficiency trends for the key underlying drivers of cooling scenario that reflects recent trends in cooling demand—population, economic growth, and equipment efficiency.68 This projection also climate change. In terms of the evolution of assumes the continuation of limited reductions The baseline case considered in the Global Cooling Watch report was a business-as-usual scenario with low efficiency gains, while in this 68  report, we use as a baseline a middle-efficiency gains scenario that reflects the latest commitments and trends observed in the data. More details about the differences in the scenarios can be found in Annex 1. Page 48 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs FIGURE 2.5 Space Cooling Will Drive Cooling Demand, Underlined by Urbanization and Economic Growth Estimated growth of active cooling market in developing countries by 2050 ($ Billion) Space Cooling Refrigeration Mobile Cooling Non residential Non residential Refrigerated transport vehicles Residential Residential Passenger vehicles Source: Global Cooling Emissions and Investment Model of the active cooling load from the use of passive and ease gradually with increasing incomes strategies across developing economies. In terms underlined by economic growth.69 Therefore, of access and affordability, existing limitations the baseline projections combine limited use for certain groups of firms and households to of passive strategies with active sustainable access cooling solutions are persistent over time and conventional cooling technologies, where The potential growth of market segments that are currently underdeveloped, like access to cold chains for farmers (through the portion of 69  the cold chain going from farm gate to aggregation centers) is thus not fully captured. COOLER FINANCE Page 49 the share of passive cooling remains at current size to $153 billion by 2050, increasing its market low levels, while the share of active sustainable share from 18 percent to 26 percent, mainly cooling solutions grows gradually over time driven by urbanization mega-trends, while non- as conventional cooling equipment is phased residential space cooling is expected to continue out due to replacement, improvements in accounting for around 30 percent of the market, technology, and regulation.70 More details on growing to $179 billion.71 The refrigeration market underlying assumptions can be found in Annex 1. is set to expand to $166 billion but decrease its market share to 28 percent.72 The mobile cooling Under the baseline scenario, active cooling segment is projected to maintain its 17 percent markets can be expected to grow organically share, growing from $47 billion to $102 billion. to $382 billion by 2030 and to $600 billion by 2050. The market in developing economies is expected to rise to 59 percent of the global 2.3 The Economic and Business active cooling market by 2050. Africa and South Case for Accelerating the Adoption Asia will experience substantial growth driven of Sustainable Cooling by increases in population and GDP per capita. Sustainable cooling requires the use of Africa’s market is expected to grow sixfold, to technologies and approaches that minimize $105 billion in 2050, raising its share from 6 the impact on people and the planet. This percent to 18 percent. South Asia’s market share requires navigating the trade-offs between will increase to 21 percent (or $126 billion) by rising cooling demand and the increase in 2050, from 10 percent in 2023. East Asia’s market electricity consumption. While cooling is share is expected to decline from 55 percent essential for human comfort and health, to 35 percent by 2050, with China’s market industrial processes, and food preservation, stabilizing at around $150 billion. Other regions higher electricity demand can boost greenhouse are forecast to maintain their 5–10 percent gas emissions. The challenge is to develop market share. efficient cooling technologies that minimize the Space cooling is projected to continue its burden on electricity grids and promote energy dominance, growing its share to 55 percent of conservation. the developing economy cooling market by 2050, Approaches such as passive design strategies, or $332 billion, given continued urbanization the use of energy-efficient equipment, and trends across developing economies. The renewable energy integration can help mitigate residential space cooling market could triple in 70 Local regulation improves gradually, underlined by countries’ compliance with international agreements. Space cooling is expected to triple between 2023 and 2050, while non-residential space cooling will more than double. This compares to 71  70–75 percent growth in refrigeration. This is driven by the higher cost of space cooling equipment and installation costs compared with refrigeration, as well as the lower penetration of space cooling due to affordability constraints, which ease over time with economic growth. Projections for the refrigeration market assume a business-as-usual scenario for cold chains. These projections do not consider potential 72  developments in cold chain infrastructure, which could significantly impact the market, particularly in the agricultural sector. Page 50 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs these trade-offs and move toward sustainable access to affordable cooling solutions and a cooling and a near-zero cooling pathway. For clear business case for consumers. Along these instance, under the baseline scenario, cooling lines, this section uses the Global Cooling energy consumption in emerging markets is Emissions and Investment Model to quantify projected to rise from 3,250 TWh73 in 2023 to the monetary benefits and costs of accelerating 6,530 TWh in 2050. By increasing the use of sustainable cooling adoption at the macro level. passive strategies and the penetration of higher It is worth noting that, in addition to avoided efficiency equipment for active cooling, this costs in electricity consumption and reduced could be reduced by 42 percent to 3,780 TWh.74 investments in power sector investments and This reduction would be about 10 percent of in active cooling equipment, passive strategies total global electricity consumption in 2022.75 In bring a series of additional benefits that are terms of emissions, the baseline predicts total not quantified in this report. These include cooling emissions across emerging markets to climate resilience, affordability for low-income decrease from 2,865 MtCO2e76 in 2023 to 2,170 populations, and independence from electrical MtCO2e by 2050. This is driven by improved grid reliability issues. equipment efficiency over time, which reduces The baseline scenario used for the cooling direct emissions from refrigerant gases despite market sizing described in Section 2.2 is based increasing indirect emissions from associated on a business-as-usual growth projection that electricity consumption. assumes some efficiency gains and limited use of In this regard, by increasing the use of passive passive strategies. In the estimations that follow, strategies and accelerating the adoption of this report differentiates sustainable versus higher efficiency equipment, emissions in 2050 conventional cooling solutions by evaluating could be further reduced to 1,185 MtCO2e, their environmental impact through energy and encompassing reductions in both direct and refrigerant use. indirect emissions. These are thus critical Along these lines, sustainable cooling solutions elements of the pathway toward near zero can include increasing the adoption of passive cooling.77 Effective adoption of sustainable strategies, using low Global Warming Potential cooling requires an ample offer of passive cooling (GWP) refrigerants, improving energy efficiency, strategies and high efficiency cooling equipment, 73 Terawatt hours The simulations assume an increase in the use of passive strategies for new buildings only. The effects of refurbishing existing buildings 74  through passive strategies are not included in these estimates. Projecting these benefits and costs is complex and remains an area for future research. In addition to directly lowering electricity consumption and emissions, shifting investments to energy-efficient and renewable sectors yields 75  indirect benefits. These include job creation from moving investments from capital-intensive to labor-intensive sectors, enhanced economic resilience through local supply chain development, and improved industrial productivity with lower operational costs. See Laitner et al (2021)​ Metric tons of carbon dioxide equivalent  76  An important additional element to this pathway is the decarbonization of the power grid. IEA and IFC (2023) discuss the challenges and 77  opportunities for private investments in this area. COOLER FINANCE Page 51 or raising reliance on renewables to minimize proportion of new buildings over time, greenhouse gas emissions. and an equivalent estimate for the effect of renovating existing buildings, based Conversely, conventional solutions depend on existing evidence and studies. For on older, inefficient technologies, or high- refrigeration, the approach was similar GWP refrigerants, significantly contributing to but based on the estimation of new environmental degradation. equipment as additions to, replacements As discussed before, there is uncertainty around for, or upgrades of existing stock.80 In current use of passive strategies and the stock of addition to lower growth in the amount of sustainable equipment. electricity consumed, the load reduction implies a lower peak demand for electricity In the baseline case, the former is expected and thus, reduced needs in terms of power to remain at current levels while the latter infrastructure capacity.81 Given the lack increases gradually as it is assumed that the of data about the capital costs associated availability of low efficiency equipment is phased with the increased adoption of passive out over time.78 strategies, only monetary benefits in To estimate the monetary benefits and costs of terms of avoided costs are estimated. As accelerating sustainable cooling, two scenarios mentioned before, further research on are projected: the use as well as on the costs of passive strategies should be a priority going Mid efficiency and increased use of forward. passive strategies: this scenario assumes an increase in the use of passive strategies High efficiency and increased use (e.g., improved building design), which of passive strategies: this scenario reduces the required growth of active combines the effects of the increased use cooling, lowering the cooling load in of passive strategies with an acceleration 2050 by about 24 percent.79 For space in the adoption of higher efficiency active cooling, this reduction was estimated cooling equipment across countries. The through an analysis of the potential load underlying analysis to model this scenario reduction for new buildings, the estimated considered that variations in efficiency It is important to note that the baseline scenario projections and those reflecting the acceleration of sustainable cooling adoption assume 78  that the financing required by the projected satisfied cooling demand will be available, for both cooling consumers and providers. The total cooling load in the baseline scenario and the detailed underlying assumptions for building the load reduction, driven by passive 79  design strategies for cooling, are consistent with the 2023 Global Cooling Watch report. This load reduction leads to a 21 percent reduction in electricity consumption in 2050. For refrigeration, load reduction is achieved through improvements in insulation and other measures that reduce cooling needs. For non- 80  residential applications, these include measures like the use of glass doors on supermarket display cabinets; better wall insulation and door airlocks for large cold stores; and better fan controls and defrost management for industrial refrigeration. For domestic refrigerators, the potential for load reduction is intertwined with system efficiency but can be achieved through improved operational use, hence the impact is small. The effects of electricity load reduction through passive strategies are projected for different cooling market segments. 81  Page 52 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs differ across regions and technologies due cooling market segments across developing to climate differences and the technical economies. As will be discussed in subsequent opportunities for each technology. In chapters, for effective adoption of these aggregate, electricity consumption in sustainable cooling technologies, it is critical 2050 under this scenario declines by that consumers have the information (including an additional 27 percent relative to the capital costs), knowledge and tools to make the mid-efficiency baseline with passive best decisions in this regard. In addition to direct strategies.82 These additional efficiency benefits to consumers, increasing the use of gains could be driven by regulatory passive strategies also implies that developing enhancements, implementation of national economies would need to invest $940 billion cooling plans, or effective actions to less in electricity generation over the period comply with government commitments 2025–2050.84 These additional avoided costs like the NDCs or the Global Cooling Pledge. are an incentive for governments to design and For this scenario, net savings from the implement policies that foster the adoption of adoption of higher efficiency equipment passive strategies in years to come, including can be estimated, along with avoided fiscal benefits where appropriate. costs from the increased use of passive Between 2025 and 2050, the adoption of higher strategies. efficiency cooling equipment is expected to The projections show that increasing the use result in cumulative net savings for consumers of passive strategies alone would generate of approximately $1.8 trillion, relative to the cumulative avoided costs for consumers of $4.6 mid-efficiency and increased use of passive trillion in the period 2025–2050.83 Almost half of strategies scenario.85 In this case, $3.5 trillion in this, $2.2 trillion, amounts to avoided costs from savings from reduced electricity consumption electricity consumption while the remaining $2.4 due to increased efficiency are partially offset by trillion corresponds to a reduction in spending higher costs of more efficient cooling systems, on active cooling equipment. These sizable of about $1.6 trillion.86 Higher energy efficiency monetary benefits from increasing the use of also implies about $930 billion in avoided costs passive strategies imply significant micro-level on electricity generation investments over the economic advantages for consumers in different period 2025–2050, opening further the window The underlying assumptions for the evolution of equipment efficiency in the high efficiency scenario follow those developed for the 2023 82  Global Cooling Watch report. Avoided costs vary with local climate context across and within countries. There are no major differences in regional aggregates. 83  More details on the methodology for calculating power sector investment savings can be found in the 2023 Global Cooling Watch report. 84  In this section, we first consider the benefits from load reduction as these should be viewed as the first line of defense against heat, 85  followed by the accelerated adoption of higher efficiency active equipment. Monetary benefits are accrued over a 25-year period (2025– 2050). It is worth noting that the actual lifetime of active cooling equipment is shorter than the projection period, and that the model assumes equipment is replaced at the end of its life. This analysis does not account for the paid back period that electricity consumption savings implies. At the micro level, net present value 86  benefits should be used to inform consumers making decisions between cooling equipment with different levels of efficiency. COOLER FINANCE Page 53 FIGURE 2.6 Accelerating the Transition to Sustainable Cooling Will Help Developing Economy Consumers Spend $6.4 Trillion Less by 2050 Changes in cumulative electricity consumption costs and spending on cooling equipment for consumers from accelerating adoption of sustainable cooling 2025 to 2050 ($ Trillion) . trillion avoided costs . . trillion net savings Passive . strategies High e ciency . . . . Passive High strategies e ciency . . Baseline High e ciency & Baseline High e ciency & mid e ciency passive strategy mid e ciency passive strategy Electricity consumption costs Spending on active cooling equipment Source: Global Cooling Emissions and Investment Model for government policy and incentives for the efficiency equipment. Under this scenario, total adoption of more efficient equipment. electricity consumption costs over the period 2025–2050 will reduce by $5.6 trillion from Overall, the case for expanding sustainable $19.2 trillion to $13.6 trillion across developing cooling rests on a combination of increasing the countries, while cumulative spending on active use of passive strategies and adopting higher cooling equipment will fall from $12.1 trillion to Page 54 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs $11.3 trillion.87 In addition, total power sector investments to satisfy FIGURE 2.7 the electricity demand from cooling needs will drop from $4.5 trillion to Accelerating the Transition to Sustainable $2.6 trillion from 2025–2050. This Cooling Will Save Developing means that developing countries Countries $1.8 Trillion in Power System will require $1.8 trillion less in Investments by 2050 power sector investments driven Changes in cumulative electricity generation investments by the reduction in peak electricity from accelerating the adoption of sustainable cooling demand.88 ($ Trillion) Similar monetary benefits from accelerating the adoption of . sustainable cooling are observed across regions, with the Passive strategies . magnitude of these benefits being High commensurate with market size. e ciency For instance, the largest cumulative . . avoided costs from increasing the adoption of passive strategies until 2050 are expected to come Baseline High e ciency & from East and South Asia (at mid e ciency passive strategy around $2.6 trillion and $1.2 trillion, respectively), followed by Africa, Power sector investments for cooling the Middle East and Latin America (between $400 billion and $500 Source: Global Cooling Emissions and Investment Model billion). Furthermore, across all regions there is a positive net gain from accelerating the adoption of high efficiency equipment for active cooling.89 87 Complementing this perspective, a forthcoming report “Bridging the Cooling Gap: Energy Efficiency as a Driver for Appliance Access” by Boucher et al. underscores the importance of energy efficiency improvements. By accelerating the energy efficiency gains of room air conditioners, fans, and refrigerators, the lifetime costs of these appliances can be significantly reduced. 88 These estimates include the effect of reduced demand on transmission and distribution of electricity. 89 In emerging Europe, despite the positive net gains for the economy, consumers do not directly benefit from higher efficiency equipment as the additional costs are higher than the savings from electricity consumption, though the difference is marginal. This is due to the combination of higher prices for high-efficiency equipment and lower benefits from reduced electricity consumption costs due to milder temperatures. Furthermore, technology adoption in European Union countries is heavily influenced by the rest of Europe, which is expected to have a faster adoption of higher efficiency equipment in the baseline case already. As a result, the difference between mid-efficiency and high-efficiency gain scenarios is not as significant as in other emerging markets. COOLER FINANCE Page 55 In sum, this analysis shows that sustainable reflect expected levels of satisfied demand, that cooling not only generates important is, investments in owned cooling solutions or development impacts across different areas, payment for cooling services by households, including significant emissions reductions, firms and farmers that can access and afford the but also provides tangible monetary benefits active cooling solutions they need. This implies to consumers and economies in developing that there can be an access gap determined countries. Given the underlying economic case by the unsatisfied demand of end consumers for the acceleration of sustainable cooling at that cannot afford the cooling solutions they the macro level, there is ample space to design need at prevailing market conditions and business models and provide financing for prices.91 For instance, while larger and more sustainable cooling at scale on a commercial established firms have in general ample access basis. In addition to the business and financing to finance to maintain their operations and opportunities for active cooling equipment with support business growth, including their high upfront costs, there are also important cooling needs, there are financial constraints to opportunities for users and providers of passive accessing required cooling solutions for a sizable measures and low-cost active cooling solutions number of MSMEs, which vary across countries. (such as fans), as well as for private sector Similarly, access to cooling and refrigeration participation in the disposal and recycling of for households is conditional on their level cooling equipment.90 of income, which also determines access to credit, both of which are distributed differently across countries.92 Smallholder farmers’ access 2.4 Estimating Cooling Financing to cold chain solutions depends not only on Gaps Across Developing Economies the size of their operations, but also on the The level of demand for cooling solutions at any availability of cooling infrastructure by location, point in time is determined by end consumers’ proximity to collection centers and linkages to needs as well as willingness to pay. The cooling distant domestic markets and export markets. market size estimates presented in Section 2.2 Most of these cooling gaps can be expected to Additionally, there are significant economic and fiscal benefits for countries to implement the required regulatory and policy changes to 90  support sustainable cooling. Unsatisfied cooling needs are valued using the same equipment prices used for cooling market sizing, when applicable. It is also worth 91  noting that since GDP and population growth are underlying drivers of projected cooling market size, the estimates in Section 2.2 imply that part of current market gaps may decrease due to income growth. However, population growth puts upward pressure on market gaps as the scenarios projected do not consider policy changes or targeted financing to close market gaps over time. Cooling market gap estimates presented in this section take these dynamics into consideration. The gap estimates in this section do not include investment amounts required to provide universal electricity access. In addition to constraints on electricity access and financial limitations, there are other restrictions that may prevent individual consumers 92  from accessing the desired level of space cooling. For instance, sustainable cooling also encompasses efforts to reduce outdoor temperatures, which are beyond individual consumers’ control. Additionally, many consumers are unable to implement passive cooling measures on buildings, even if they are willing to pay for them. Furthermore, decisions regarding the efficiency of active cooling systems are often out of consumers’ hands, for example when renting or buying homes with pre-installed air conditioning units. These restrictions are not incorporated in the cooling gap calculations presented in this section. Furthermore, green buildings, which are designed to require less cooling, typically come at a higher price point, making them less accessible to many consumers. Retrofit measures to improve cooling efficiency face similar financial barriers as the purchase of new, more efficient equipment. Page 56 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs gradually close over time as income levels rise Residential Space Cooling with economic growth. However, the negative Access to space cooling improves the wellbeing effects on health, education, food security, and of households across important dimensions, productivity discussed in Chapter 1, will continue including health, productivity, and goods affecting households and firms exposed to high durability. Under extreme heat conditions, access temperatures and without access to appropriate to proper cooling can be a life saver. Cooling cooling solutions. Along these lines, this section needs are driven by local temperatures and provides stylized facts and estimates of the humidity levels, which vary across and within current and future expected levels of cooling countries.96 access gaps for households and firms.93 Fans are an affordable cooling solution for Ideally, cooling access gaps would be estimated many households which can be used as an from refrigeration and space cooling data, either alternative or complementary technology to air through ownership or services, for different conditioning and passive strategies. Data from types of consumers. However, the available data across emerging markets, as shown in Figure is not comprehensive.94 Increased efforts on data 2.8, suggest a positive relationship between fan collection on cooling should include information ownership and country temperatures.97 about cooling needs and access to active and passive cooling solutions for different end Air conditioning, on the other hand, is highly consumers across countries. effective in providing thermal comfort but it is not always required given varying temperatures The remainder of this section estimates cooling and conditions in local contexts. Moreover, gaps for some of the largest cooling market access to air conditioning is highly dependent on segments, such as residential cooling and income levels and, therefore, subject to stronger refrigeration, and for SMEs within the non- affordability constraints than fans or many of the residential cooling and refrigeration markets. It available passive design strategies. Consequently, also includes a description of the underlying data there is significant variation in levels of air and estimation rationale.95 Estimating costs related to cooling gaps for farmers requires additional levels of underlying data and complexity that is beyond the 93  objectives of this report. The comprehensive work that the Africa Centre of Excellence for Sustainable Cooling and Cold-Chain (ACES) is conducting in this area will provide a solid basis for such an important effort in the future. 94 For instance, country-level data on access to cooling solutions is limited to households’ ownership of refrigerators, fans, and air conditioning for selected countries. On cold chains, there is some data on the availability of refrigerated warehousing for selected countries as well as several localized case studies on cooling solutions for farmers, but no comprehensive country data is available in this regard. On the other hand, there is no firm-level data on access to cooling. An important segment within non-residential space cooling markets which has sizable cooling gaps but is not covered by these estimates, 95  is that related to inadequate cooling in public and institutional buildings across many developing economies (e.g., schools, public offices, and hospitals). For instance, McNeil and Letschert (2008) show how air conditioner ownership varies across states in the United States, increasing in line 96  with local temperatures. 97 The use of average Cooling Degree Days (CDD) has inherent limitations as it may not adequately reflect localized within-country climate variations. The positive relationship between fan ownership and temperature levels holds for groups of countries with similar income levels as well as for the total sample, although R-squared values are low. COOLER FINANCE Page 57 FIGURE 2.8 Fan Ownership Is Greater in Warmer Climates, and Especially So Among Higher-Income Countries Ownership of fans and cooling degree days across developing economies GDP per capita < , , to , GDP per capita > , GDP per capita % Turks and Caicos Thailand Islands Jordan Pakistan Bangladesh Tuvalu India % Gabon Brazil Suriname Fan ownership share of households Indonesia % Samoa Ghana Honduras Nigeria Mexico Gambia, The Tajikistan % Colombia Kiribati Togo Cameroon Guinea % Sierra Leone Zimbabwe Congo, Dem. Rep. Madagascar % , , , , , Cooling Degree Days Source: Various surveys, International Energy Agency Page 58 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs FIGURE 2.9A Air Conditioning Penetration is Driven by Country Income Levels Air conditioning ownership, country income levels and cooling degree days across developing economies Ownership of Air Conditioning % CDDs < , % , < CDDs < , % CDDs > , % , , GDP per capita Source: Various surveys, International Energy Agency, World Development Indicators Note: GDP per capita is measured in constant 2017 International $ at PPP conditioner ownership both within and between ownership rates below 20 percent, while most emerging economies. Figure 2.9a shows rates of countries with a GDP per capita beyond $15,000 air conditioning ownership across countries.98 have ownership rates above 30 percent.99 Most countries in this sample with a GDP Figure 2.9b shows this relationship between per capita below $9,000 have air conditioner air conditioner and fan ownership rates and GDP per capita in all the following charts is measured in constant 2017 International $ at PPP, and valued at the corresponding survey year 98  for each country. Both panels of Figure 2.9 include countries with fans and air conditioner ownership data. A notable exception are three outlier countries (Jordan, Iraq and Algeria) with income levels around $10,000 and air conditioner ownership 99  rates between 40 percent and 60 percent. In addition, countries with lower incomes (GDP per capita below $9,000) and low ownership rates vary in terms of temperature levels. Similarly, countries at higher levels of income (with GDP per capita above $15,000) are also comprised of a mix of countries with different CDD levels, including several countries with lower temperatures (below 2,000 CDDs) and air conditioning ownership rates above 30 percent. COOLER FINANCE Page 59 FIGURE 2.9B Fans Provide the Base Load for Cooling Across Developing Economies Fan GDP ownership per capita % % % % % % % % % % % Share of households % % Thousands % % % % % % % % % % % % … While Deeper Air Conditioning Penetration Only Kicks In at Higher Income Levels Air conditioning GDP ownership per capita % % Share of households Thousands % % % % % % % % % % % % % % % % % % % % % % % Source: Various surveys Note: GDP per capita is measured in constant 2017 International $ at PPP Page 60 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs GDP per capita in the corresponding survey incomes at which air conditioning becomes year. In lower-income countries, air conditioner affordable vary greatly across countries, but ownership is nearly absent, while fan ownership similar patterns can be identified for economies is minimal. As income rises, fan ownership with similar income levels. Annex 2 provides an increases up to a certain point. Air conditioner analysis of fan and air conditioning ownership ownership, however, starts low and only trends for households at different levels of increases after reaching a higher income level. income or wealth for selected countries in For most countries with higher income levels Africa, South and East Asia, and Latin America. and relatively high air conditioner ownership, fan Given the importance of these kinds of data for ownership remains above 90 percent. identifying cooling gaps and designing policies to address these, it is important to make efforts In addition to energy-intensive cooling toward collecting this information in household solutions like fans and air conditioning, there surveys for more countries. are alternative passive strategies for cooling, such as in building design, which combined with In the absence of data on access to passive active cooling can provide more affordable and cooling solutions and based on available fan sustainable space cooling solutions. Further and air conditioning ownership data across research on such holistic approaches should countries as well as data on the number of be pursued and evidence collected to serve households per country, a range of the total cost as inputs that support the scaling up of these required to close the residential cooling gap was integrated solutions. estimated for all emerging market countries. This calculation does not assume a uniform need Fans and air conditioning ownership rates at for space cooling; instead, it recognizes that the country level provide initial insights into the need for space cooling varies according to the micro decisions made by households. climate, which is detailed in Annex 2. The lower For countries where household level data is bound estimate of the total cost to close the available, it is possible to analyze in more detail residential cooling gap assumes that households the degree of access to cooling solutions by with space cooling needs but without access to different types of households according to their space cooling solutions fulfill their needs with income, consumption, or wealth levels.100 The fans only. The upper bound estimate assumes microdata shows that there are within-country that air conditioning becomes available for differences in access and affordability of cooling all households seeking active cooling, even driven by different dynamics across countries. those that own fans.101 These cases represent The adoption of fans and the level of household undesirable and incomplete scenarios as they Fan ownership is obtained from several surveys, including national expenditure surveys, Demographic and Health Surveys and Multiple 100  Indicator Cluster Surveys from UNICEF. The residential space cooling gap is monetized by assuming that households with cooling needs require one fan or one split air conditioning 101  unit, using the same data and assumptions on prices as for the cooling market sizing in Section 2.2. Under the upper bound scenario, households with space cooling needs that currently own fans only, are assumed to gain access to air conditioning. COOLER FINANCE Page 61 do not include explicit assumptions about the the scenario analysis in Section 2.3, lead to use of passive strategies that would be part of additional benefits in terms of lower spending on the solution.102 In the fan only scenario there active cooling equipment, lower electricity usage will still be significant unmet cooling needs, and lower emissions (see Annex 2 for further particularly in climates with high humidity and details on the estimation of the total cost to very high temperatures. Conversely, in the air close residential cooling gaps). conditioning scenario, not all households in need Based on these scenarios, the total cost to of space cooling will require air conditioning close the residential space cooling gap across and many could meet their requirements with a developing countries ranges from $7.8 billion to combination of passive strategies and fans. $372 billion in 2023, as using fans to close space However, these scenarios are useful to assess the cooling gaps for households costs around a order of magnitude associated with addressing fiftieth as much as using air conditioning.103 This these cooling access gaps. The air conditioning is driven by a higher ownership of fans relative scenario sets the level of a maximum cost, to air conditioners, as well as the lower unit which in reality will be lower when combined price of fans. Across regions, the total cost to with passive strategies and fans. On the other close the space cooling gap when using fans as a hand, the fans only scenario sets a lower cost possible solution is $3.9 billion in Africa, followed threshold, but as mentioned above, higher- by $2.8 billion in South Asia. The total cost in the cost air conditioning will still be the required Middle East, East Asia and Latin America ranges solution in some areas. Therefore, the cost of between $100 and $500 million per year.104 On closing these cooling gaps through different the other hand, closing the gaps through access combinations of active and passive strategies to air conditioning could imply costs of $117 across countries and regions is likely to be within billion in South Asia, $92 billion in Africa, and $85 this range. It is worth noting that in the actual billion in East Asia where China accounts for $30 combined solutions, passive strategies will billion. The total cost to close the space cooling play an important role as a first line of defense gap with air conditioners in Latin America and against heat as they can significantly reduce the the Middle East is between $25 billion and $35 need for active cooling and, as shown through billion, while remaining regions imply a cost of Ultimately, how these gaps are addressed will be decided based on a global marginal cost curve of various existing cooling solutions: 102  passive cooling, fans, air conditioners, variable flow systems, chillers, district cooling, among others. These costs represent a gap of approximately 3.6 billion people without access to air conditioning and 900 million people without air 103  conditioning or fans in 2023. According to a study from SEforAll (2023), 1.1 billion people face immediate risks due to a lack of access to cooling, including 815 million urban poor without electricity, unable to afford a fan—similar to the fan gap estimated in this report. An additional 2.9 billion people are at medium risk, primarily lower-middle-income groups, approaching their first purchase of affordable air conditioning or a refrigerator, which, when combined with the high-risk population, mirrors the air conditioning gap estimated in this report. Aggarwal & Agrawal (2022) estimate an unfulfilled demand of 66 million ceiling fans in India. To satisfy this demand using super-efficient 104  ceiling fans would cost $2.7 billion. Efficiency for Access Coalition (2019) analyses the global market for off-grid appliances. The estimated addressable market for off-grid fans, defined as the number of households which could acquire an off-grid fan if financing was available, was 232 million households in 2018, which is approximately 50 percent of off-grid and weak-grid households globally. The obtainable market, which is constrained by financing availability and accessibility to off-grid appliance distributors, was 39 million households in 2018, valued at $1.2 billion. Page 62 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs $15 billion or less. By 2050, increased incomes with the expected increase in demand (see due to economic growth across most regions Figure 2.10). reduce the estimated costs to $20 billion or less, with the gap in China expected to close by 2040. Residential Refrigeration The exception is Africa, where the cost will be Refrigeration is critical for food and nutritional $126 billion in 2050 as increased affordability security around the world, with residential driven by economic growth fails to keep pace refrigeration an essential last-mile requirement FIGURE 2.10 Space Cooling Gaps Will Close Gradually as Economies Grow Across the Developing World, Except in Africa Where They Will Widen Estimated cost to close the gap in residential space cooling across emerging markets through air conditioning Billion South Asia Africa East Asia Latin America and the Caribbean China Middle East Emerging Europe Central Asia and Türkiye Source: Estimates by authors (methodologies described in Annex 2) COOLER FINANCE Page 63 of the entire food cold chain. Having a details underlying the aggregated ownership refrigerator at home allows households to store rates observed at the country level. As shown perishable goods and avoid dependence on in Annex 2, there are important differences local markets—which in many locations across in access to residential refrigeration across developing economies don’t have appropriate the distribution of households (by income, refrigeration to preserve such products. Access expenditure, or wealth) for countries at different to refrigeration for households is dependent stages of development. Within countries with on income as well the availability of electricity. available microdata, those in Latin America Figure 2.11 shows a positive relationship between and East Asia have higher rates of refrigerator refrigerator ownership and GDP per capita penetration among households in the bottom in developing economies, with ownership deciles and show ownership rates close to or rates below 60 percent in countries with a above 90 percent for households above the GDP per capita under $8,000, and above 80 bottom 40 percent. In contrast, those in Africa percent in most countries with a GDP per and South Asia show significant access gaps, capita above $10,000.105 Given the strong with at least 60 percent of households in the correlation between electricity access and GDP bottom 60 percent of the distribution not per capita, most countries with lower incomes owning a refrigerator. and low electricity access also have the lowest Given the essential need for refrigeration in refrigerator ownership rates.106 There are also food preservation within households, the target important regional differences in terms of access is for all homes to have access to residential gaps. Africa and South Asia have the largest refrigeration. Therefore, the total costs required refrigeration gaps with average ownership rates to close residential refrigeration gaps are below 40 percent for most countries. In East quantified based on the projected ownership Asia, most countries have less than 60 percent rates underlying the market size estimates ownership, while in Europe and in Latin America in Section 2.2, which already incorporate the more than 80 percent of households own a growth in ownership driven by economic refrigerator across most countries in the sample. growth, vis-à-vis the universal ownership target Annex 2 highlights additional differences in for a growing population.107 Along these lines, ownership observed from survey data. the cost of closing the residential refrigeration As in the case of fans and air conditioning, gap across developing economies is estimated to household-level ownership data provide further be $172 billion for 2023, and is expected to decline Gabon, Indonesia, and Mongolia are notable exceptions, as they have a GDP per capita between $10,000 and $15,000, and refrigerator 105  ownership rates between 48 percent and 67 percent. There are a few exceptions where higher electricity access explains relatively high refrigerator ownership, despite country income levels. 106  For instance, refrigerator ownership in Gambia (at 36 percent) is above that observed for most countries at similar income levels. Other examples are Angola and Nigeria, where ownership rates in 2018 were 13 percent and 21 percent respectively, despite GDP per capita between $5,000 and $7,000, on account of electricity access below 60 percent of the population. The residential refrigeration gap is quantified by assuming that households require at least one refrigerator and using the same data on 107  ownership projections and assumptions on equipment prices as for the cooling market sizing in Section 2.2. Page 64 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs FIGURE 2.11A Low Access to Electricity Hinders Access to Refrigeration (…and Other Cooling Solutions) Ownership of refrigerators, country income levels, and access to electricity across developing economies GDP per capita , , , , , , % % Share of households % % Electricity access: above % % % to % % to % below % % Source: Various surveys, World Development Indicators Note: GDP per capita is measured in constant 2017 International $ at PPP Refrigerator ownership Refrigerator ownership % % % % Honduras Ethiopia % Malawi % Brazil COOLER FINANCE % Madagascar % Colombia FIGURE 2.11B % Sierra Leone % Dominican Republic % Source: Various surveys Angola % Suriname % Togo % the Caribbean Mexico % Gambia % Latin America and Costa Rica % % Congo, Dem. Rep. Turks and Caicos Mali Rates of Refrigerators % % GDP per capita Rwanda % Cameroon % Kiribati Guinea % % Africa Tuvalu Lesotho % % Benin % Indonesia % Senegal % Samoa % Zambia % Philippines % Zimbabwe East Asia % Note: GDP per capita is measured in constant 2017 International $ at PPP Tonga % Sao Tome and Principe % Mongolia % Ghana % Thailand Nigeria % % Guinea Bissau % Tunisia % Tajikistan Algeria % % Albania Gabon % % Georgia GDP per capita % Europe Ownership of refrigerators and country income levels across developing regions Serbia % Belarus % Pakistan % Bangladesh Jordan % % Households in Africa, East and South Asia Have Lower Ownership India Iraq % % Middle East South Asia Page 65 Page 66 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs to $91 billion by 2050 due to increases in income at around $65 billion each. East Asia, the Middle per capita across countries.108 For regions, the East and Latin America imply costs ranging highest costs in 2023 are in South Asia and Africa, from $5 billion to $15 billion. The residential These costs represent a gap of approximately 2.5 billion people without access to refrigerators in 2023. 108  FIGURE 2.12 Refrigeration Gaps Will Almost Close by 2050 Across All Developing Regions, Except in Africa Estimated costs of closing residential refrigeration gaps in developing economies Billion South Asia Africa East Asia Middle East Latin America and the Caribbean Central Asia and Türkiye Emerging Europe Source: Estimates by authors (methodologies described in Annex 2) COOLER FINANCE Page 67 refrigeration gap in China and Emerging Europe Since large businesses usually have the means is expected to close by 2025. In contrast, by 2050, to satisfy their cooling needs (including through the cost to close the residential refrigeration financing), the unsatisfied non-residential gap in Africa is projected to be $77 billion, while cooling demand is mainly attributable to SMEs all other regions combined would require a with insufficient financing resources to access total cost of $14 billion to close their residential the cooling solutions they require.111 According to refrigeration gaps. the SME Finance Forum, about one third of SMEs in developing economies are fully financially Space Cooling and Refrigeration constrained and 12 percent are partially Gaps for SMEs financially constrained.112 For further details on The cooling needs of SMEs are driven by the type the underlying rationale and assumptions for of operations they run and vary across sectors. these estimations, please refer to Annex 2. For instance, space cooling is critical for tourism The total cost to close the SME space cooling and retail (to provide comfort to customers), and refrigeration gaps across emerging market while refrigeration is essential in food processing, economies is estimated to be $268 billion for retail food markets, and restaurants as well as 2023 and expected to be between $179 billion and in the retail pharmaceutical sector. In addition, $584 billion by 2050, depending on the evolution firms across many sectors need space cooling to of access to financing.113 China accounts for 69 provide thermal comfort to their employees and percent of the total cost ($186 billion), followed maintain well-being and productivity. by the rest of East Asia, South Asia and Emerging Based on the cooling demand estimates from European countries with costs ranging between Section 2.2 and using available data on the $15 billion and $25 billion. While the cost to contribution of SMEs to GDP and their access to close SME cooling gaps in both Africa and Latin finance, it is possible to estimate the total cost America are $6 billion, the cost in other regions required to address cooling gaps for SMEs.109 ranges between $2 billion and $4 billion. These firms contribute, on average, 35–40 SME cooling gaps can be expected to continue percent of GDP across developing economies.110 increasing over time across most regions, as SMEs are expected to capture most private sector-driven gaps. However, due to data limitations, it is not possible to estimate cooling 109  access gaps by industrial or commercial sectors. Additionally, given the underlying data, not all the SMEs in the agriculture sector are included in the estimation. Authors’ calculations from data gathered through multiple sources, including IFC MSME Economic Indicators Database 2019, OECD 110  Structural and Demographic Business Statistics, Asian Development Bank Small and Medium-Sized Enterprise Monitor reports, reports from CEPAL and UNECE, and selected academic papers. However, despite having the means to finance cooling solutions, there are large factories that do not provide adequate cooling for their 111  workers. For SME Finance Forum MSME finance gap data see: https://www.smefinanceforum.org/data-sites/msme-finance-gap. It is worth noting 112  that a fraction of SMEs without access to finance may still have access to some cooling solutions if they are critical for their operation, such as in the case of small restaurants and grocery stores. The lower bound of this range assumes SME access to finance improves according to current cross-country differential trends, while the 113  upper bound assumes SME access to finance remains at current levels. Page 68 Diverse Sources and Sectors Imply Diverse Cooling Financing Needs improvements in access to finance may not are mainly driven by active cooling solutions. keep pace with increasing needs underlined by Therefore, the use of passive cooling solutions economic growth. Overall, these estimates show for SMEs—many of which could be more the relevance of SME access to finance for the affordable—could reduce estimated future costs cooling agenda going forward. under a scenario with increased use of passive strategies. On the other hand, it is worth noting that this calculation is based on the levels of satisfied demand in the baseline projections, which FIGURE 2.13 Cooling Gaps for SMEs Will Grow Across Developing Regions, Except in Europe and East Asia Estimated costs to close the SME cooling gaps in developing economies Billion East Asia Emerging Europe South Asia Africa Latin America and the Caribbean Middle East Central Asia and Türkiye Source: Estimates by authors (methodologies described in Annex 2) Photo by Kazi Salahuddin Razu/NurPhoto via Shutterstock 3 Challenges and Response Strategies for Promoting Sustainable Cooling COOLER FINANCE Page 71 T his chapter examines some of the challenges to investment in sustainable cooling, including many that are specific to developing economies, before outlining ongoing efforts by IFC, UNEP, and other organizations to address them. The issues vary by sector, with sustainable residential space cooling presenting distinct challenges to those associated with cold storage. They also vary according to the type of project, their scale, and whether they are financed with private or public funding. Some cooling operations require multiple products and services, such as cold chains—supply chains that incorporate procedures for ensuring temperature control—for delivery of rural farm products to urban markets. Providing sustainable cooling solutions, at early stages of implementation. However, meanwhile, involves navigating trade policies, many were developed by startup companies and utility regulations, building codes, and electricity available only on a very small scale. The time access. Firms and investors must also consider and resources required for these products to be issues such as consumer awareness, the fully proven and commercially ready is another availability of finance for startups, and the challenge. willingness of banks to provide credit for purchasing more efficient appliances. Some of 3.1 The Challenges to Private these challenges are being addressed through the financial support of the Montreal Protocol Investment in Sustainable Cooling Multilateral Fund, though many remain in Developing Economies116 persistent issues in many developing economies. A key role for IFC and other development finance Scalability usually requires business models to be institutions is mobilizing private investment commercially viable. Therefore, projects in low- toward projects that will have a significant income or difficult-to-reach populations as well development impact for emerging economies. as some passive cooling strategies may require However, despite the evident benefits of sustainable cooling, investing in this area is often additional incentives to attract private capital. not immediately attractive for private investors. Some may need to be structured as public- There may be a lack of awareness about the private partnerships.114 Indeed, cooling strategies business case, a perception of excessive risks, that work in developed markets have not always high initial costs, differences in regulations, proven as effective in developing countries.115 or complicated and time-consuming decision This chapter also discusses some of the requirements. Indeed, not all applications can significant gaps in existing initiatives promoting provide commercial returns using current sustainable cooling. For example, IFC has technologies and business models. Some of these identified multiple sustainable cooling solutions Incentives may be provided in the form of grants, subsidies, tax breaks, reduced interest rates, or other enhancements to financing terms. 114  For a previous discussion on barriers to financing air conditioning and refrigeration, see GIZ Proklima - Cool Contributions Fighting Climate 115  Change (2018). Additional background and discussion of barriers and systemic challenges to cooling can be found in UNEP (2023a). 116  Page 72 Challenges and Response Strategies for Promoting Sustainable Cooling challenges that are stymying private investment savings from high-efficiency options is flows into sustainable cooling are described in exacerbating the problem. To take the more detail below, while the remainder of this more efficient system, customers are chapter reviews some of the initiatives underway required to invest a significant premium up to address them. front without guaranteed mechanisms to ensure future cost savings. Systemic Issues on the Demand Side Affordability. Hundreds of millions of Sustainable cooling faces significant hurdles people in South Asia, Sub-Saharan Africa, stemming from socioeconomic disparities. and other regions with high exposure to These include income inequality, lack of access extreme heat lack the financial resources to reliable and affordable energy, limited to buy an efficient fan, much less an infrastructure in developing regions, and other air conditioner. Business models are fundamental development issues. attempting to address this challenge as High upfront costs, high risk, and lack discussed below and in Chapter 4, but of trust. Customers seeking active cooling the need remains enormous, and in many equipment often focus on minimizing areas the at-risk populations are growing. upfront capital expenditure without Limited Infrastructure and electricity adequately considering future operating access. An estimated 760 million people expenses. This approach often leads to lacked access to electricity in 2022118 selection of less efficient air conditioning while millions who do benefit from units that ultimately cost more over their power supplies are forced to restrict the life cycles. In tropical regions, for example, operation of cooling equipment to afford the upfront cost of a new commercial air their utility bills. Where access is provided, conditioning system may only account for power is often unreliable during periods of 5 percent of the total expenditure over extreme heat when demand is greatest. its entire lifespan, with the remaining 95 The absence of reliable electricity in many percent spent on energy and maintenance. areas exposed to high temperatures is This is causing some customers to buy a major barrier to the operation of fans units that are only one-third as efficient and cooling equipment. Figure 2.11B in as some of the available alternatives.117 the previous chapter shows differences Indeed, minimizing upfront capital in refrigerator ownership across low- expenditure is often mandated in public income countries attributable in part sector procurement rules. Furthermore, due to differences in access to electricity. lack of trust in the veracity of promised While the World Bank Group and other 117 IEA (2018). 118 IEA (2023c). COOLER FINANCE Page 73 institutions have promoted electrification (described in more detail in Chapter 4) and off-grid power for many years, this identified a common quandary facing small remains a significant challenge in many firms and startups seeking new investment developing countries.119 This is especially after the initial proof of concept. In order acute in Sub-Saharan Africa where 600 to obtain a commercial rate of return million people lack access to electricity,120 and minimize risk, private investors contributing to the sizable cooling gaps typically prefer firms with some scale and observed for African countries documented an established market. However, many in Chapter 2. For this reason, the World promising TechEmerge recipients have Bank Group and the African Development found themselves struggling to secure Bank announced in April 2024 a capital following their initial support. Many partnership to provide 300 million people discovered there are very few funding in Africa with electricity access by 2030.121 sources available to help small companies Further background and case studies on achieve the scale and revenue that would affordability and energy access challenges make them attractive for commercial can be found in reports from the Montreal investment. Furthermore, small businesses Protocol Technology and Economic that are also subject to a lack of access to Assessment Panel.122 reliable power face major inhibitions to their operations and growth prospects. Other non-financial barriers. The introduction of products and services Supply chain issues. Providing access based on energy efficiency often faces to the most efficient cooling equipment issues such as the need for verification and the support necessary for effective of performance and reliability (especially installation and maintenance as well as for business models linking payment to passive cooling measures is a frequent savings) and insurance coverage. challenge in many developing countries. The challenge is greater still in markets Systemic Issues on the Supply Side that are smaller and poorer. This Finance for small and medium-sized complicates the introduction of new enterprises (SME) and innovative refrigerants that became available in startups. While the potential for response to the Kigali Amendment to the innovative cooling solutions is enormous Montreal Protocol (an ongoing process and growing, the TechEmerge program discussed in Chapter 4). These countries 119  Investments to strengthen the electricity grid’s capacity and reliability with renewable energy are crucial in the electrification process. 120 IEA (2023c) 121 World Bank (2024). 122 UNEP (2021c). Page 74 Challenges and Response Strategies for Promoting Sustainable Cooling may become the recipients of older “dumped” equipment BOX 3.1 (See Box 3.1) making them less likely recipients of the Promoting Energy Efficiency Through newest models. In addition, Standards and Compliance despite the introduction While adopting high-efficiency equipment offers long-term of energy performance benefits for consumers, these advantages are in most cases standards in China, low obscured in the short term by higher upfront costs. Without efficiency units are still largely minimum efficiency standards, which are still lacking in many developing countries,1 uninformed and financially constrained exported to countries in consumers may continue to purchase less efficient units. Africa and Southeast Asia as efficiency requirements According to a 2023 report from CLASP,2 energy efficiency do not apply to exported policies in Southeast Asia are not keeping pace with technological improvements in high-efficiency appliances equipment.123 Markets for or with policies in surrounding countries. As a result, the used equipment, typically market is at risk of becoming a dumping ground for outdated less efficient and often prone and inefficient appliances that are prohibited in the home to leakage, exacerbate the jurisdictions of the multinational corporations that make problem. Box 3.3 outlines this them. By implementing minimum energy performance challenge and a program standards, Southeast Asia could reduce cumulative emissions supporting the adoption of from 2025 to 2050 by 20 percent and generate cumulative savings of $148 billion in electricity costs. In Africa, another more efficient refrigerators region which risks becoming a dumping ground for inefficient and air conditioners.124 equipment, implementing energy efficiency standards could reduce cumulative emissions by 14 percent.3 Cooling is Not a Traditional Financial Nevertheless, the presence of regulations alone is often Sector or Asset Class insufficient to ensure compliance, as informal cross- border trade and second-hand markets can undermine Cooling is generally not the primary the enforcement of efficiency standards.4 These issues focus of the industrial, public, underscore the need for regional and international measures to fully realize the benefits of high-efficiency equipment. or household activity, except in cases where refrigeration is a core function for a business. Typically, cooling serves as a supporting 1 https://rise.esmap.org/pillar/energy-efficiency/subindicator/have- system essential for operational minimum-energy-performance-standards-been-adopted 2 CLASP (2023). 3 CLASP (2020). 123  ChinaIOL (2022); Moreover, most of the units A 2016 report by the World Bank (Khalfallah et al., 2016) shows that in 4  imported into Southeast Asia do not meet Tunisia, despite the existence of energy performance standards for new the efficiency standards of the export country units, there has been a decline in performance due to the smuggling of CLASP (2023). cheaper, less efficient products from neighboring countries. 124 BASE and U4E (2023). COOLER FINANCE Page 75 efficiency and user comfort. For companies but otherwise see little or no incentive looking to procure goods and services for cooling to do better.125 systems, understanding the full spectrum of Even in those markets where financial or support available is crucial. These businesses regulatory incentives for green buildings do exist, require energy audits, technical assistance, companies focused on their short-term bottom grants for pilot testing, and blended finance for line may lack motivation to develop sustainable effective implementation (See Section 4.5). It cooling solutions. Many companies are not is essential for them to recognize the business aware of additional benefits from sustainable case that sustainable cooling can significantly cooling, such as access to international climate reduce energy costs. However, investment finance or government incentives like higher decisions often relegate cooling to a secondary density permits for green residential buildings. consideration. Furthermore, in most countries, the public sector Even when cooling is factored into project must comply with national regulations on public design, builders may choose to incorporate finance and the procurement of goods and the lowest cost measures first. Investment services. When there is a need to replace cooling identification, analysis, and decisions are systems, these investments are usually too small often organized around sectors—buildings, to justify the complex process of accessing public infrastructure, agriculture, transport, debt. Aggregating projects, such as upgrading manufacturing—and cooling is almost always all cooling systems in public hospitals and clinics a second order consideration in the design nationwide, could make public financing feasible and financing of larger investments. Passive and encourage the adoption of sustainable design strategies for cooling around orientation, cooling solutions. However, public entities often insulation, and nature-based solutions such finance these replacements from their annual as shading with vegetation for buildings, can operating budgets due to the complexity of be very effective and may receive greater accessing public debt. This creates competition consideration insofar as they often require for funds between cooling system replacements minimal additional investment. and other public needs and operating costs. In sectors like residential construction, developers often lack incentives to prioritize Challenges to Innovative sustainable cooling unless driven by regulation Cooling Solutions or consumer demand for green certifications. Beyond the systemic lack of financing Developers may benefit from the value that for innovative SMEs working to scale up buyers attach to green certification in markets cooling, the limited capacity of the small with some level of consumer awareness, firms involved in these activities and a 125 IFC has written extensively around the business case for green residential construction (which includes approaches for cooling), from the point of view of both developers and financial institutions. See, for example, Music (2023), Music (2021), and Cairncross and Naicker (2020). Page 76 Challenges and Response Strategies for Promoting Sustainable Cooling lack of awareness among entrepreneurs can be a constraint to the import of more and investors further constrain access to efficient cooling equipment. However, financing. an interest in promoting more locally manufactured equipment may ultimately Consideration of innovative approaches support innovative cooling solutions and requires time and expertise, amounting development of supply chains. to unwelcome delays and upfront costs. Investors will also regard any uncertainty The Lack of Consumer related to the innovation, particularly if it Awareness of Sustainable is untested in the specific market, as an Cooling’s Cost-Effectiveness added risk, prompting them to demand a higher return on their capital. Efforts to raise awareness of cost-effective passive strategies, particularly among low- There are opportunities for accelerating income consumers, are often lacking (See the transfer of innovative cooling solutions Box 3.2 for an example initiative to promote from developed to developing countries. affordable cooling). Such measures can be However, supply chain constraints for as simple as painting roofs white or using new products can present challenges natural ventilation.126 Cooling with fans or air in emerging markets, especially with conditioners with the lowest upfront cost is, new products such as refrigerants with typically, the least efficient and more expensive low levels of global warming potential. solution over time, but is frequently the only The Kigali Amendment to the Montreal option for low-income consumers.127 Protocol requires a phasedown in use of the most widely used refrigerants. Promoting efficient cooling on grounds of lower The transition to alternatives is ongoing operating costs requires consumer awareness and yet to be fully incorporated in many validated by independent sources, such as the developing countries where markets quality assurance programs developed in the are dependent on imports, sometimes IFC-World Bank Lighting Africa program. It also including older inefficient equipment. requires owners and renters to be willing to pay Initiatives to provide financing and higher upfront prices in return for better energy technical assistance supporting Kigali performance later. This trade-off is complicated Amendment implementation are described in some developing countries by the availability in Chapter 4. Some countries such as Brazil of subsidized electricity. have requirements for locally sourced Socioeconomic factors have led the low- components in manufactured goods which income residential sector to prioritize See https://coolcoalition.org/side-event-passive-cooling-and-nature-based-solutions-for-building-comfort/ (summary of Cool Coalition 126  side event on passive design strategies for cooling and nature-based solutions for building comfort, COP28, December 5, 2023). As with air conditioners, the lowest cost fans are typically less energy efficient and often more expensive over time. 127  COOLER FINANCE Page 77 inefficient and environmentally harmful cooling systems. Africa has become a BOX 3.2 destination for ‘zombie’ refrigerators and air conditioners—cheap, obsolete Ant Studio, India: Entrepreneurs units mostly discarded from European Drive Passive Cooling for the Masses households and resold illegally. From Ant Studio is an architecture practice in India that 2004 to 2014, Ghana imported over 3.7 combines passive cooling design, innovative low-tech million refrigerators, around 75 percent cooling systems, and nature-based methods to help of which were second hand. Despite residential, government, commercial and industrial clients to lower cooling costs. It also works with a 2013 ban on importing second-hand leading Indian universities to lab test and showcase refrigerators and air conditioners, illegal the cooling demand reductions their projects achieve. imports continue. While families benefit The firm was profiled by UNEP as a leading Indian from the lower prices in the immediate innovator on sustainable cooling in 2019 and continues term, these appliances consume at least to engage with UNEP’s passive cooling program in the twice the energy of more up-to-date country. equipment used in the United States or It is reporting a surge in demand with over 1,200 Europe, with significant environmental prospective projects involving schools, homes, and health impacts.128 There is a lack government buildings and industries. As a company of competitive business models and with strong environmental and social principles, it aims financial strategies to counter these to help address the 99 percent of buildings in India it estimates lack access to expert architects that offer practices and address market needs. passive cooling solutions on account of affordability Creating Effective Cold Supply constraints. Ant Studio participates in a pro-bono program to provide support to those unable to afford Chains for Rural Farmers expert architectural advice, though its availability Effective cold chains for rural farmers is limited in the face of huge demand from clients. As such, Ant Studio is working with IT companies can improve the quality of agricultural to establish an online platform that provides this products that reach markets, resulting architectural support through a combination of AI and in higher returns. Effective cooling technical expertise from Ant Studio architects. This solutions also enable longer holding free service will be financed by using the platform to and shelf lives for agricultural produce, connect building owners and developers with leading further maximizing profits and environmentally-friendly product providers that pay minimizing losses.129 to profile services on the platform. This self-financing model both creates and connects demand to providers of passive cooling solutions with no obligation on users to pay for the advice. Gyamfi et al. (2017); Agyarko, et al. (2021). 128  Holding life is the time spent by fresh produce in 129  cold chain till it reaches wholesale. And shelf life by definition is the time spent by produce on the shelf of a retail store. Page 78 Challenges and Response Strategies for Promoting Sustainable Cooling However, cold supply chains are by nature capital for cold chain infrastructure. complex and involve multiple processes and High upfront investment costs. applications, including packhouse processing, Establishing a comprehensive cold rural cold storage, transport, off-grid renewable chain requires substantial investments energy, and cold storage at destination.130 in infrastructure, such as cold storage Integrating these services effectively can be a facilities, refrigerated transportation, and challenge and some processes may not offer temperature monitoring systems. The prospects for generating returns that are obvious Global Cold Chain Alliance estimates that to potential investors. building a basic cold storage facility can Furthermore, cold storage systems can be cost between $100 and $300 per cubic unprofitable if only used for specific crops meter,132 a significant barrier to entry for at limited times of the year. This means the small-scale farmers and businesses in economics of storage requires careful planning emerging markets. In India, where cold to ensure adequate occupancy throughout chain infrastructure is still developing, the the year, an objective that can be difficult to Ministry of Food Processing Industries align with crop cycles. IFC’s Food Loss Climate estimates that the investment required for Impact Tool (See Box 3.3) is one of the first cold storage facilities is around $100,000 attempts to understand the potential for food to $150,000 for a capacity of 1,000 metric loss reduction in supply chains, including through tons, approximately 4,300 cubic meters of better cooling.131 storage space.133 Other challenges and features of cold chains in Long-term operational costs. Beyond developing economies include: the initial investment, the operational costs of running a cold chain system Limited access to financing. Firms can be significant, affected by energy in developing countries often struggle consumption, maintenance, staff training, to access affordable financing options and quality control measures. Suppliers for cold chain development. Traditional in emerging economies may struggle to financing sources may be limited, and allocate sufficient funds to cover these financial institutions may have stringent ongoing expenses, particularly in the requirements, making it difficult for small- absence of reliable electricity supply and scale farmers and businesses to secure For a comprehensive overview and analysis of the critical links between sustainable cooling for agriculture and off-grid electricity provision, 130  see: ESMAP (2024); See also UNEP (2023a), UNEP (2024), and FAO and UNEP, ”Get Involved: International Day of Awareness of Food Loss and Waste” (Sept 29, 2023, PPT). Available at https://www.gafspfund.org/ifcs-food-loss-climate-impact-tool. 131  132 GCCA (2019). Ministry of Food Processing Industries, Government of India. (undated). Cold Chain. Retrieved from https://mofpi.nic.in/content/cold-chain. 133  Conversion factor from GCCA (2020). COOLER FINANCE Page 79 limited financial resources.134 which provides financing to small and medium-sized enterprises involved in the Risk perception and uncertainty: agricultural supply chain, including the cold Investors and financial institutions chain. This aims to mitigate the perceived may perceive the cold chain sector in risks associated with lending to SMEs in developing countries as high-risk due developing countries.135 to factors such as weak regulatory frameworks, inadequate infrastructure, One of the main barriers to effective cold and volatile market conditions. The Asian chains is that small farmers typically do Development Bank has implemented not have the funds to cool their produce the Supply Chain Finance Program, in the first few hours after it has been picked. Farmers need business models that let them invest in cooling to reap greater BOX 3.3 income through longer holding and shelf- life. Solutions are needed that allow for The Food Loss Climate leasing of equipment or amortization of Impact Tool upfront costs over a longer time period. With support from GAFSP and the Government of the Netherlands, IFC, in Cold storage requires the aggregation partnership with Carbon Trust, developed of many small producers. The current a tool to estimate the emissions and cost demand for sustainable cooling products savings associated with reducing food losses. among farmers is typically low and so This reports greenhouse gas emissions broken the potential product demand, which down by value chain phase (production, could be high, is not obvious to retailers. transport, storage, processing, retail, and Community organizations of farmers landfill) for 50 crops in 117 emerging countries. can assist. Agribusiness is a priority because of its potential for broad development impact and In addition to cooling needs in fresh especially strong role in poverty reduction. IFC produce, there is tremendous need for combines investment and advisory services funding to introduce cooling in dairy to help the sector address rising demand and and aquaculture where farmers do not escalating food prices in an environmentally have the financing needed for cooling sustainable and socially inclusive way. The technology. For example, chilling milk institution thus invests across the agribusiness supply chain—from farm to retail—to help reduces food waste by up to 30 percent boost production, increase liquidity, improve logistics and distribution, and expand access to credit for small farmers. Thermal Control Business Update (2024); International 134  Forwarding Association (2023). 135  https://www.adb.org/what-we-do/trade-supply-chain- finance-program. Page 80 Challenges and Response Strategies for Promoting Sustainable Cooling and minimizes food safety risks for consumers. BOX 3.4 In some environments, providing cooling Ghana’s Challenge Enforcing to cattle can increase milk production by a Ban on Importing Inefficient as much as 40 percent, lowering overall Used Refrigerators greenhouse emissions per unit of output. However, the upfront cost of installing Ghana has banned the import of second- hand refrigerators, but enforcement this type of cooling facility is beyond the remains a problem. Based on findings from means of most smallholders without ECOFRIDGES Ghana, a joint program by financial assistance. UNEP's U4E initiative and the Government of Ghana,1 the absence of a functional e-waste management system in the country hindered implementation of proper disposal for old Weak Regulatory and appliances. Despite an environmental levy on Administrative Environments new purchases, the lack of a proper waste management system made it difficult to Developing countries are characterized by less dispose of outdated and inefficient appliances developed regulation and weaker enforcement responsibly. Exporting countries can help capacity than more advanced economies in address enforcement challenges through areas such as finance, as well as sustainability regulations such as those adopted by the and environmental standards. While efforts to European Union. The Montreal Protocol bolster regulatory regimes are accelerating in Multilateral Fund also has a new requirement many jurisdictions, challenges remain in the that cooling equipment manufacturers receiving international funding must meet supervision of minimum energy performance their countries’ minimum energy performance standards (MEPS), building codes and other standards whether the equipment is for areas such as promoting proper disposal of domestic markets or exports.2 refrigerants that can be potent greenhouse gases. Box 3.4 provides an example of the challenges facing a government seeking See Minguez et al. (2023). 1  to enforce a ban on imports of inefficient 2 CCAC (2023). refrigerators. Other hindrances to the development of efficient that prioritize energy efficiency or have overly standards and practices in developing economies complicated standards that are hard to enforce. include utilities not incentivizing consumers Meanwhile, institutional weakness leaves many to operate more efficient cooling systems that governments unable to deploy fiscal incentives would reduce peak demand and the need for to promote more sustainable outcomes. additional generating capacity. Meanwhile, many The many challenges to sustainable cooling developing countries lack effective building codes solutions reflect existing gaps in public policies COOLER FINANCE Page 81 and the incentives for private investment. application, are summarized in Table 3.1. The issues, which vary by sector and cooling TABLE 3.1 Challenges to Sustainable Cooling Solutions by Sector and Market Segment Sector Key Public Policy Gaps Key Private Market Gaps Multiple barriers including High upfront costs create barriers to entry for new uncertainty of permit players and uncertain returns, resulting in few District cooling approvals and lack of public companies able to provide services and requiring sector guarantees for long- long-term contractual payment risk mitigation term off-take contracts Lack of up-to-date building Complex market with information asymmetry codes and weak enforcement; Cooling for leading to low awareness of the business case for a lack of awareness of non- buildings more efficiency, including through utility savings, fiscal incentives to go beyond faster sales, and higher rents the code Absence of programs and Finance not accessible to lower income Residential incentives for product populations, requiring more innovative linkages cooling labeling, recycling, and of financial structures and utility bills or wage disposal of refrigerants payments Only governments are in a Cooling technology must be enabled by position to appreciate the transformative systems, including off-grid Agribusiness full benefits from a fully renewable energy and battery storage, as well as value chain functional agricultural cold payment structures that offset upfront costs. There chain is also a need for transformative cold chain systems Absence of local policies High investment costs to retool manufacturing on MEPS and low-GWP capacity can be offset through government bulk Manufacturing refrigerants, combined procurement; vendors require finance for more with incentives for new expensive systems; lack of commitment to more manufacturing lines efficient product lines Disaggregated market lacking modern Transformative cold chains Cold chain and temperature-controlled infrastructure also requires should be seen as a form of logistics partnerships for first- and last-mile collection and infrastructure investment delivery Page 82 Challenges and Response Strategies for Promoting Sustainable Cooling 3.2 Strategies for Addressing including fans, and can bring additional benefits such as reduced pollution136 and a lower need for Challenges to Investment new power plants.137 The Global Cooling Watch in Sustainable Cooling report included detailed analysis of the potential There are multiple ongoing efforts to better application of MEPS among strategies to achieve understand and test possible responses to near zero greenhouse gas emissions by 2050. the challenges outlined above and in Table Currently, many developing countries lack 3.1. However, as will become evident, in many such regulations or have minimum efficiency cases potential solutions are currently being standards that, while periodically revised, fall tested but for the most part still fall short of short of the most efficient products that are fully resolving the issue in question. Insofar as currently available. financial decisions largely revolve around sectors, While challenges remain, MEPS can—and these strategies are better understood in their do—make a significant contribution to more relevant contexts. efficient cooling. It is important that more Standards, Labeling, progress is made toward their adoption within and Certification national building codes and that these standards evolve to incorporate advances in sustainable Minimum energy performance standards for air technologies. For example, while radiant conditioners, refrigerators, and other energy- cooling was successfully piloted in India,138 intensive appliances have been widely used the country’s national codes do not include a in developed countries and some emerging minimum efficiency performance standard for economies for decades. Standards are typically this technology. As noted, many developing set based on economic benefits to consumers, countries have shortages of the technical for example when a higher initial cost is justified expertise and resources necessary to administer by energy savings over time. A widely used and effective consumer awareness, testing, labeling, frequently discussed strategy for promoting and standards. more sustainable cooling is the adoption of minimum energy performance standards CLASP, an international NGO, is among the (MEPS). These are primarily applicable to organizations working to provide developing residential and small commercial cooling units, countries with support for standards and labeling. It supports the development, 136 “National appliance standards have led to significant reductions in PM2.5 and PM2.5 precursor emissions, avoiding hundreds of thousands of tons of pollutants in 2017. These standards prevented between 1,900 and 4,400 PM2.5-related deaths in 2017, translating to monetary benefits of $18 to $41 billion,” CLASP (2024a). In 2016, one study concluded appliance and building standards had avoided the need for over 300 power plants in the United States ACEEE, 137  (2016). The benefit continues over time as standards become more stringent and older equipment is replaced; See also IEA (2021): “The programmes that have been operating the longest, such as those in the United States and the European Union, are estimated to deliver annual reductions of around 15 percent of their current total national electricity consumption. This percentage increases each year as more of the older, less-efficient stock is replaced with equipment that meets new higher efficiency standards.” 138 Gombar (2019). COOLER FINANCE Page 83 implementation, and enforcement of standards, Space Cooling for Green Buildings testing, and labeling. It also promotes consumer According to the Global Cooling Watch report, awareness of energy efficient appliances and under current trends space cooling will account oversees award programs that promote best-in- for 70 percent of the energy attributable to class products and encourage innovation.139 cooling consumed in 2050, with the fastest UNEP-U4E also provides support through growth in residential space cooling. its model regulation guidelines.140 A recent The growth in space cooling needs is arising significant addition to the guidelines was the from population growth often coupled with adoption of harmonized regional MEPS for urbanization, rising incomes, and higher global East and southern African countries, formally temperatures. The benefits of green buildings, approved and disseminated for implementation which typically must address space cooling, have to the 16 Southern African Development been well documented. IFC has examined the Community member states. business case for investing in green buildings in a Regulation aimed at utility companies can number of publications.144 The organization has also promote sustainable cooling. This can be also contributed to analyses focusing on specific done through programs to raise awareness, sectors such as hotels and housing.145 See Box incentives for consumers to purchase more 3.5 for an analysis of payback periods for passive efficient equipment, and charging structures cooling strategies within green buildings. that reward reduced energy use at peak times.141 Despite this, sustainable space cooling and green Utilities have also acted as agents for the buildings more broadly have not taken off, with removal and proper disposal of aging, inefficient some notable exceptions such as in Colombia refrigerators.142 Development finance institutions where green buildings account for 25 percent have supported such efforts with loans to of new construction. Real estate markets are support the implementation of appliance complex and are characterized by asymmetries efficiency standards, an example of which is an of information between architects, developers, Asian Development Bank loan to Cambodia.143 builders, investors, and final tenants or buyers who may be reluctant to pass on benefits to counterparts elsewhere in the value chain. 139  https://www.clasp.ngo/about/. 140 CLASP (2024b). 141 UNECE (2015). 142  https://homeenergysavings.pepco.com/md/residential/appliance-recycling-program. 143 ADB (2021). 144 IFC (2023). 145 Sustainable Hospitality Alliance and IFC. 2020; Musić (2021). BOX 3.5 Cost Analysis and Payback Periods of Passive Cooling Strategies in Green Buildings Passive cooling strategies must be considered shows that the upfront retrofit cost of a cool roof, during the architectural design stage, which including maintenance (typically 20 euros per typically leads to incremental costs in the square meter), could be recovered over an average procurement phase. This, however, can be of around 3.5 years.3 It is important, therefore, easily offset later by reduced utility costs, thus that heat-stressed countries integrate these shortening payback periods and providing kinds of cost-negative or neutral passive cooling overall financial savings compared to traditional design strategies into their building codes to buildings. Citra Maja Raya, an affordable housing promote implementation. development project in Indonesia, was the While the magnitude of cost benefits varies first EDGE-certified building in the country. It according to building types, climate, or product incorporates an optimum window-to-wall ratio, quality, initial investments in passive cooling external shading, insulation, and natural ventilation. strategies for building projects are likely to yield Based on EDGE calculations, the upfront benefits through reduced operating costs, with construction cost represented merely a 4.7 percent the added advantage of lowering emissions. It increase compared to typical houses in the country, is important for developers and governments and it achieved payback within 1.8 years, owing to to understand the advantages of passive a 30 percent reduction in annual utility costs. This cooling strategies, especially in terms of return benefit is equivalent to the energy consumption on investment, so as to accelerate sustainable of 41 low-income houses in the country.1 It is cooling adoption. important to raise awareness of the benefits of passive cooling investment, especially among real UNEP and IFC analyses show that the payback estate developers and governments overseeing periods for major passive cooling measures,4 public procurement of buildings. which achieve 24 percent cooling demand reduction in different developing economies, are Although costs of passive cooling measures vary 5–9 years. Some strategies like reflective surfaces, between countries, some initiatives are cost neutral shading and reduced window areas, when or even generate savings. For instance, reducing combined have payback periods between 2–4 the widow-to-wall ratio could be cost-negative years. In India, for example the payback period for since glazing is more expensive than building a external reflective surfaces and shading systems is wall. In India, a square meter of conventional glass, between 1 to 2 years. In Viet Nam, payback periods which is highly heat transmissive, costs around for solar reflective roofs and solar reflective walls $75. For high-performance glass, the price rises are 3 and 4.5 years respectively. to around $123, depending on the technology. Meanwhile, a thermally insulated brick wall costs less than $38, as of 2022.2 Another example is a reflective surface. One case study in France Green Building Council Indonesia and IFC (2019). 1  Down to Earth (2024). 2  CoolRoof. What Internal Rate of Return Can Be Expected with CoolRoof? https://www.coolroof-france.com/en/faq/what- 3  internal-rate-of-return-irr-can-be-expected-with-coolroof/. Solar Reflective Roofs (SRI-0.8), Solar Reflective Walls (SRI-0.75), External shading (Shading Factor (AASF) - 0.4), Roof insulation 4  (U-0.65), Wall Insulation (U-0.65), High Performance Glazing (SHGC-0.28 & U-1.9). COOLER FINANCE Page 85 The EDGE Green Buildings Market Table 3.2 showcases some notable cases where Transformation Program,146 an initiative efficient space cooling was utilized. developed by IFC, has developed analytical tools for identifying resource efficient measures and Holistic Integration: A Systems estimating cost. It also provides a certification Approach for Rural Cold Chains system that enables the communication of As briefly described above, providing rural benefits between investors, developers, and farmers with cold chains to preserve food and end-users. Buildings must meet a minimum 20 enable transport to urban markets is a critical percent saving in energy, water, and embodied need for food security and development. carbon in materials to qualify for the EDGE Currently, a substantial proportion of harvested Standard, though projects are frequently food, and landed fish, is lost due to the absence achieving over 40 percent efficiency savings. of a cold chain,147 and producers are unable In many climates, this reduction is achieved to sell at the higher prices possible in urban through sustainable cooling designs whereby markets due to the inability to maintain passive measures focused on building orientation freshness in transport. There is a need, and shading reduce the extent and cost of the therefore, for a combination of several distinct necessary cooling equipment (see Box 3.6). cooling services to achieve an effective end- TABLE 3.2 Selected EDGE-Certified Projects Cosmos Privadas del Neo Stallion Labs Yopougon Rack Centre Parque Building Shopping Offices Pharma Data Center Homes Type Center Country Philippines India Côte d’Ivoire Nigeria Mexico 43% on-site savings, Zero carbon zero carbon Energy certified certified 29% 35% 40% savings through on- through site EE and RE off-site RE purchase 146 For more information, see www.edgebuildings.com. 147 United Nations (2023). Page 86 Challenges and Response Strategies for Promoting Sustainable Cooling to-end cold chain, starting with the first mile infrastructure, technology, training, and the packhouse or aggregation and pooling points raising of awareness and engagement. It also for preconditioning and precooling; cold storage necessitates coordinating the multiple parties to preserve aggregated crops, fish, and dairy responsible for each stage. The Africa Centre products; transport with effective cooling for of Excellence for Sustainable Cooling (ACES) long distances over bad roads; and further cold is a major international initiative, launched in storage for rapid distribution in urban markets. November 2020 and run from Kigali, Rwanda, Lack of access to electricity or an unreliable with a mission to boost uptake of sustainable rural grid necessitates comprehensive cooling cold chain solutions in the agriculture and systems that include generation and storage health sectors throughout Africa.149 ACES of renewable energy. Addressing any of these was created with support from the UNEP needs without the others will undermine the United for Efficiency Initiative with diverse effectiveness of the entire chain. There is also programs to address the many challenges to a need to ensure that export of products to ensuring effective cold chains. Its activities higher-value markets does not result in food include community outreach efforts, technical deprivation for local populations. assistance, training, and industry partnerships, all framed by a holistic, whole systems approach The challenges to financing cold chain systems (see Box 3.7).150 vary considerably because of their multi-stage composition with different types of business The ACES program is exploring the potential operating in each, namely farmers, processors, for governments to provide public financing distributors, and retailers among others. for cold chain development, justified by the Providing funding for smallholders has been a social and development benefits of creating a focus among international institutions for several road or port facility. To secure public funding, years with an emphasis on agricultural inputs. the report notes, “it is essential that a clear, However, a holistic approach to agricultural cold robust articulation of the real value and return chains is very recent. Financial products need on investment is developed. This will involve to be tailored to meet the needs of farming identifying, quantifying and, where possible, communities and remain within their means so monetizing the multiple benefits that can be they can service the debt. Financing mechanisms delivered by well-adapted clean cooling based must also be designed to ensure that smallholder infrastructure.” farmers receive an equitable financial return.148 Other initiatives focused on financing cold chains Implementing a comprehensive cold chain for rural farmers are emerging in addition to system requires significant investment in ACES. For example, the African Development 148 SEforAll (2020). 149 https://ur.ac.rw/?The-Africa-Centre-of-Excellence-for-Sustainable-Cooling-and-Cold-chain-ACES (University of Rwanda website). 150 ACES (2024). COOLER FINANCE Page 87 BOX 3.6 Using the EDGE Tool for Project Assessment, Market Sizing, or Policy Analysis The EDGE Tool can be used to assess individual saving is greatest.1 buildings in order to find efficiency enhancing The computational power of EDGE can measures that are best suited for the local climate also be used for market sizing or other data and context. EDGE can also be used for a market analysis. Knowing energy usage per building sizing exercise to understand both projected type multiplied by floor space enables energy needs and investment potential. calculation of the total market. EDGE makes In the below graphic taken from the EDGE Tool, we it possible to explore adaptation to rising can see that a typical middle-income household in heat by overriding current climatic data with Karachi, Pakistan spends 28 percent of its energy predicted temperatures. For example, increased needs on cooling, with the rest divided between temperatures in Karachi in the summer will cooking, hot water, lighting, and other appliances. increase the cooling load by almost 6 percent EDGE can provide similar analysis for different from 18.38 kWh/m2/year to 19.47 kWh/m2/year types of buildings as well as for income levels but will also raise overall savings from passive within the building category, such as low income strategies. The model from the EDGE tool thus versus high income households or a city hotel tells policy makers how much they can reduce versus a luxury resort. EDGE first suggests passive electricity generation demand by incentivizing efficiency measures in a color-coded approach passive strategies or other demand-side where blue corresponds to cooling. The system standards. then offers more technology-oriented solutions. In While beyond the scope of the EDGE tool this example, passive strategies brought the energy which focuses on energy efficiency, the needs down almost 17 percent. The EDGE app program that produced it has issued guidance provides an estimate of the upfront costs for each on choosing refrigerants that comply with the intervention and a packet of interventions, as well Montreal Protocol.2 as the utility savings and the payback period. For builders, certification is a mark of quality This type of comparison of costs and benefits and enhances the market value of the building. can be used by policy makers to understand Helped by IFC’s marketing co-partnerships, this which measures would be most effective in their allows them to sell faster or lease their space respective environments and can be included for a higher rate. For financiers, the certification in revised building codes. Instead of trying to is a strong indicator that expected lower energy include a number of measures, IFC recommends costs, which can be substantial, are valid and focusing on a few places where there the potential can support a client’s ability to repay a loan. For a paper on the lessons learned and how to design and implement building codes, see: IFC. (2020). 1  2 EDGE, (2017). Page 88 Challenges and Response Strategies for Promoting Sustainable Cooling This has enabled a proliferation of instruments company offices in the Philippines led with the like green mortgages or green bonds funding world’s first zero carbon office portfolio, Ayala new construction and retrofits. In contrast Land, one of the country’s largest real estate with other certification systems, the process companies, pledged to certify 1.5 million m2 of their is streamlined, location-specific and quantifies portfolio by 2025. impact. Certified green buildings are helping increase EDGE is equally effective with the building revenues and attract clients. In Colombia, for retrofit process, helping the building owner example, over 27 percent of new buildings are understand impactful technical measures being certified with EDGE, due to a confluence of and the business rationale. IFC partners like banking and government incentives and a powerful Sintali have launched guides and training lobbying effort from CAMACOL, the national programs on decarbonizing existing buildings chamber of construction and local provider for and IFC has developed an integrated advisory EDGE certification. In Viet Nam, about 8 percent and financial program called GRIP: Greening of the addressable market for building growth Real Estate Investment Portfolios. Many IFC is certified with EDGE without any incentives in partners are now able to achieve Net Zero place, as developers recognize the value of product Certification through retrofits. After NEO differentiation, particularly in the housing sector. A snapshot of the EDGE tool with efficiency measures and payback calculations Source: EDGE website - https://edgebuildings.com/ COOLER FINANCE Page 89 Bank launched the Affirmative Finance Action to address awareness, participation, and for Women in Africa (AFAWA) program, which investment challenges. aims to provide $3 billion in financing to female entrepreneurs, including those involved in Promoting Innovation agriculture who have use for cold chains.151 There is broad consensus about the need for more innovative cooling technologies, which Addressing the challenges to financing cold require support for innovation—research and chains in developing countries thus requires a development, and acceleration—as well as range of approaches including public-private growth capital for innovators. Notable examples partnerships, financing mechanisms such as risk- of initiatives addressing innovation are the IFC sharing facilities, blended finance, and grants, or TechEmerge sustainable cooling program, the fiscal incentives such as tax breaks and subsidies, Mission Innovation heating-cooling working and the provision of technical assistance. group, the Ashden Foundation Fund Fair Cooling International organizations, development Fund, the Global Cooling Prize (launched by banks, and governments can play a crucial role RMI, the Government of India’s Department of in facilitating access to finance and providing Science and Technology, and Mission Innovation support to developing countries in implementing in 2018), and the Million Cool Roofs Challenge and expanding their cold chain systems. (launched by the Clean Cooling Collaborative in Demand Aggregation to Lower Prices 2019).152 In March 2024, CLASP was announced as the head of a new $25 million Energy Access One proven way to lower the price of efficient Institutions Facility to support organizations appliances is through bulk procurements, a across sub-Saharan Africa and South Asia and strategy that can be implemented by public increase the delivery of innovative off-grid clean agencies, private entities, or public-private energy solutions, including efficient appliances.153 partnerships. This approach was used effectively by the World Bank-IFC Lighting Africa program TechEmerge is an IFC program that provides to accelerate the introduction of efficient funding and technical support to early stage, light bulbs and can be accomplished by public companies offering products and services with and private partners through a variety of significant potential to benefit developing instruments. Box 3.9 highlights the potential countries. Participants are also connected with and challenges of demand aggregation in leading manufacturers and industrial companies different contexts. These programs demonstrate in emerging markets to conduct pilot projects, significant cost reductions but also underscore build commercial relationships, and reduce risk the need for comprehensive strategies on investments.154 151 African Development Bank (2021). 152 IFC https://techemerge.org/; Ashden https://ashden.org/fair-cooling-fund/; Global Cooling Prize https://globalcoolingprize.org/. 153 CLASP (2024b). 154  https://www.techemerge.org/our-focus/sustainable-cooling/. Page 90 Challenges and Response Strategies for Promoting Sustainable Cooling With financial support from the U.K. BOX 3.7 government, IFC’s TechEmerge implemented a program supporting early-stage, sustainable The ACES Program cooling solutions during 2019–2024. The design Approach to Enhancing and results of this program are discussed in Rural Cold Chains Chapter 4. Through its Disruptive Technologies “Taking a whole systems view will be vital and Funds department IFC is also seeking to ensuring the successful use of cooling as to support early-stage climate technology an adaptation strategy, particularly in the companies through investments in thematic context of transitioning to the widespread climate funds. A recent example is $15 million use of renewable energy. In this holistic in the Southeast Asia Clean Energy Fund II, an approach both the physical and non-physical investment platform and pilot program that components within the infrastructure system will provide equity for early- and growth-stage are considered, as well as the physical and non-physical interdependencies and feedback investments in energy projects in Southeast Asia. loops at the whole systems level. In essence, The fund will invest equity in utility-scale solar, the entire eco-system within which the wind and energy storage, in addition to helping cooling infrastructure sits and operates must businesses go to scale in areas ranging from be considered in-line with the core social goals rooftop solar, energy efficiency, electric mobility cooling needs to deliver (i.e. safe environments and grid management. in which to live, work and move; the provision of universal healthcare and affordable and Additional initiatives to support early-stage nutritious food year-round; protection against innovative cooling have been announced in future pandemics). . . . Equally by taking a recent months consistent with the increasing holistic view, the cooling service needs can attention being given to its importance for be integrated more effectively, efficiently, and optimally into the infrastructure system. This climate and development. In 2024, the Green allows not only the harnessing and leveraging Climate Fund approved a $24.5 million equity of synergies between processes, energy investment in the Avaana Sustainability Fund, a resources and other subsystems, but also the venture capital fund that aims to invest in early- identification of, planning for, and mitigation stage climate technology companies in India. of, possible negative unintended consequences, Also in 2024, the CPI Finance Lab, a multi-donor as well as the realization of potential indirect program that provides technical backing for benefits that are often overlooked.” innovative climate startups, announced support Excerpt from “The Hot Reality: Living in a +50C for a venture fund focused on sustainable World”, p. 7.1 cooling. In yet another 2024 announcement, the Climate and Clean Air Coalition issued a call for proposals from nonprofit organizations for ways to promote climate mitigation in cooling 1  Fox, Peters, and Sayin (2024). applications. COOLER FINANCE Page 91 Programs Supporting Urban Measures to Respond to BOX 3.8 Extreme Temperatures Potential for Sustainability- Cities and other subnational authorities are Linked Financing increasingly engaged in responding to extreme Most of the major cooling equipment heat events as urban areas are typically much manufacturers have announced sustainability hotter than surrounding areas. These so- targets, aiming, for example, to be carbon called urban heat islands are partly caused by neutral by 2030 and achieve net zero the presence of heat absorbing paving and emissions by 2050. Some companies have goals that are beyond their current operations. buildings, made worse by the limited presence For example, in support of reducing food of trees and vegetation to provide cooling. City waste, a Trane target is to “innovate and governments have a range of potential powers commercialize low-cost sustainable products and strategies for reducing heat through zoning for developing markets.” The company also measures, building codes, and requirements worked with street vendors to create a cooling for lighter colored paving. Yet most cities, cart using reflective materials from other especially in low-income developing countries, suppliers. Godrej has a goal to generate a third of its revenue from “good and/or green” lack the technical capacity and resources to products. Daikin supports its commitment identify and implement such measures. Multiple to sustainability goals with a Sustainability initiatives and bodies have formed in an effort and Innovation Center in Washington, D.C. to provide cities with the support needed These commitments create opportunities for for climate programs (See Box 3.10 for some trade and supply chain financing from large examples), including C40,155 the Arsht-Rock equipment manufacturers to support partners, Resilience Center,156 and the Institute for Market suppliers, and customers in achieving more sustainable cooling solutions. Transformation.157 Local and national governments as well as firms and banks can now benefit from solutions that constitute biodiversity finance and nature- like Medellin’s green corridor (see Box 3.10) based solutions. Building on the Green Bond by accessing new sources of climate finance. Principles and the Green Loan Principles, the IFC’s Biodiversity Finance Reference Guide158 guide provides an indicative list of investment provides a structured approach for investors and projects, activities, and components that help financiers to identify eligible uses of proceeds protect, maintain, or enhance biodiversity and 155 https://www.c40.org/. 156 Ajitsaria (2023). 157  https://imt.org/resource-collections/city-energy-project/. 158 IFC (2023b). Page 92 Challenges and Response Strategies for Promoting Sustainable Cooling BOX 3.9 Examples of Demand Aggregation Initiatives The Super-Efficient Air Collaborative and its partners IFC EDGE Program Conditioning Programme have been working to transform There are also opportunities for (India) India’s ceiling fan market, with aggregating purchases to lower a goal of deploying 10 million This was created by Energy the cost of some passive cooling super-efficient fans—roughly Efficiency Services Limited (EESL) measures in the context of 25 percent of national annual to provide affordable, efficient financing multiple housing and sales—across the country air conditioning in India. The commercial building projects. by the end of 2024. To date, program involved a tender This is a feature of the EDGE implementing partner EESL has for 100,000 super-efficient program for certification of completed a bid for 2 million room air conditioners for green buildings. units, achieving a high level residential and non-residential of manufacturer interest and Potential Integration use. Manufacturers (including a price reduction of nearly 40 with Montreal Protocol Daikin, Godrej and Panasonic) percent, which brings the cost of Multilateral Fund developed high-efficiency air the fans in line with much less conditioners for sale at half their Another opportunity for efficient alternatives. original cost, transforming the promoting energy efficiency and market. A significant feature Public-Private Partnership in lower GWP refrigerants may be of this program was that 40 Morocco to integrate bulk procurement percent of the units used lower and other demand aggregation A program in Morocco illustrates GWP refrigerants. While the initiatives with funding from the the potential for public-private program made more efficient Montreal Protocol Multilateral partnerships to aggregate products available at reduced Fund. The fund has approved demand and negotiate lower cost, consumer awareness and $100 million for energy efficiency prices. A buyers’ club was acceptance reportedly remained improvements as part of created with participation a challenge as distributors and enterprise manufacturing from government agencies, vendors were not participants conversion projects, but the commercial banks, and farmer and the uptake fell short of technical issues and scale of cooperatives.1 One government targets. the efforts require much more aim was to promote local investment.2 Efficient Fans Program (India) manufacturing as well as encouraging energy efficiency, Demand aggregation has been lower emissions, and savings to more successful for efficient consumers. fans. The Clean Cooling Andersen, et al., (2020). 1  2 UNEP. (2023b). COOLER FINANCE Page 93 ecosystem services, as well as promote the area. These systems typically produce chilled sustainable management of natural resources. It water at a central plant and distribute it via an also maps the investment activities’ contribution insulated pipe network to various end-users, to the targets of the Kunming-Montreal Global including residential, commercial, and industrial Biodiversity Framework to halt and reverse buildings. District cooling offers a significant biodiversity loss by 2030. opportunity to efficiently meet the demand from large, concentrated, and mixed-use sites IFC’s APEX program provides support for cities such as office buildings, entertainment venues, to improve sustainability by identifying steps shopping centers, and high-rise residential and to reduce carbon emissions from buildings, hospitality buildings. transport, waste, and water. This includes a combination of public policy measures that Aggregating demand lowers installed cooling incentivizes the private sector along with public capacity requirements and limits peak demand procurement. Cooling is addressed for both surges. These systems often feature thermal public and private buildings and via nature- energy storage which ensures that the chillers based solutions to the urban heat island effect. operate in a baseload mode for a higher The APEX process shows cities how to achieve percentage of the time and reduces operating ambitious climate and resource goals with costs. District cooling benefits all stakeholders complementary policies and investment action, and lowers emissions, refrigerant leaks, heat and maps out needs and sources of funds, as islanding effects, noise pollution, electricity shown in Figure 3.1. Participants have included demand, and lifetime costs, while raising Ekurhuleni, South Africa; Ho Chi Minh City, Viet financial returns for district cooling companies. Nam; and Almaty, Kazakhstan.159 Overall, a chiller-based district cooling system results in lifecycle cost savings of 40–50 percent, District Cooling and Other Large- depending on baseline technology, which is Scale Infrastructure Projects shared between the cooling service provider, real Urban areas typically offer the most promising estate developer, and the tenant. Greenhouse opportunities for large-scale cooling gas emissions can be up to 50 percent lower infrastructure projects, such as district cooling, over the project lifetime. Another major centralized cooling systems, and large thermal advantage of district cooling systems is that they storage facilities. Industrial zones represent can utilize renewable thermal sources such as another significant opportunity. geothermal, biomass, solar, or natural bodies of water, which will further increase energy savings District cooling involves the centralized and reduce emissions significantly. production and distribution of cooling to multiple users or buildings within a defined 159 For more information, see www.apexcities.com. Page 94 Challenges and Response Strategies for Promoting Sustainable Cooling However, district cooling typically involves high upfront costs as constructing a central plant and BOX 3.10 piping network requires significant investments. Meanwhile, a lack of supportive legislation and Examples of Initiatives building codes, low awareness among public and Programs stakeholders, sluggish real estate growth, and The C40 has a Cool Cities Network to subsidized electricity in certain markets also promote climate action plans that includes present challenges to the future growth of multiple cities in emerging markets: Accra, district cooling. There is also a widespread lack Cape Town, Dar es Salaam, Durban, Freetown, of experience in structuring appropriate cooling Guadalajara, Mexico City, Quito, Rio de tariffs, alongside low levels of expertise in public Janeiro, Salvador, and Sao Paulo. Cities share policies and strategies such as heat mapping, sector administrations and among real estate heatwave emergency management, and heat developers and cooling consultants. mitigation solutions.1 With the support of such One challenge to the greater adoption of organizations, a growing number of cities now have heat officers responsible for leading district cooling is the difficulty of undertaking responses to extreme heat events. the analysis necessary to identify locations most suitable for the large investments and Medellín, Colombia offers an example of a complex procedures such projects require. These large city with traffic clogged roads that has been able to reduce urban temperatures by systems can be poorly designed, resulting in 2.5°C since 2016 using green corridors that overcapacity or sub-optimal thermal efficiency. mimic natural forests. Large heat trapping IFC is seeking to address this by developing buildings like the city hall have been greened a toolkit that helps real estate developers, with thousands of carefully chosen trees and building owners, and municipalities estimate plants. Officials expect a further 4°C to 5°C the technical requirements of proposed district decrease in temperatures in coming decades.2 cooling systems and better understand the business case for installing them. A number of development institutions offer advisory support for initial assessments of district cooling. For example, SECO, the Swiss Secretariat for Economic Affairs, and UNDP have supported feasibility studies in countries like Colombia while UNEP has backed district cooling assessments in India, Egypt, and beyond. 1 https://www.c40.org/networks/cool-cities-network/. More details on the many specific measures adopted are available from the C40 Knowledge Hub, https:// www.c40knowledgehub.org/s/?language=en_US. World Economic Forum (2024). 2  COOLER FINANCE Page 95 FIGURE 3.1 IFC’s APEX Tool Connects City-Wide Climate Outcomes With Sources of Finance Example from a city in the Asia-Pacific region City-wide financing needs Sources of finance Green infrastructure Develop ponds for rainwater storage 221 435 Grants/own revenue Rainwater harvesting at municipal scale 171 Increase urban forestry 35 Municipal rainwater harvesting 8 Private buildings Solar PV program 1,658 1,353 Property-linked financing Non-residential EE refurb 404 Green roofs 291 1,000 Leasing Electricity Tri/Jeepney vehicles 139 Local banks Private rainwater harvesting 361 803 Electric vehicles (private) 273 Mandate green building code 101 Local developers Green private financing Green building certification 68 Asset corporation Electricity conventional bus fleet 15 Climate-smart infrastructure Expand decentralized composting 364 Municipal debt Expand recovery facilities 106 EV charging infrastructure 43 PPP Streetlights upgrade 31 419 Bus lanes 11 PPP traditional contracts 436 Expand decentralized anaerobic digestion 5 250 Municipal fleet 186 Improve waste collection 4 PPP leasing 250 Replacement of government vehicles 250 169 PPP Energy as a Service Solar PV 142 EE refurbishment 27 Municipal buildings New green construction 17 Source: https://www.apexcities.com/ Note: EE refers to energy efficiancy, EV to electric vehicle, PPP to public-private partnership, and PV refers to photovoltaic. Page 96 Challenges and Response Strategies for Promoting Sustainable Cooling One prominent example of a successful BOX 3.11 project is the Pearl Qatar District Cooling Project in Doha. This is one of the largest IFC Initiatives Promoting district cooling plants in the world and Green Building Codes was constructed on a man-made island. Through the Global Alliance for Buildings and The plant provides cooling to residential, Construction (GABC), IFC is a global leader in commercial, and mixed-use developments, disseminating information on best practices in and can service over 45,000 residents and setting up green building codes which address several commercial entities. A broader cooling, in part through passive strategies. selection of best-practice district energy Governments can adopt both fiscal and non-fiscal projects, recognized for their innovation and policy measures, but there is little awareness sustainability, is detailed in UNEP’s “District that non-fiscal levers can be beneficial for both the public and the private sectors. Interventions Energy in Cities” report.160 Additionally, such as allowing higher density or extra floor the Global District Energy Climate Awards, area for green certified buildings do not cost organized by the IEA, Euroheat & Power, and more in public funds but can be advantageous the International District Energy Association, to developers. This is because it allows them to provide further insights into district energy sell more apartments on the same plot of land, systems worldwide, showcasing projects that thereby offsetting any additional upfront costs have effectively addressed key challenges in related to greener construction. IFC has mapped out incentives already offered by governments the sector. in emerging markets,1 and together with the District cooling was first established in the GABC has shared case studies from industrialized 19th Century with the installation of pipeline countries.2 IFC has also developed a Public Policy Pathways Guide that communicates with refrigeration systems, evolving to the most emerging market governments how to design up-to-date renewable-based smart systems building codes that generate the most impact which combine cooling with other energy in a given climate, how to generate buy-in from considerations.161 the private sector, and how to ensure eventual enforcement.3 This guide is further supplemented It relies on new technologies in areas such as by a step-by-step process based on IFC’s geothermal energy and so-called Seawater experience in Latin American cities.4 Air Conditioning (SWAC) that utilizes the colder temperatures found at ocean depths for heat exchange. Figure 3.3 outlines how such systems work. According to the 1 https://edgebuildings.com/marketplace/governments/ World Bank, SWAC can reduce electricity 2 https://globalabc.org/resources/publications/stimulus- use by more than 85 percent compared programmes-green-buildings-best-practice-examples 3 IFC (2020). 4 https://edgebuildings.com/toolkit/guia-practica-para-el- funcionario-publico/ 160 UNEP (2015). 161 Østergaard et al. (2022). COOLER FINANCE Page 97 FIGURE 3.2 District Cooling Connects Many Buildings to a Central Source of Cooling Production Storage Customer Production ETS Sourcing • Rivers, lakes, and ground water • Waste heat • Solar heat • Sea water • Electricity Customer ETS • Sewage water • Data centers Distribution Source: Adopted from Devcco - District Energy Venture, https://www.devcco.se/ to conventional systems, with high reliability high-efficiency compressors, and advanced and less environmental impact because it control systems. avoids dependence on fresh water or synthetic Cold thermal storage plays a crucial role in refrigerants. Box 3.12 highlights examples of district and industrial cooling by storing excess recent technologies. cooling energy during off-peak periods and Other cooling technologies such as absorption releasing it during peak demand times. This not chiller units are essential for improving efficiency only reduces energy costs but also enhances grid and reducing operational costs. These systems stability. In general terms, these systems work often utilize waste heat from sources such as by producing ice or chilled water during times combined cycle power plants, waste-to-energy of low energy demand and using the stored cold facilities, and industrial ovens, or they harness energy to cool buildings during the day. the temperature differences from seawater, lakes, or geothermal sources. Key components include energy-efficient cooling production technologies such as variable speed drives, Page 98 Challenges and Response Strategies for Promoting Sustainable Cooling FIGURE 3.3 Seawater Cooling Utilizes Cold Sea Water for Heat Exchange Cooling station Freshwater circuit Titanium heat HVAC systems of buildings connected exchangers are used to the chilled freshwater to provide cooling to chill a freshwater circuit using the cold available from the deep seawater Seawater discharge At depth where natural temperature equals discharge (+/- 12oC) Seawater intake Cold sea water is taken from 15oC +/- 800 200m meters 300m 500m Seawater circuit The deep sea water is pumped up 700m to a heat exchanger onshore where Potential SWAC by-products the cold is used to chill freshwater 6oC Potential SWAC by-products 1,000m aquaculture, agriculture and desalination Source: World Bank New Business Models That As discussed in more detail in Chapter 4, these Address First Cost Barriers include pay-as-you-go systems which allow users to pay for cooling in small amounts, and As already discussed, for many consumers and subscription models in which consumers pay cooling applications, the greatest barrier to nothing upfront and are instead charged a the purchase of more efficient and sustainable monthly fee that covers both installation and cooling solutions is the high initial cost, even maintenance. Some of these approaches have though savings will accumulate over time been used with varying degrees of success to because of lower operating costs. promote efficient lighting, clean cookstoves,162 A range of new business models have been and other energy saving measures. Several developed in an effort to eliminate or minimize organizations are actively working to develop, the first cost barrier including ways to separate implement, and evaluate alternative business cooling services from equipment ownership. models for sustainable cooling including BASE, 162 UNIDO (2023). COOLER FINANCE Page 99 BOX 3.12 Examples of District Cooling Technologies Seawater Air Conditioning (SWAC) Cold Thermal Storage A SWAC system under consideration in Montego Viking Cold Solutions4 provides thermal energy Bay, Jamaica will provide efficient air conditioning storage for refrigeration, optimizing energy use for buildings and district cooling systems. It will in supermarkets, cold storage warehouses, and work by pumping cold seawater through a pipeline distribution centers, across the United States. to a heat exchanger where it will cool a secondary DN Tanks5 specializes in thermal energy storage freshwater loop. This chilled water will then be tanks for district cooling systems, large commercial circulated through a district cooling network, facilities, and industrial applications. These tanks significantly reducing energy consumption store chilled water or ice and are used in projects compared to conventional air conditioning like the Enwave Deep Lake Water Cooling system systems.1 in Toronto, Canada, a massive district cooling The Deep Ocean Water Applications project project demonstrating the utility-scale application in Mauritius is supported by the Sustainable of this technology. Energy Fund for Africa. The system is expected to use only 4MW of electricity compared to the 30MW currently needed to power conventional systems, resulting in significant energy savings and a reduction of 40,000 tons of CO2 emissions annually.2 Absorption Chiller Units The Keppel Seghers Tuas Waste-to-Energy Plant in Singapore converts municipal solid waste into energy and uses the waste heat for district cooling. Singapore’s success with waste-to-energy technology provides a model for developing countries seeking to manage waste and energy needs efficiently.3 1 UNEP. (2023b). ACR Journal (2016). 2  Keppel Corporation (2020). 3  4 https://www.vikingcold.com/. 5 https://www.dntanks.com/what-we-do/thermal-energy-storage/. Page 100 Challenges and Response Strategies for Promoting Sustainable Cooling an NGO based in Switzerland, and CLASP. Many cooling utility operates the assets. This of these business model innovations have been model can be found in countries like demonstrated primarily in well-established, Malaysia and Thailand. Other business higher-income markets rather than poorer, models are emerging in India and Egypt rural areas where gaps in cooling access are where district cooling companies are acute. However, efforts to learn from experience working with office buildings and malls and design and implement such approaches under build-own-operate or build-own- more effectively are ongoing.163 Chapter 4 operate-transfer structures. They are includes a detailed discussion of new business usually equity financed by the district models and financial instruments for promoting cooling companies. Once the project sustainable cooling solutions in difficult-to-reach is established, the infrastructure is in market segments. place and regular payments are coming in, it may take on debt to pay back the Business models for financing and operation of equity capital. The role of blended finance district cooling also include a number of different through instruments such as subordinated company structures and agreements: debt or performance-based grants can Private or public concessions: A private encourage adoption by covering the risk company or a government entity procures around upfront costs with long-term cooling through a long-term concession payment partially offset through first agreement. In this model, a district cooling loss guarantees. system is financed and operated by a In-house model, where a real estate utility. The contract includes terms such developer or a municipality (or a as exclusivity of service, performance municipally-owned company) develop standards, take or pay (for the whole district cooling solutions, handling their project or partially until a certain level of design, financing, construction, and demand builds up), or the right to suspend operation. or terminate service for non-payment. This arrangement is common in markets like Government Cooling Action Plans France, the United Arab Emirates, Malaysia, and Other Initiatives Promoting and Singapore. Greater Consumer Awareness Joint Venture or Special Purpose National Cooling Action Plans (NCAPs) are Vehicle model: A joint venture is formed emerging as a vehicle for countries to develop, between a real estate developer and a engage communities, and communicate their district cooling company. The venture is actions to reduce emissions and improve co-financed by the parties while a district access to cooling. The UNEP-led Cool Coalition 163 Perros et al. (2024). COOLER FINANCE Page 101 BOX 3.13 Gas Utility Business Model for District Cooling, for Social Housing in Colombia The tropical city of Cartagena in Colombia was This initiative to connect social housing to a district one of the first cities in South America to operate cooling system is the first of its kind in South district cooling. The Gran Manzana district system America but is similar to efforts being made in is a private project operated by Celsia, the third locations elsewhere including in Paris. The same largest utility in Colombia. model has been employed globally for district heating for decades. While connecting social Celsia, in collaboration with the Energy District housing may require high levels of public finance, Project, is launching a pilot to connect around 50 the developmental benefits are significant, making low-income families from a nearby social housing it possible to protect vulnerable populations from development. This effort involves support from extreme heat.1 the Colombian ministries of Environment and Energy, the United Nations Industrial Development Organization (UNIDO), and the Swiss government, which has provided grant funding. Celsia’s expansion into district cooling, along with similar moves by other Colombian utilities helped boost the credibility of district cooling in the country and advance the maturity of the local utility industry. The project in Gran Manzana uses waste heat from Celsia’s gas power operations, resulting in significant environmental benefits from the simultaneous generation of energy and cooling. The Energy District Project with a grant injection of $400,000 will contribute to this Gran Manzana project to cover connection costs and finance the internal fan coil systems in each home that link to the chilled water supply providing the cooling. Challenges faced by the project include the need for Celsia to compete against heavily subsidized power tariffs for residential users while much still needs to be done to build customer confidence. For more information of the Colombian District Energy Project please visit: https://www.distritoenergetico.com/. 1  Page 102 Challenges and Response Strategies for Promoting Sustainable Cooling includes a working group on NCAPs, with a of productive applications, including cooling, methodology to assist countries and cities dependent on distributed energy solutions for creating regulatory plans. For example, multiple areas not served by a reliable grid connection.166 cities in India have adopted cooling action plans In sum, there are many challenges to increasing that include measures like community cooling private sector investment in sustainable cooling centers to promote the use of passive strategies products and services in emerging markets. and protect the most vulnerable residents Fortunately, there are increasing efforts to from extreme heat.164 The Government of develop innovative strategies and solutions. India has developed a framework for heatwave mitigation165 and is working with the World Bank to develop and fund a substantial program to support sustainable cooling efforts. Initiatives that promote the availability of more sustainable cooling solutions can only succeed if consumers come to understand and desire such products. A bulk procurement program, for example, may lower prices to competitive levels but if vendors do not promote them, consumer acceptance may continue to lag. This challenge is the focus of ongoing work by the Government of India and CLASP. One approach would be for banks or micro-finance institutions together with manufacturers to jointly devise consumer awareness programs and financial products that would enable low-income consumers to switch to more efficient products or access new cooling solutions. IFC and other development finance institutions have collaborated for many years on related issues in the context of initiatives to promote off-grid solar systems. Initially focused on the benefits of efficient lighting, the organization GOGLA has shared its experience with a range 164 NRDC (2023). 165 NRDC (2023). 166 Global Off-Grid Lighting Association (GOGLA) website, www.gogla.org. 4 Financing Solutions and Innovations COOLER FINANCE Page 105 C hapter 3 discussed challenges to the adoption of sustainable cooling technologies and efforts being made to address them through policies, regulations, and consumer awareness campaigns. But even when non-financial measures such as these are successful, people and firms still need a broad set of financing mechanisms to access cooling technology or adopt passive strategies. While many sustainable cooling solutions have Finally, the chapter discusses the role of high initial purchase and installation costs offset concessional funding and how development by lower operating costs over time, the former finance institutions can help mobilize private is still perceived as a significant disincentive for capital into sustainable cooling. households and firms. In response, new business models are emerging to cover these initial costs 4.1 From Cooling and Financing and spread them over a longer period through novel consumer finance structures or service- Needs to Business Models based mechanisms. and Financial Instruments  Ultimately, these need to be commercially viable This chapter builds on the premise that scalable and financially sustainable, and some already private commercial financing for sustainable are. This chapter describes some of the new cooling requires a diverse set of instruments to address the many challenges, needs, and gaps business models and the financing options that described in Chapters 2 and 3. This is necessary can enable them. It also outlines facilities that to meet the varying needs of the many different leverage concessional finance to break down firms providing cooling solutions as well as market barriers and create new funding streams. the end customers, including both firms and The chapter begins with an overview of households. business models for financing demand for As Figure 4.1 depicts, the design of financial cooling among consumers facing affordability instruments for cooling begins with a very basic constraints on account of the upfront capital formulation: an understanding of both consumer costs of implementing certain passive strategies needs and the characteristics of firms that or of installing active cooling equipment. This offer products that meet those needs. Financial is followed by an overview of the financing instruments must take each into account while requirements and challenges faced by remaining responsive to the risk appetite of sustainable cooling providers at various stages financiers. At each stage it is important to of their maturity. Next, it provides a blueprint for consider the following critical questions: financing facilities to fund sustainable cooling that meet the needs of distinct markets and Who needs the finance and why do they business models. This includes a discussion of need it? different financing mechanisms and instruments, Who is providing the finance, why are they from revolving funds to risk-sharing facilities doing it, and what is their risk appetite? and equity, giving examples of their application. Page 106 Financing Solutions and Innovations Consider the example of homeowners about the level of risk this puts on its own thinking about purchasing a high-efficiency air balance sheet may then prompt it to seek a third conditioner. To make this decision, consumers party—such as a bilateral donor or philanthropic need first to understand the financial benefits fund—willing to extend credit at preferential of purchasing the new equipment that may be rates to be blended with the multilateral more expensive to buy than some alternative institution’s funds, or to serve as a first loss products but uses less electricity, making it guarantee in the event of loan defaults. cheaper to operate and less costly in the long Understanding these financial supply chains run. Consumers can be made more aware of the for different cooling markets is critical to better long-term financial outcome from buying providing the right business model, and then the more expensive unit through campaigns the appropriate financial structure to cater for by government agencies, power companies, the requirements of the cooling provider firm, vendors, or local financial institutions. For the consumer, and the relevant financial sector. those homeowners that do not have access to Building awareness around the financial and sufficient capital to buy the desired unit outright, business case for each stakeholder in the value an alternative payment system or business chain is the key to success. model can spread the cost over time. The retailer, for example, may offer terms that 4.2 Business Models spread the cost of the appliance over a longer period, helping address consumer resistance Addressing Affordability and to the higher upfront cost of more efficient Financial Constraints equipment. Rather than provide the financing Business Models are shaped by how a company from its own capital reserves, the retailer may creates, delivers, and captures value to satisfy seek a line of credit from a bank that lets it offer customer needs. This includes the nature of the similar payment plans to multiple customers. relationship between the provider of a product A bank providing this service will want to or service, and the consumer. Affordability is a understand, at least at a basic level, the risk particularly significant constraint and central associated with the latest high-efficiency air to any business model. The private sector has conditioning technology. Having assessed and shown considerable innovation and initiative priced the risk, the bank may decide it needs in creating business models to address key additional liquidity in anticipation of high challenges around affordability related to high demand for this type of loan. It would then need upfront costs, reducing risks, and ensuring to raise additional funds or seek a risk-sharing market growth and sustainability. These agreement with a public entity or international include pay-as-you-go (PAYG) programs, financial institution. The multilateral cooling-as-a-service (CaaS), on-bill financing organization or public body may in turn want to (OBF), dealer financing, leasing, energy service offer preferential terms to encourage adoption companies (ESCO), and bulk procurement. The of a more sustainable technology. Uncertainty principal financing constraints of these different COOLER FINANCE Page 107 FIGURE 4.1 The Design of Financing Instruments for Cooling Is Driven by Consumers’ and Providers’ Needs and Characteristics as Well as the Local Market Context Firm characteristics Cooling solutions and Market risks activities Providers' and financing regulations needs FINANCING INSTRUMENTS Financiers' Business model risk appetite Consumers' financing needs Consumer Cooling characteristics needs Source: Authors Page 108 Financing Solutions and Innovations models can be summarized as follows: through disconnection policies for non-payment, providing a strong incentive for customers to Cooling Consumers’ stay current on their bills. Additionally, utilities Affordability Constraints have access to customers’ payment histories, In developed economies, financial markets are enabling them to assess creditworthiness typically more sophisticated, offering a broader and reduce the risk of granting financing to array of financing options to private consumers. unreliable payers. This contrasts with many developing economies, However, utilities typically do not want to divert where, despite the presence of high-income their own funds to finance these mechanisms. individuals who may have access to savings and Third-party financing can provide the necessary credit, these resources may not be available to capital without straining utilities’ resources, the majority of consumers. This is particularly allowing financial institutions to manage the true for low-income urban and rural populations loans. Loan guarantees and insurance policies who are the most vulnerable to heat-related can protect against potential losses, while climate impacts. reserve funds offer a financial buffer. Robust Micro, small and medium-sized enterprises credit risk assessment tools help identify reliable comprise the majority of businesses in most payers, and structuring payments to align developing countries and represent a diverse with energy savings to make financing more group of firms. Many face liquidity challenges, affordable, reducing default risks. Additionally, which may hinder their access to finance and partnerships with government programs can ability to address their cooling needs or adopt provide extra financial support and incentives. sustainable cooling solutions. On-wage financing (OWF) enables employees On-bill financing (OBF) has proven to be to acquire energy-efficient appliances and an effective business model for promoting systems through a financing mechanism that and financing the widespread replacement of is repaid via deductions from their monthly inefficient appliances, such as refrigerators and salaries. This model makes cooling accessible for air conditioning systems. This model primarily low-income individuals in formal employment targets residential customers and SMEs, as it capitalizes on the stability of their income facilitating the purchase of energy-efficient and the employer’s commitment as a guarantor appliances. The cost of these new appliances to secure the financing. Under the OWF model, is added to the customer’s regular utility bill, a bank or financial institution provides the allowing them to pay for the equipment over necessary upfront capital for the purchase of time. This integration is proving successful energy-efficient appliances. The repayment is because customers prioritize paying bills for structured as a deduction from the employee’s utilities, which are essential services, thereby monthly salary, facilitated by an agreement reducing the likelihood of payment defaults. between the bank and the employer, which Furthermore, utilities can enforce payment guarantees the credit repayment. The OWF COOLER FINANCE Page 109 model provides the potential to engage a wider consumer base through employers BOX 4.1 who are committed to sustainability and employee welfare. Cooling as a Service Initiative BASE launched the global “Cooling as a Service Cooling Providers’ Initiative,”1 now part of the SET Alliance,2 to showcase Financial Constraints the CaaS model across various countries. This effort engaged leading manufacturers like Johnson Controls, Businesses operating leasing type models Daikin, Trane, and Carrier, as well as project developers including Pay-as-you-go (PAYG) need such as Singapore’s Kaer, South Africa’s Energy Partners access to sufficient capital and financing Refrigeration, India’s Smart Joules, and Indonesia’s to build inventory as well as to train Synergy Efficiency Solutions. Specialized funds such and pay staff. In off-grid settings, the as MGM Innova Capital (focused on Latin America) technology may need to be bundled with and Sustainable Development Capital (focused on Asia, Europe, and the United States) also participated. additional equipment, such as solar home Despite financial benefits such as stable yields and systems, increasing cost and financial risk attractive returns on investment, CaaS providers face due to higher debt-to-equity ratios. several potential financial constraints. They may be accustomed to a rapid turnover of capital leaving them The emergent business models for reluctant to immobilize funds for extended periods. larger and smaller appliances are still The shift from traditional sales to a service model can in their infancy and viewed as high-risk impact revenue recognition and financial statements. transactions by financial institutions. Additionally, holding a large number of assets on PAYG and regular asset financing are balance sheets can affect financial ratios and perceived the two business and financing models health. High initial capital requirements may lead to that have gained prominence in bringing increased debt, raising concerns about leveraging and the cost of capital. cold storage equipment and cooling appliances such as fans within reach of Cooling-as-a-service has been effectively implemented rural users. The equipment is often sold to strengthen agricultural cold chains in developing in these contexts by a distributed energy countries. This approach enables entities to invest in and manage distributed cold rooms, often solar- service company alongside a solar power powered due to their off-grid locations, providing supply that enables the stand-alone essential refrigeration services that reduce food powering of the appliances. waste and help small crop producers maximize yields. BASE has supported operators and investors in India, In a structure widely used for the sale Nigeria, and Guinea-Bissau to scale up this model by of off-grid solar systems, the customer incorporating CaaS, allowing farmers to pay per use agrees to make regular payments through mobile payment systems. In cases of non-payment, the service 1 www.caas-initiative.org. provider can remotely disconnect the 2 www.set-alliance.org. service. Detailed descriptions of such Page 110 Financing Solutions and Innovations rather than invest in cold storage infrastructure. cold room has already benefited over 300 Additionally, digitization and machine learning farmers, and the entire project aims to impact tools3 are helping operators and investors in cold more than 2,500, significantly improving their storage manage payments, maintenance, and incomes and reducing post-harvest losses. other functions more efficiently. Digitization also • SokoFresh, a supporting partner of the enables farmers to use their phone cameras to CaaS initiative by BASE, is actively exploring analyze and track their crops in the cold storage and implementing the model in Kenya. facility. They receive technical and market By disseminating success stories and information on the optimal timing and duration strengthening the CaaS network, SokoFresh for cooling, helping to maximize shelf life and has made significant strides in energy-efficient product quality. This tool ultimately aids farmers in cold storage. As of 2020, SokoFresh operated optimizing their profits. nine units and planned to increase this Scaling this model is investment-intensive and number to 190 by 2023, aiming to offset 7.7 requires patient capital due to the long-term million kilograms of CO2 emissions annually recovery periods. Moreover, risk mitigation through solar power use and reductions in instruments are essential. Partial credit guarantees post-harvest losses. are necessary to facilitate access to credit for • ColdHubs employs a pay-as-you-store model operators, who are typically small and medium- in Nigeria, charging 100 Nigerian Naira ($0.50) sized enterprises. Additionally, insurance coverage per day for storing a 20kg crate. Operated is crucial to protect against liabilities arising from by female hub operators, this model ensures potential technical failures in the refrigeration efficient management and monitoring of the process. storage process. By owning the equipment, Some cold-chain project examples include: ColdHubs eliminates the capital expenditure barrier for small-scale operators. Serving 3,517 • Koel Fresh, in partnership with Rourkela farmers, retailers, and wholesalers, ColdHubs Municipal Corporation, is implementing has 24 operational cold rooms, with plans to solar-powered cold rooms at farm-gates and expand to 54 by the end of 2020. The social market-yards operated by local women’s and economic impacts are profound, doubling federations in Rourkela, India. This initiative, household income for small farmers, retailers, supported by BASE and Empa’s Your Virtual and wholesalers to add an extra $60 per Cold-Chain Assistant, leverages the Coldtivate month; creating 48 new jobs for women; and mobile app for inventory management, post- improving the quality of 20,400 tons of fresh harvest processes, and market intelligence produce to help ensure food safety and reduce within a CaaS business model. Strategically waste. Additionally, ColdHubs has saved placing smaller cold rooms across major areas approximately 462,528 kg of CO2 emissions in Rourkela rather than a single large facility and reduced annual energy consumption by enhances accessibility and efficiency. The pilot 547 kWh in these facilities. BASE program - Your Virtual coldchain Assistant - Coldtivate App. https://yourvcca.org/. 3  COOLER FINANCE Page 111 systems and experience to date is available from experience, both positive and negative, needs to project reports.167 be accumulated, evaluated, and disseminated. Bulk procurement has been used for the sale, Under the energy service company (ESCO) service and maintenance of stand-alone cold model, the financier makes direct investments storage appliances and cooling devices such as into an energy service company which enters fans, mainly in the public sector. Organizations into a performance contract with its clients. engaging in bulk procurement need to have These contracts can include commitments sufficient financial resources from loans, grants, to guaranteed savings, shared savings, and or public finances, as well as access to the contract energy management. The ESCO organizational capability to run such tenders guarantees energy and monetary savings, and distribute the appliances. While they help carries the performance risk of the technology, to lower prices, it is important to design these and is also responsible for making payments programs in a way that does not create market to the financier. IFC has financed projects distortions. The Energy Efficient Services based on this business model for more than organization in India, a state-owned venture, a decade with mixed results.170 This type of is in the early stages of a program to distribute model is best suited to standardized technology efficient fans and cookstoves, building on earlier packages with predictable levels of energy and experience promoting energy efficient lighting.168 cost savings. However, there are associated issues to consider, including high upfront Under the cooling-as-a-service (CaaS) model, investment and energy audit requirements, the provider owns infrastructure such as the risks to lenders amid uncertain energy efficiency HVAC systems that cool commercial buildings savings, and potentially complex energy or the solar powered cold rooms used by performance contracts. farmers. The end user pays a fee for using the system, eventually covering the CaaS provider’s Another business model boosting energy investment, maintenance and operation costs efficiency is known as Contract Energy while providing them with a margin of profit. Management, where the energy assets remain CaaS has been championed by BASE169 and in the hands of the host company, but a third adopted in hospitals, commercial buildings, and party operates the infrastructure. This approach cold chains in crop production. It is important can be appropriate for small and medium- to note, however, that CaaS is still an emerging sized enterprises (SME) where they do not business model. It has high potential to be an have the in-house expertise to manage their effective stimulant for the cooling market but energy services. 167 IRENA (2020); see also Pay-as-you-go Approaches (Energypedia), https://energypedia.info/wiki/Pay-as-you-go_Approaches_(PAYGO). 168 Kumar (2023). 169 BASE (2019). 170 IFC (2017b). Page 112 Financing Solutions and Innovations Box 4.2 presents various examples of the sustainably dispose of old equipment so that it business models discussed in this section, some does not re-appear as inefficient second-hand of which were drawn from a 2024 report by equipment in a target or third country. Old ESMAP and SEforALL.171 These examples illustrate appliances may contain hazardous materials, different strategies for financing and delivering including refrigerants, which need careful cooling solutions, highlighting a focus on energy handling and disposal. But they may also contain efficiency and sustainability. valuable materials such as metals. Incorporating partnerships with waste management companies can significantly enhance the benefits 4.3 Program Design to of a program and help to avoid issues around Address Market Barriers to hazardous waste and dumping of outdated Sustainable Cooling Finance equipment. Figure 4.2 shows some of the many To show how different financing mechanisms ways such arrangements can operate through can be designed to address the financing needs a generic program design featuring alternative of cooling providers and consumers interacting methods to structure finance and payment through a variety of business models, we use arrangements for sustainable cooling equipment a generic framework that combines technical and services. assistance and financial instruments for a range of partners including commercial transactions 4.4 Financing for Different between private parties (e.g., consumers, banks, Stages of Business Maturity retailers), as well as governments, development finance institutions, and concessional finance.172 For all companies, research and development (R&D) activities may be highly dependent on This approach may be highly applicable to grants and fiscal incentives from philanthropic sustainable cooling markets. But significant organizations, governments, or development nuances arise from the appropriate business agencies. However, mature businesses would models in each sector and whether the have more access to equity financing to fund stakeholder relationships are ‘business to their R&D than smaller or younger companies. consumer’ or ‘business to business.’ Food For smaller, earlier-stage firms involved in transport has a very different value chain than innovation and scale-up activities, venture real estate construction, and even within real capital and private equity can be sources of estate residential construction has a distinct funding. This may be combined with financing model to commercial property. Another issue from multilateral funds or development finance to consider which is particularly relevant for institutions, complemented by grants and equipment replacement programs, is how to fiscal incentives. To date, there has been very 171 ESMAP (2024). 172 Nonbanking financial institution partners include insurance companies and specialized funds, among others. COOLER FINANCE Page 113 limited funding for sustainable BOX 4.2 cooling from private equity and venture capital which have focused Examples of Additional Business on other climate technologies, Models for Cooling including many at very early stages On-Bill Financing of development such as direct air capture and green hydrogen. • An OBF Program in Mexico aimed to replace One exception is the Catalyst 1 million fridges. The program included Fund, a recipient of support from energy-efficient lighting, refrigeration, and the CPI Lab, an accelerator with air conditioning, supported by financial international funding from over instruments and backed by a $251 million World 100 institutions in government, Bank loan, a $50 million CTF loan, and a $7 development finance, philanthropy, million GEF grant. and the private sector.173 The • The ECOFRIDGES on-bill financing program Catalyst Fund has made several in Senegal facilitates the purchase of energy- investments in early-stage efficient appliances by allowing consumers to companies with cooling and cold finance them through manageable monthly storage solutions for Africa.174 payments added directly to their electric Grant financing can be particularly utility bills. important for project preparation, On-Wage Financing market research, development of new financial products, investment • Green On Wage in Ghana offers credit to strategies and new technologies. It employees for sustainable air conditioners and is also key to channeling technical refrigerators, with repayment deducted from assistance to governments their wages.1 developing enabling policies. Grants Pay-as-you-go have also targeted Africa and challenging sectors. One example • Koolboks offers a cooling service funded is the World Bank ESMAP cooling by small payments in Nigeria and supplies facility approved by the Green distributors in East and West Africa. Climate Fund with $32 million in • Oorja in India offers solar-powered cooling grants out of a total commitment services to smallholder farmers on a pay-per-use basis. 173  https://www.climatepolicyinitiative.org/ the-programs/the-global-innovation-lab-for- 1 https://united4efficiency.org/country-regional-activities/ghana-senegal/. climate-finance/. 174 Catalyst Fund (2023). Page 114 Financing Solutions and Innovations of $157 million.175 Grant funding for distributed not be sufficient to meet current and plausible renewable energy also sometimes includes estimates of future demand needs. Some of powering efficient appliances in its objectives, the initiatives to support R&D for sustainable such as the $25 million Energy Access Institutions cooling fall in the alternative instruments of the Facility launched in March 2024.176 framework proposed by Cirera and Maloney,177 which includes market-based and nonmarket Concessional finance—provided by multilateral incentives, as well as provision of goods and funds and development finance institutions services to innovators, collaboration policies in the form of concessional loans, risk capital and regulation. Box 4.3 highlights several such for guarantee facilities, capital buy downs, initiatives supporting early-stage development. or results-based instruments—is especially helpful for pilot projects and higher risk, lower While grants provided by the programs in return markets. On the other hand, impact Box 4.3 have been successful in identifying investment or traditional financing from technically feasible solutions to challenges in financial intermediaries are available to fund specific sectors, larger scale funding with the more established firms engaged in scaling-up involvement of venture capital financing is their sustainable cooling products and services. required to attract new firms and entrepreneurs. Public-private partnerships can be used to The Avaana Sustainability Fund is an example finance scale-up and growth, although the of what is needed. Greater seed financing private side of these partnerships will usually will incentivize broader innovation across the seek financing through financial intermediaries, different areas of cooling covered in this report. multilateral funds, and development There is an increasing awareness and demand finance institutions. for sustainable cooling technology, but the Financing Needs for R&D challenge is to find technologies that justify and Innovation the upgrade of equipment and that can be produced at costs consistent with affordability. Surging demand for active cooling for comfort, The absence of (i) market incentives, (ii) agriculture, healthcare, and industry implies support to innovation (R&D and acceleration), greater energy use. In order to stop that and (iii) growth capital to innovators hinder translating into soaring emissions, new and more industry efforts to invest in research and efficient technologies are needed, which will development. Without significant market pull, require more financing for research. manufacturers may be reluctant to invest in new Many of the new initiatives under development technologies and may continue to produce and are achieving promising results. But they will sell conventional cooling systems that are less 175  https://www.greenclimate.fund/project/fp177. 176  https://www.clasp.ngo/updates/clasp-chosen-to-lead-initiative/. 177 Cirera and Maloney (2017). FIGURE 4.2 There Are Different Financing Mechanisms to Support a Variety of Business Models Defined by the Interactions Between Cooling Providers and Consumers Transaction Private commercial participants: transactions: SCENARIO A Equipment/ Payment services Cooling consumers This is the simplest scenario whereby a • Firms consumer uses their own • Households funds to purchase or lease an appliance. Cooling providers and market partners • Cooling provider firms • Associations • Energy service companies SCENARIO B Equipment/ • Utilities Payment An extension of services scenario A but where commercial borrowers Loan take loans from banks to manage their capital Repayment Financial institution structure. partners • Banks • Non-bank financial institutions • Public finance institutions • Leasing companies Equipment/ Loan SCENARIO C services Payment Repayment An extension of scenario A but where a Government / consumer takes a credit from a bank to purchase International Finance an appliance. Institutions / Implementing Agency Transactions supported by concessional finance: SCENARIO D Equipment/ Payment An Implementing Agency provides a services blend of technical assistance as well as a financial instrument (either ‘funded’ or ‘unfunded’ and possibly on preferential Financial instruments terms) to an intermediary such as a utility or retailer, who then provides Technical assistance financing to consumers. Facility payments Equipment/ Loan SCENARIO E services Payment Repayment An Implementing Agency provides a blend of technical assistance as well as a financial instrument (either ‘funded’ or ‘unfunded’ and possibly on preferential Financial instruments terms) to a financial intermediary such as a local bank or leasing company, who Technical assistance then provides financing to consumers. Facility payments Equipment/ SCENARIO F services Payment An Implementing Agency, including the government, provides incentives and Note: Additional scenarios technical assistance and information to can be created by combining consumers to encourage their adoption Financial instruments those outlines here, for example, a scenario where of sustainable cooling solutions. Technical assistance commercial borrowers (Scenario B) and private consumers (Scenario C) take loans from banks, or an alternative scenario where implementing agencies incentivize sustainable cooling both from the cooling market supply (Scenario D) and demand (Scenario F) sides. COOLER FINANCE Page 117 environmentally friendly. Much BOX 4.3 more needs to be done to make investors aware of the Initiatives to Support R&D and Innovation sizable business opportunities The Global Cooling Prize In 2024, the Green Climate available in a market growing (launched by the Rocky Fund approved a $24.5 million to $600 billion per year, or Mountain Institute in 2018) equity investment in Avaana more, across developing and the Million Cool Roofs Sustainability Fund, a venture economies in the coming two Challenge (launched by the capital fund that aims to decades (see Chapter 2). This Clean Cooling Collaborative invest in early-stage climate market is likely to become in 2019) are two global technology companies in India, competitions that provided including some with a focus even larger in response to up to $1 million awards to on sustainable cooling.3 the increasing climate and scalable cooling innovations cooling commitments made Also in 2024, the CPI Finance (and in the former case, under by countries, evidenced by Lab, a multi-donor program certain minimum efficiency the Global Cooling Pledge and that provides technical and sustainability standards).1 support to innovative climate evolving regulations documented In April 2024, UNEP and startups, announced support in the 2023 Global Cooling Watch ASHRAE, the professional for a venture fund focused on report. Even more support is association of heating and sustainable cooling. required to close an $813 billion cooling engineers, announced In yet another 2024 gap across developing economies a competition to promote announcement, the Climate through affordable and innovative design, research, and Clean Air Coalition sustainable cooling technologies. and practice in developing released a call for nonprofit countries to minimize the global warming potential organizations to propose ways Scaling Up Adoption of refrigeration and air to promote climate mitigation of New Technology in cooling applications. conditioning applications.2 There are additional challenges moving beyond R&D and initial testing during the innovation 1  For further details on the Global Cooling Prize see https://globalcoolingprize. phase to scale up the adoption org/ and on the Million Cool Roofs Challenge see https://www. cleancoolingcollaborative.org/blog/million-cool-roofs-challenge-local- of new technologies. The champions-for-a-global-movement/#:~:text=With%20the%20ultimate%20 goal%20of,access%20to%20cooling%20is%20low. Two of the prize winners focus shifts to funding for came from established air conditioner manufacturers. To further incentivize disruptive innovations, existing or new firms and entrepreneurs need to be innovative business models, attracted into the cooling space through a combination of greater funding for seed capital and venture capital funding to scale and implement successful greater incentives for design innovations. These can be provided through larger targeted funds in the cooling innovation space combining different funding sources from currently changes and the use of passive involved donors and multilaterals with private investors. strategies, as well as exploring 2 https://www.unep.org/ozonaction/news/news/ashrae-and-unep-launch- 2024-lower-gwp-innovation-award. instruments that reduce risk in 3  For additional details on the Avaana Sustainability Fund see https://www. order to attract more private greenclimate.fund/project/sap037. investment. Development of Page 118 Financing Solutions and Innovations BOX 4.4 IFC TechEmerge Cooling Program In 2019, IFC launched the and in-kind contributions from to pilot innovative cooling TechEmerge Sustainable participating innovators and technologies. Similar approaches Cooling Innovation (TE-SCI) corporates to demonstrate could be replicated to determine program to connect innovators and validate climate-smart the right amount of blended across the world with leading cooling solutions. This approach capital to support and sustain emerging market companies stimulated more than $75 million the growth of new cooling to pilot sustainable cooling of investment in innovators and technologies and business technologies and business proved to be an effective model models to scale over time and models. The aim was to reduce to address the biggest barriers. help bridge the growing gap risk on investments and provide For example, most investment between climate commitments a demonstration effect to opportunities in cooling and realities.1 accelerate the adoption of new innovators do not conform cooling solutions. In partnership with the typical return profile in with the U.K. Government, the venture capital asset class TechEmerge carefully matched as they are usually asset- and 40 high-potential cooling CAPEX-heavy businesses with innovators with 52 corporates in relatively long gestation periods. Bangladesh, Colombia, Ecuador, This tends to extend the duration India, Kenya, Mexico, Nigeria, between funding rounds for Rwanda, Turkey, and Viet Nam. cooling innovators and stunt Together, they field-tested a their growth prospects, while total of 79 cooling solutions in also delaying the launch of real world conditions, focusing mass market-ready cooling on the key themes of cooling in innovations that are critical to cities, cold chains, temperature- meet climate commitments controlled logistics, space at all levels. However, through cooling, and CaaS business the calibrated blending models. of commercial and non- commercial capital, TechEmerge Along with providing expert was able to balance risk and technical advice, TechEmerge reward and provide corporates leveraged $5.2 million in grants, and innovators with confidence combined with matching cash Supporting follow-on financing was beyond the scope of TE-SCI, which focused on establishing techno-commercial feasibility 1  under pilot conditions. TE-SCI encouraged direct negotiations between adopters and innovators rather than participating in the actual financing mechanisms. The new cooling trust fund will build on the learnings from TE-SCI with a broader mandate, allowing for potential investments following initial interventions. This fund aims to support larger, more integrated, and longer- duration projects across various sectors such as built environments and cold chains. COOLER FINANCE Page 119 financial initiatives and BOX 4.5 new instruments to mobilize public and Cooling-as-a-Service as a Model to private sector finance Scale Up New Technology for scaling sustainable Cooling-as-a-service is an costs), and monitoring. cooling requires time to effective business model for implement, evaluate, and Financing Strategy: Providers scaling up the adoption of new expand.178 For instance, need a robust financial structure to technology, in part because it frees energy-efficient cooling manage asset ownership, secure consumers from the need to pay financial support, and incorporate technologies face high upfront costs for purchasing risk mitigation mechanisms. challenges in gaining and installing new equipment. It is CaaS is typically offered as an market share due to important to promote acceptance off-balance-sheet agreement, higher upfront costs of this structure and support its meaning the customer benefits adoption with public and private and limited awareness from the asset's performance finance, as well as development among consumers. without owning it. This adds aid and technical assistance. Therefore, policymakers complexity to liabilities and risks. Key support areas for Financial structures such as Special and market actors implementing the CaaS model Purpose Vehicles or refinancing need to incentivize the include: mechanisms like securitization adoption of sustainable or sale-leaseback are important cooling solutions Standardizing Contractual considerations. Additionally, finding Arrangements: These should through some of the the right equity-to-debt ratio is involve long-term relationships measures described crucial to meet the capital intensity between providers and customers, in Chapter 3, such as of these deals and maximize with a focus on managing risks. labeling programs, and returns. The emphasis is on the cooling public procurement system's performance rather than Behavioral Change Strategy: A of high-efficiency its characteristics. Contracts need significant challenge for providers products.179 to address aspects such as early seeking to convince customers to termination, default on service fee adopt the ‘as a service’ model is a The process of scaling payments, and system failure or widespread emotional attachment sustainable cooling underperformance. to owning assets. Providers need technology can be support to change customer Pricing Structure: Estimating the accelerated in several behavior and build market trust. service outcome price differs from Key arguments include avoiding ways. One is harmonized traditional supply and installation the need to invest in non-core regulations and contracts. It must incorporate business opportunities and not usage or outcome-based pricing, impacting their credit capacity. asset amortization, financing, maintenance, operational costs 178 World Bank (2021). (sometimes including energy 179 For examples of public procurement of energy efficiency products see ESMAP (2012). Page 120 Financing Solutions and Innovations market incentives, another is collaboration sovereign governments, IFC uses blended between governments, research institutions, finance instruments to promote private sector manufacturers, international organizations, engagement, and UN agencies tend to focus and venture capital funds. Public funding can on grant-based instruments. It is important help bridge the financing gap and encourage to understand this landscape and approach private sector investment in sustainable cooling those institutions that have the best strategic solutions.180 Development finance institutions and operational match for the activities and can also contribute to closing the financing gap sustainable cooling suppliers in question. by promoting high risk capital—private equity and venture capital—investments, sustainability- Financing for Supply Side Projects linked instruments, as well as instruments that Most of the discussion so far has revolved backstop risk, and concessional finance, thereby around increasing demand for sustainable mobilizing further private capital. cooling products while boosting accessibility. Many developing countries are entirely Public-private partnerships can also be dependent on imported equipment, much of it structured to scale-up tested innovations comprising lower cost, lower efficiency models involving SMEs and firms with limited resources that cannot be sold in the country of origin.181 when combined with government incentives Working with large so-called Original Equipment on the demand side. This is the concept behind Manufacturers (OEM) may therefore be an the approach being promoted by the ACES important avenue for increasing the supply and initiative, which seeks to convince governments availability of efficient equipment. to evaluate rural cooling improvements as equivalent to a form of infrastructure In countries with some domestic manufacture investment. This will be of particular importance of cooling equipment, it is also important to to increasing access to sustainable cooling for help those producers increase the supply of households, access to cold chains by farmers, more sustainable cooling products. Figure 4.3 cooling as a service to support firms, as well as illustrates points of aggregation and financing district cooling. opportunities in the manufacture, assembly, and distribution of efficient appliances using better Different financing bodies have distinct components. For both the production of OEM preferences for the type of instrument units as well as assembly of a bespoke system they engage depending on their history, where different components need to be brought mandate, relative competitive advantage, and together, the emphasis is on using technology experience. For example, among development that utilizes refrigerants or parts with low or finance institutions and multilateral funds, no global warming potential and that are more the World Bank focuses on large loans to 180 IEA. (2020). 181 CLASP (2023). COOLER FINANCE Page 121 FIGURE 4.3 Financing Needs and Opportunities Vary Throughout Cooling Supply Chains Cooling equipment supply chain Components Wholesaler Retailer Utility Cooling FACTORY Equipment Construction/ Materials Home owner Production Developer assets Supermarket Utilities chain Points of aggregation Source: Authors energy efficient than those previously used. the phase out of different refrigerants and is Financial needs here could include the funding now turning its attention to the phase down of fixed assets such as new plant and equipment of HFCs and improving the energy efficiency to manufacture new technologies, enhanced of appliances. This includes expanding the working capital to pay for more expensive availability of proven technologies in new higher efficiency components, or even additional markets. equity to support the growth of new ventures. Financing the development of supply chains Financing Large-Scale linked to locally manufactured sustainable Cooling Projects cooling equipment is critical to transforming Large-scale cooling infrastructure projects, such markets. as district cooling as described in Chapter 3, have One institution that has focused on improving diverse financial needs across different phases the supply of sustainable cooling devices is the of their development. Understanding the capital Multilateral Fund of the Montreal Protocol. This intensity and associated risks at each stage, has made significant investments in supporting namely planning, construction and operation, is key to securing optimal financing solutions. Page 122 Financing Solutions and Innovations Planning Phase: During planning—which encompasses engineering and permitting BOX 4.6 among other activities—capital intensity is low, but risks are high. This stage relies Dedicated City Cooling Funds heavily on equity to finance feasibility to Drive Multi-Level Financing studies, engineering designs, and securing on Cooling in Viet Nam regulatory approvals. Viet Nam offers an example of multi-level action, incorporating measures on cooling and Construction Phase: Capital intensity extreme heat into its strategy for delivering is high and this stage requires significant net-zero emissions by 2050 and pushing upfront investment. However, the financial forward with efforts to link refrigerant and risks moderate as the project develops. cooling emissions into its domestic carbon This phase typically seeks debt financing market design. These measures recognize through competitive construction loans the increasing importance of subnational or project finance. Additional instruments and city governments in driving action on sustainable cooling. The country’s government like credit guarantees, concessional set up the National Green Cooling Action finance—loans with favorable terms and Plan to promote adoption of energy efficient grace periods—and syndicated loans can technologies in the cooling sector. UNEP further ease the financial burden. and the Global Green Growth Institute with support from the Clean Cooling Collaborative Operational Phase: Once operational, are supporting the country’s Ministry of the investors would look for Natural Resources and Environment (MoNRE) recapitalization instruments. These to implement a three-year program, initially mechanisms allow investors to recoup focused on three cities, that incorporates their initial investment, invest in other plans for cooling investment pipelines and projects and potentially generate returns. planning and policy changes based on new research and analysis. The aim is to address Common options include securitization limited availability of public funds and a lack of (converting project cash flows into expertise in leveraging private investment for tradable securities), sale-leaseback sustainable cooling. The project is exploring (selling the project asset with a leaseback integrating cooling under MoNRE’s existing agreement for continued operation), Environmental Protection Fund to provide and debt refinancing (replacing existing finance for cooling projects such as retrofitting debt with new arrangements offering buildings as well as nature-based solutions and district cooling structures. potentially more favorable terms). These projects can be linked to public-private partnerships, green bonds and thematic financial products from banks or specialized funds. COOLER FINANCE Page 123 4.5 The Role of Concessional need for concessional funding over time. The many variables associated with cooling across Funding to Support different markets make estimation of fiscal Sustainable Cooling incentive costs and concessional funding difficult, The size of the cooling industry suggests that if not impossible. there is finance available to pay for conventional Concessional finance is characterized by several cooling technologies. This chapter focuses features that distinguish it from standard primarily on financing instruments and business financing products. These include below- models consistent with private commercial market funding costs, longer loan durations, funding of cooling transactions. However, and higher risk tolerance. Major organizations affordability of new sustainable cooling such as development finance institutions and technologies due to higher upfront costs is one multilateral funds, provide concessional finance of the key barriers that hinder mass adoption.182 to support investments in developing countries, Finding risk capital for establishing and scaling aiming to accelerate development objectives. startups and SMEs and reducing loan tenors The most common financial products used to to commercial standards can also present deliver concessional finance come in the form challenges. Therefore, to meet the growing of loans, technical assistance, incentives and needs for cooling described in Chapters 1 and 2, guarantees. How these products are delivered certain populations and market segments will must remain flexible to the unique needs of require concessional financing instruments to each development challenge. The focus of accelerate deployment and reduce the access concessional finance is not on a specific method costs of new technologies. or solution so much as bridging the gap between Some of these financing mechanisms, limited pools of philanthropic and public like funding for research into new cooling sector funding and the private sector funding technologies, will be seed funds for a limited opportunities that enable such projects to scale. period which, complemented by risk-reducing Recent research has also found that publicly measures, may attract further private funded startups achieve a significantly greater investment. Others, like support for poor rate of financial success compared with purely populations in rural areas, may require more private investment.183 substantial backing through incentives and It is also important to note that the pool of concessional financing over longer time periods funds available for concessional finance is to address affordability limits. Even in the latter not infinite. There is increasing awareness of case, innovative approaches around scaling to cooling as an imperative, however, and providers reduce costs or other strategies can reduce the of wholesale donor funds through bilateral 182 Nain and Bhasin (2022). 183 Kennedy et al. (2024). Page 124 Financing Solutions and Innovations BOX 4.7 Accelerating Private Investment in Cold Chain Through India’s Credit-Linked and Back-Ended Capital Subsidy for Cold-Chain Development In 2012–13, India’s National Centre for Cold- throughput and earnings in the cold-chain and chain Development (NCCD) reviewed ongoing eventually reduce reliance on infrastructure-based cold-chain programs and proposed certain subsidies. Under the advice of the NCCD, India’s changes. Observing that the weakest performance support for cold chain has components of capital was in the fresh produce segment, it prioritized subsidy, fiscal and tax benefits, upgrading, training, revisions to the program including a requirement and minimum sustainability standards. that public financial support be credit-linked and The cost norms for subsidy were also rationalized its disbursal back-ended into banks. The idea was in 2013 and weighted to encourage investment to change the earlier perception that a subsidy in less developed and more critical areas of the was upfront capital, to where the subsidy receiver cold chain. This promptly began to drive specific understood it was an incentive in support of investments and efficient operations. The projects. Since the subsidy was not assessed in revised cost norms reduced the subsidy outlay in advance, banks had to evaluate the commercial traditional and unnecessary components, allowing viability independent of the subsidy component. the addition of 13 new components. These included Thereafter, only fully financed projects were eligible modern packhouses with pre-coolers, inter-modal to apply for a subsidy. This enhanced the viability reefer containers, packaging lines and automation and effectiveness of projects being proposed systems, as well as alternate energy options. and financed by the private sector and allowed the government to effectively target support for In 2014, the government approved the launch of missing cold chain links. a new rationalized horticulture mission under the Ministry of Agriculture, which included holistic Besides this, other mechanisms and rules were support for cold chain. The government linked cold introduced to rationalize the capital outlay and chain development to cluster-based production instill some minimum system standards. The newly of horticulture and in the fisheries sector. Given structured subsidy is released in two tranches, the prevalence of small land holdings in India, only after completion and commissioning, and cold chain support is prioritized for farmers directly into a credit-linked account and not into groups, especially professionally run farmer- the hands of promoters. The changes allowed India producer companies and cooperatives. While the to reshape the subsidy system into an incentive priority remains modernizing the supply chain for designed to offset the interest burden over the horticultural produce, the support continues to full term of the credit availed. As a result, the extend to upgrading the cold chain for the fisheries, incidence of viable projects increased and hastened meat, and dairy sectors. development of cold chains. Later, to foster a service orientation, key cold-chain services were exempted from service tax on the recommendation of the NCCD. The aim was to encourage higher COOLER FINANCE Page 125 national contributions or philanthropy, as well solutions could include public procurement of as international funds such as the GCF and appliances, concessionary loans and grants, GEF, are increasingly receptive to proposals for subsidies, and other fiscal incentives contingent innovative cooling programs. But any request on scale and risk preference or viability of the to mobilize donor funds for concessional use is economic model. competing with other programs also aimed at The nascent nature of the cooling market addressing climate change. The onus, therefore, means that technical support, market research is on implementing agencies and partners to and development activities, along with grants be innovative and have clear objectives and to enable project development, are needed anticipated results in mind if they want to be to enable the scale up of new technology successful in securing funds. adoption. This has been demonstrated by the Public and Blended Lighting Africa programs and the proliferation Finance Mechanisms and success of energy efficiency and renewable energy finance projects. Providing these Blended finance,184 defined as the “use of concessional funds in this formative period for catalytic capital from public or philanthropic the cooling sector has the potential to help sources to increase private sector investment in these markets take off and proliferate. A number sustainable development,” is critical for creating of initiatives are now providing this type of an enabling environment for the cooling sector support, such as Cool Up, the ESMAP Efficient to develop at scale. Blended finance through and Clean Cooling Program, and the Clean multilateral development banks has helped Cooling Collaborative commitment of $1.5 million launch high-risk initiatives with the potential for projects and programs supporting passive to produce beneficial, quantifiable social and strategies in Southeast Asia.187 environmental outcomes in regions of severe need.185 Multiple climate projects supporting One of the issues raised in recent reports on energy efficient appliances with commercial energy efficiency and sustainable cooling, technologies and cost savings over time have especially the 2023 Global Cooling Watch proven attractive for blended finance.186 But report, is that there is little experience with the achieving similar leverage for access to cooling financing of sustainable cooling technologies. measures remains elusive. However, there is very significant experience in financing demand side energy efficiency in Any public finance mechanisms must be industry and residential sectors through a variety strategic in design and execution. Suitable 184 https://www.convergence.finance/blended-finance. Hatashima and Demberel (2020). 185  See, for example, a GCF project promoting energy efficient equipment in El Salvador through an insurance scheme developed by the IDB, 186  https://www.greenclimate.fund/projects/fp009. 187 https://www.cleancoolingcollaborative.org/rfp-passive-cooling-in-southeast-asia-2024/. Page 126 Financing Solutions and Innovations of partners including local banks and leasing As highlighted in Figure 4.2, there are many companies, equipment vendors, energy utilities, different financial instruments available to and ESCOs. Hence, financing energy efficiency help increase the uptake of sustainable cooling plus HFC phase-down may in some respects technologies depending on the characteristics be a less difficult business proposition since the of the manufacturer, vendor, and consumer. efficiency aspects generate real cost savings and Some of these work at the consumer level (a there are models developed with a wide variety homeowner, small firm, or corporate entity) and of stakeholders that successfully demonstrate some work at the aggregator level (bank, leasing the effectiveness of energy efficiency finance. company, or retailer) enabling these to enter into a financial arrangement with the consumer. 4.6 Financing Instruments Figure 4.4 shows a number of different for Sustainable Cooling instruments and the type of entities where they may be most applicable. However, The cooling markets landscape described at the specific market conditions, such as the level beginning of this chapter and in previous reports of liquidity and the regulatory environment, illustrates how cooling needs vary between must be thoroughly understood in order to market segments, providers, and end users. It pick an appropriate financial instrument. It is also highlights the importance of the policy also important to match the instrument with environment and available business models as the capabilities of the implementing agency to factors that can hinder or enable adoption as maximize their comparative advantages. Some well as financing. of these instruments have already been tested Financing sustainable cooling requires an or programs are being developed specifically understanding of the existing financial for cooling applications. All of the others are infrastructure and where public and private applicable to cooling applications given the funds are being allocated to meet current needs underlying benefits they try to harness such as and enable transitions to more sustainable lower energy costs, reductions in food loss, and practices. For example, venture capital focused carbon finance benefits. on innovative cooling technologies, business Some of these financial instruments are models, and services can generate positive described in more detail below. These financing disruptions in the market beyond the efforts of structures could incorporate concessional large incumbent firms. In rural areas in low- and finance elements. In such cases, given the middle-income countries, as noted above, public limited availability of public and donor funds for private partnerships may play a significant role in cooling, it will be critical to ensure that funding support of access to cold chains.188 is deployed in the most efficient, effective, This is in line with the Clean Cool Collaborative’s blog “Show me the money: Financing the transition to efficient, climate-friendly cooling 188  for all”, March 2022 (https://www.cleancoolingcollaborative.org/blog/financing-the-transition-to-efficient-climate-friendly-cooling-for- all/). COOLER FINANCE Page 127 FIGURE 4.4 Some Financing Instruments Are Better Suited for Certain Cooling Market Entities Applicability of different financing instruments for different entities involved in cooling transactions or financing Manufacturer Supermarket Home owner Wholesaler Developer Retailer Utility Banks Revolving Fund Results-based finance Conventional equity Conventional loan Risk sharing Performance guarantees Blended Finance Public Finance Working capital loan Source: Authors Page 128 Financing Solutions and Innovations and strategic way to achieve the FIGURE 4.5 desired market transformation, Illustrative Structure for a Revolving Fund including maximizing Loans the potential to mobilize private Implementing Revolving Purchase of agency fund efficient appliances capital. Repayments Revolving Funds Source: Authors A revolving loan fund leverages an initial amount of money to fund multiple rounds of energy efficiency projects. Energy cost savings that accrue from the initial round of projects BOX 4.8 replenish the fund, which can be subsequently Thailand's Energy Efficiency used to fund additional projects. As long as the Revolving Fund projects remain cost-effective—that is, total energy cost savings exceed upfront investment Thailand implemented a highly successful costs—a revolving loan fund can be used to revolving fund for energy efficiency from 2003 to 2011. Loans were made for 294 projects repeatedly fund programs. This may be suitable and the involvement of public funds resulted for a smaller country or sector within a country, in greater investments by commercial banks and for smaller projects. This is so that funds producing substantial savings in electricity, oil can be disbursed and reflows collected quickly, imports, and emissions. A significant outcome improving the fund’s performance. Revolving was the creation of a network of private funds are often implemented by NGOs or financiers and ESCOs.1 government partners and do not necessarily have to be based around an accredited financial institution such as a bank or leasing company. See Frankfurt School and UNEP (2012). 1  However, the implementing agency has to demonstrate that it has appropriate systems clients, the project values are relatively small, for financial management. These requirements and there is a good simple payback return on make such funds less relevant for development investment. Revolving loan funds for energy finance institutions but may be more suitable efficiency have been widely used in U.S. states in cases where there are a limited number of and cities, offering models and lessons for use in COOLER FINANCE Page 129 other countries.189 NGO, able to act as the fund manager. In a simple structure such as that shown in Working Capital Loans Figure 4.5 a donor may make a grant available Working capital loans, which cover a company’s to an implementing agency to capitalize a operating costs, could be focused—in the case of revolving fund, managed by the agency directly a manufacturer of sustainable cooling equipment or through an outsourced contract. The manager or provider of cooling services—on financing of the revolving fund allocates funds to projects the incremental costs of purchasing more through a selection procedure which can be a efficient and more expensive components. This bidding process. As those projects deliver energy instrument would be an option to supplement savings, the loan from the revolving fund is or replace grant-based structures that address repaid and the funds can then be re-allocated the higher incremental costs of manufacturing to a different set of programs. The MLF190 is more sustainable and efficient equipment. It currently developing a revolving fund to address is applicable to supply side manufacturers and projects with an energy efficiency component CaaS companies to support the expansion of alongside a phase-down of HFCs.191 their business operations, including purchases To assess whether a revolving fund is appropriate of components by manufacturers or CaaS for a particular product and market, it would providers. be important to know the estimated payback Working capital loans support businesses’ periods for the investments, the tenor of the general operating costs. In the case of a loans, and the time that funds will be available. small manufacturer or project developer, the For example, if the duration of funding is only development of sustainable cooling products three years, it may be difficult for the fund would come with an increase in operating costs. to revolve. A five-year fund may be a better Providing a working capital loan to such an alternative as there will also be a ramp-up period entity might be a valid alternative to offering as the fund needs to be established, project grant funding for incremental costs. ideas solicited, and funds disbursed. IFC has consequently found that the concept is generally In this case, a donor would make funds available, not suitable for mobilizing private investment in usually a grant, to an implementing agency, that debt finance. then uses funds to backstop loans that local banks make to eligible borrowers. The local Such a program may be most appropriate for banks, who would have an existing banking smaller countries where the project size is relationship with the cooling manufacturers or modest and there is an institution, such as an 189 https://neep.org/blog/how-states-can-grow-equitable-efficiency-programs-revolving-loan-fund; https://www.naseo.org/issues/energy- financing/revolving-loan-funds; https://www.epa.gov/statelocalenergy/revolving-loan-funds. Multilateral Fund for the Implementation of the Montreal Protocol. See Box 4.11. 190  191 UNEP (2023b.). Page 130 Financing Solutions and Innovations be deployed at any scale for cooling FIGURE 4.6 applications. Illustrative Structure for Figure 4.7 illustrates a results-based Working Capital Loans financing structure with two potential pathways for payments. The first involves incentivizing the Implementing Local bank agency distribution of products through manufacturers, wholesalers, Credit facility/loans Repayments retailers and potentially utilities, Manufacturer/ who would receive a performance developer bonus for meeting sales targets for sustainable equipment or for, say, Payments Components commercial refrigeration projects. Component In the second pathway, if the aim supplier of the program is to encourage local banks to finance the purchase Source: Authors of sustainable technology, then the reward could be either grant payments or interest rate step assemblers, could use these funds to enhance downs for meeting targets based on existing working capital loans so that these the number and value of loans. companies could afford to buy more expensive, efficient components without negatively In each case the implementing agency would impacting their cashflow. Because there may need to carefully verify each of the reward be a limited number of clients, especially in payments based on project documentation small countries, this might be a more efficient and use of proceeds. Technical assistance may mechanism than setting up large facilities or be required to provide the monitoring agency banking relationships. with the ability to verify the performance. There would, therefore, be a likely increase in Results-Based Finance transaction costs for banks, manufacturers, and retailers but this could also be offset by the Results-based financing revolves around the results-based payments. provision of funding to a project or portfolio of projects where the facility is subject to pre- Working out the correct results-based payment agreed outputs and outcomes and independently program requires additional thought and verifiable performance in areas such as reduced information. But some approaches can consider energy usage. While this instrument has applying existing methodologies for calculating proven to achieve development outcomes and incremental costs, such as using a shadow price accelerate innovations across sectors, it is yet to of carbon per ton of CO2 avoided or using a COOLER FINANCE Page 131 Risk Sharing Facility FIGURE 4.7 Risk sharing is a mechanism Illustrative Structure for where an institution, usually a Results-Based Finance development finance institution or a bilateral entity, agrees to share Interest rate % step down the risk on a portfolio of projects Implementing Local bank meeting agreed criteria with a local agency bank or leasing company. Funds Documentation Subsidy $ Loan Repayments extended to such a mechanism may Appliance or may not be grant-based. A major Manufacturer/ Customer advantage of risk sharing facilities developer/retailer $$ is that for modest applications of Source: Authors donor funding there could be major leverage of funds by multilateral development banks, local lenders, and project sponsors. Figure 4.8 shows an illustration of BOX 4.9 a risk sharing facility. This model SEforALL Universal Energy Facility is of interest insofar as a relatively modest investment from a donor The SEforALL Universal Energy Facility is an example of can achieve high investment results-based financing applied to sustainable energy leverage backed by an international projects. The facility is eligible for cooling and already has two firms proposing support for off-grid refrigerators. development institution and local banks. Risk sharing facilities address The fund offers a fixed subsidy of $592 per mini grid markets with excess liquidity installation and covers 40 percent of the costs of standalone where banks have more money solar installations for productive uses. Both of these can provide energy for sustainable cooling technologies in to lend than there are clients to commercial activities such as refrigeration for food retailers, borrow, and where there is a lack or other applications such as air conditioning in healthcare of understanding of the risk profile facilities. in new markets. Risk sharing facilities have been very successful in catalyzing new investment in energy efficiency. For example, one percentage of project costs. In the case of banks, of IFC’s earliest energy efficiency finance projects there could be a step down in interest rates, was a risk sharing facility for commercial banks calculated based on the prevailing base interest in China. IFC provided technical assistance to rates and risk premiums on a country-by- help bank staff better understand the economics country basis. Page 132 Financing Solutions and Innovations FIGURE 4.8 Illustrative Structure for Risk Sharing Facility Donor 25% 60% local bank local bank 75% 40% Grant for first loss implementing agency donor Implementing agency Guarantee payment in the event of a loan Guarantee fee 10% 90% default first loss senior tranche Local bank Loans Repayments Client Clients Client Client Source: Authors and risks associated with energy efficiency guarantee facility agreed with a local bank, the loans and a partial risk guarantee for any losses first loss tranche is 10 percent and losses would greater than the bank’s established performance. be shared between the local bank and the The energy efficiency loans were offered to multilateral institution on a ratio of 25 percent existing customers whereby the banks were to 75 percent. Any losses above 10 percent already familiar with clients’ operations and risk would be split between the local bank and the profiles.192 Properly evaluated, energy efficiency implementing agency. So, if the portfolio is $50 loans should pay for themselves through million, the first loss value would be $5 million, energy savings. of which the international financial institution’s share is $3.75 million. So potentially, a multilateral The core of a risk sharing facility is an agreement development bank’s commitment of up to $3.75 that any loan defaults will be repaid by the million would leverage $50 million of loans. facility manager according to an agreed formula. Using the outline, in the case of a $50 million 192  https://documents1.worldbank.org/curated/en/823071500891138274/pdf/116595-WP-Terminal-Evaluation-of-CHUEE-PUBLIC.pdf. COOLER FINANCE Page 133 The amount of first losses would need to be determined on a country basis and be BOX 4.10 dependent on the typical loan default ratios. It is important that a bank is encouraged to IFC Equity Investments enter the market on the basis that some of its for Cooling Projects defaults would be covered. However, that risk In 2007, IFC began talks with Snowman coverage should be set at a level low enough Logistics Limited, a Bangalore-based to avoid incentivizing the booking of bad loans. transport service provider. The company was IFC and the World Bank have used this type of seeking funding for ambitious expansion plans and IFC made an equity investment instrument to encourage commercial banks to of $5.4 million. This made it Snowman’s offer energy efficiency loans to existing clients first private financial investor, highlighting as typically such facilities lack traditional security confidence in a small company operating in and require lending officers to become familiar a nascent but rapidly growing market and with new types of investments.193 bringing significant development benefits. IFC subsequently invested a further $8.5 Conventional Equity million helping Snowman increase its capacity from 900 pallets and 100 trucks to over Although concessional finance mechanisms 107,000 pallets and over 300 trucks. Thanks have a significant role to play in accelerating to the improved handling efficiency and the uptake of new technology, there are still temperature-controlled facilities, food wastage many projects that can be financed through is dramatically reduced. conventional financing instruments. Another example is the facility that IFC and Post-harvest food loss has been discussed the company Tabreed created by together investing $100 million ($25 million from IFC and elsewhere in this report and is the focus of $75 million from Tabreed) in an equity facility some commercial finance for transport control to support up to $400 million of investment in logistics. Box 4.10 gives some examples of IFC’s district cooling projects. equity investments for projects. 193 In 2015, the World Bank and the Government of India signed an agreement for the Partial Risk Sharing Facility for Energy Efficiency (PRSF) project, aimed at mobilizing commercial finance for energy efficiency initiatives by providing partial credit guarantees to cover default risks, thereby facilitating easier access to finance for such projects. See: https://www. worldbank.org/en/news/press-release/2015/03/31/partial-risk- sharing-facility-energy-efficiency-singing. Page 134 Financing Solutions and Innovations Other Instruments from the production of refrigerants.194 Recently, multiple cooling projects have Cooling Bonds been registered as carbon credit projects The World Bank Group has for some under VERRA, Gold Standard, the Clean time used its triple-A credit rating to Development Mechanism, and the Joint raise funds from the international bond Crediting Mechanism. These projects market for sustainability objectives. This include initiatives such as installing high- has included green bonds, blue bonds efficiency air conditioning systems and (financing for marine environment), and chillers in a semiconductor factory in bonds for the protection of forests and Thailand,195 introducing high-efficiency biodiversity. Eligibility criteria for green air-conditioning in a hotel in Viet Nam,196 bonds include some sustainable cooling and upgrading the cooling system in measures, such as projects that reduce net an industrial complex in Singapore to energy consumption in buildings, reduce enhance overall energy efficiency.197 food losses or waste, and improve energy These initiatives registered significant efficiency in data centers. The World reductions in greenhouse gas emissions Bank is exploring the possibility of more through the adoption of more efficient narrowly defined cooling bonds to attract cooling technologies and highlight the more private capital to cooling projects. potential for generating carbon credits The concept is based on World Bank through improvements in energy efficiency experience with CO2L bonds designed to within cooling systems. In addition, cut risk on investments in financing carbon carbon markets could play a significant credits by linking returns to project success role in promoting a switch to lower in reducing emissions. Global Warming Potential refrigerants or to natural refrigerants, where the Carbon offsets additionality criteria is met. Programs Incentives for energy efficiency targeting emissions reduction from a improvements that would not be large number of cooling units, including expected from existing practices may fans and air conditioners, could be well qualify for payments through carbon suited for carbon credits, including credits. In the past, substantial credits to promote business models such as were generated from financing the cooling-as-a-service and performance reduction of greenhouse gas emissions contracting. 194 A. Michaelowa et al (2021). 195  https://www.jcm.go.jp/projects/44. 196  https://www.jcm.go.jp/projects/23. 197  https://registry.verra.org/app/projectDetail/VCS/1084. COOLER FINANCE Page 135 BOX 4.11 The Multilateral Fund for the Implementation of the Montreal Protocol The Kigali Amendment to the Montreal Protocol, issues associated with this integration into existing adopted in 2016, aims to phase down the operations.3 production and use of HFCs, powerful greenhouse In December 2023, the MLF Executive Committee gases commonly used as refrigerants.1 The expanded its focus to include energy efficiency Multilateral Fund for the Implementation of the and has committed $100 million to supporting the Montreal Protocol (MLF) has historically focused development of more energy efficient appliances.4 on phasing down ozone-depleting substances, The Executive Committee is developing an including polluting refrigerants used in cooling. operational framework to guide this new direction The MLF has supported projects through financial and is engaging with various institutions to design and technical assistance in the form of grants or effective strategies. This includes exploring a concessional loans, primarily delivered through four revolving fund approach to facilitate investment implementing agencies: UNEP, the United Nations in both HFC phasedown and energy efficiency. Development Programme (UNDP), the United The MLF expansion to focus on energy efficient Nations Industrial Development Organization appliances is encouraging, especially as it includes (UNIDO), and the World Bank. consideration of alternative financing structures to While the HFC phasedown is crucial for mitigating support private sector adoption. climate change, there is some risk that less energy- efficient alternatives could be introduced resulting in increased greenhouse gas emissions from increased power consumption. If, on the other hand, the transition in refrigerants is accompanied by measures to enhance the energy efficiency of cooling equipment, the mitigation benefits could be doubled.2 This was the focus of a decision by the parties to the Montreal Protocol fund in 2022, when the MLF initiated discussions on energy efficiency, to recognize the need to integrate it into the existing framework. A pilot program was launched to better understand the institutional arrangements, technical feasibility, and financial See Della Cava (2022) and Khosla et al. (2022). 1  Shah et al. (2015). 2  The parties agreed to the creation of a $20 million pilot program. The MLF is also exploring opportunities for greater coordination 3  with the GCF and GEF, both sources of finance for energy efficiency projects. See MLF (2023), which cites total grant funding of $4 billion for 9,321 approved projects with assistance to 144 developing countries. 4 http://www.multilateralfund.org/93/default.aspx. Page 136 Financing Solutions and Innovations 4.7 Development Finance Lastly, and very importantly, development finance institutions can lead by example. They Institutions as Key Mobilizers have the capacity to invest in new technologies Cooling has only recently been considered a and innovative business models, and they standalone asset class worthy of attracting possess a significant convening power to engage dedicated finance. Traditionally, it was viewed both private and public actors. This allows them as a component of other financing efforts that to act as anchor investors, playing a crucial role were often focused on cities such as the GCF in demonstration effect. By investing in these Green Cities Facility and the GEF Sustainable projects, development finance institutions can Cities Impact Program. Concerted action started show the viability of new cooling technologies in 2017 with the launch of the Kigali Cooling and business models, encouraging local private Efficiency Program (K-CEP) with initial financing and public financing organization to participate of $51 million. In August 2021 K-CEP became in subsequent investment rounds. IFC has played the Clean Cooling Collaborative embracing this crucial role in several countries across the partnerships and strategic collaborations. climate finance space, making initial investments The assessment of market opportunities for that prompted local institutions to eventually sustainable cooling solutions in Chapter 2 is take the lead. an effort to give further momentum to this development as the larger the market, the more Funding of cooling infrastructure requires a opportunities for IFC and other development mix of public and private finance. Growing institutions to mobilizize private financing. awareness that access to sustainable cooling contributes to climate change mitigation and Development finance institutions have several adaptation, particularly in rural settings, also characteristics that make them central players in opens broader opportunities to access climate the evolution of finance for sustainable cooling finance. One of the first examples of major in emerging markets. First and foremost is their climate financing that supports access to cooling mandate to devote increasing resources to was a commitment from the Green Climate climate mitigation and adaptation. Second is Fund to provide $157 million to a new Cooling their expertise in understanding relationships Facility managed by the ESMAP Sustainable between different types of investments and Cooling Program, with an additional $722 million sustainable development goals. Third is their in leveraged co-financing from World Bank access to concessional resources from climate projects. funds, creating a buffer for greater risk taking and resources for blended finance instruments. The fact that sustainable cooling solutions Fourth is an emphasis on using their resources to address both climate mitigation—reducing mobilize greater volumes of private investment. emissions—and adaptation—reducing the impacts of climate change—is also relevant for accessing the multiple sources of climate funds. The Green Climate Fund, for example, aims to COOLER FINANCE Page 137 deliver a 50:50 balance between adaptation Energy Program in Low Income Countries is and mitigation in its portfolio and ensure that at one example of climate finance being utilized least 50 per cent of adaptation funding goes to to boost renewable energy for the purpose of categories of particularly vulnerable countries, expanding electricity access and facilitating including Least Developed Countries, Small access to fans and refrigerators. Island Developing States, and certain African The types of instruments engaged in meeting states. A grant of up to $3 million is in place for cooling needs will change over time as the formulation of National Adaptation Plans technologies and business models evolve and and other planning processes.198 The World Bank achieve widespread adoption. Overall, significant Group has similarly made a commitment to put financing gaps remain, notably in the agricultural adaptation and resilience on an equal footing and health sectors and in finance for passive with mitigation.199 strategies and building design. There is also a risk Recognition of cooling as an adaptation solution that finance continues to favor higher income, also opens opportunities for access to additional urban markets whereas cooling challenges in sources of concessional funds, such as the Global rural areas are more diverse and the ability to Environment Facility’s (CIF) Least Developed pay is typically lower. Countries Fund and Special Climate Change To summarize, there are many instruments Fund, as well as the Climate Investment Fund’s for financing sustainable cooling in emerging $1.2 billion Pilot Program for Climate Resilience. markets, but significant challenges remain, Synergies between the funds can also produce particularly around provision of solutions for greater leverage, and the Cooling Facility aims poor populations and the large number of to identify such opportunities with the CIF to households still without access to reliable power. improve its impact. For example, where the These challenges are the focus of increasing CIF could address barriers to standalone solar efforts, many still at an early stage, to find technologies in rural settings, the Cooling Facility business models that meet the needs of both would focus on cooling solutions for productive vendors and low-income consumers. Two uses. The Montreal Protocol Multilateral Fund additional challenges in need of much greater is also exploring ways to coordinate funding for attention are the multiple, complex issues refrigerant replacement with other sources of associated with the creation of effective cold funding for improving energy efficiency. (See chains for small scale rural farmers and support Box 4.11) for innovative, early-stage cooling technologies. Climate finance to support mitigation and The diversity of cooling needs, populations, and adaptation in rural settings can also seek to regulatory environments means there is no leverage the nexus between electricity access one-size-fits-all solution. and cooling. The CIF Scaling Up Renewable 198 Green Climate Fund (2022). 199  https://thedocs.worldbank.org/en/doc/189851543772751358-0020022018/original/AdaptationandResilienceActionPlanKeyMessages.pdf. Page 138 Financing Solutions and Innovations As was noted at the outset of this chapter, the absence of private sources of finance is rarely primarily about an insufficient availability of capital. It is almost always a reflection of investor perceptions that the balance between risk and return is unappealing. This chapter also highlighted the diverse range of financial instruments available to address this challenge with public sector assumption of some risks. As discussions of climate finance increasingly focus on the need to leverage greater private investment from limited public resources, these instruments are likely to become increasingly important. As private sector lending institutions with an emerging market focus, IFC and other development finance organizations are in a unique position to help create greater awareness of the importance of cooling for development and the potential for creative financial solutions. This is a goal that will require collaboration with UNEP, other multilateral bodies such as the World Bank, government entities, and civil society organizations. Photo by Dominic Chavez/International Finance Corporation 5 Conclusions and Recommendations COOLER FINANCE Page 141 A chieving successful transitions to sustainable cooling across developing economies is fundamental to addressing climate change, boosting health, safeguarding food security, and fulfilling many of the UN’s Sustainable Development Goals. This report highlights the mechanisms available for financing such a transition, as well as the challenges and opportunities they present. Building on the Global Cooling Watch report and warming because they host most of the people Global Cooling Pledge—both released at COP28 exposed to the highest temperatures and in Dubai in December 2023—it brings important the negative impact on health, food security, new analysis based on estimates of market size and productivity that extreme heat episodes and projections that leverage existing data about entail. They also face greater challenges in cooling applications. It incorporates both passive areas such as regulation, enforcement of rules, design strategies and the adoption of more and infrastructure that are central to creating efficient equipment across sectors in developing business environments that attract private countries and shows business opportunities in investment. In addition to curbing the negative these areas are much larger than the estimates effects of heat, the adoption of sustainable presented in previous studies. cooling would provide opportunities for innovation, generation of new value chains, and In addition, the report describes barriers and job creation in the economy. opportunities to financing sustainable cooling based on lessons learned from the past as well Supporting the transition to sustainable as ongoing initiatives. Finally, the study provides cooling in developing countries is a an overview of existing business models and fundamental element of the global climate financing mechanisms that can be adapted agenda, which could cut cooling-related to finance sustainable cooling, harnessing the emissions by almost half. With global knowledge and expertise of IFC, UNEP and other temperatures set to rise over the coming Cool Coalition members. decades, all countries, and especially developing economies, face a choice about the strategies 5.1 Conclusions they will implement to address increasingly urgent cooling needs. Helping developing The following are the main conclusions of the countries move toward a comprehensive analysis, assessing barriers and opportunities approach to sustainable cooling that avoids for financing sustainable cooling in developing a vicious cycle of meeting cooling demands economies, the available business models and with solutions that emit more greenhouse potential funding structures. gases, is vital for the global climate agenda. Sustainable cooling is critical to address the Many developing economies are among the urgent adaptation needs and development most vulnerable to higher temperatures. Yet pathways of developing countries. These they also have low penetration of passive economies are particularly vulnerable to global cooling strategies and household space cooling Page 142 Conclusions and Recommendations appliances, and lack effective cold chains for Access to comprehensive underlying evidence rural farmers or for the distribution of food is key to policy design, tracking progress, and vaccines. Emerging economies currently constructing finance strategies, and identifying generate two thirds of global cooling-related market potential. There have been a number emissions, a share that could grow to as much of initiatives by different organizations in as 80 percent without a significant change of recent years to measure cooling market course. The estimates in this report show that activity, which varied in scope in terms of increasing the use of passive strategies and segments and geographies. However, these accelerating the adoption of high-efficiency remain fragmented, highlighting the need for a equipment could reduce cooling-related comprehensive and systematic gathering of data. emissions from 2,170 MtCO2e to 1,185 MtCO2e Sustainable cooling represents a major in 2050. business opportunity in developing The adequate supply of finance, and economies. This report estimates that the particularly private finance, is essential value of the cooling market in developing to support the transition to sustainable countries will more than double to at cooling across developing economies. Cooling least $600 billion per year by 2050 from needs are diverse and span most sectors of the around $300 billion currently. This estimate, economy, including buildings, agriculture, health, based primarily on active cooling solutions, and industry. Therefore, cooling provider firms incorporates standard expectations of economic as well as commercial and household users and population growth as well as responses have a wide range of financing needs. For those to climate change. Space cooling accounts with adequate resources, private commercial for about half of the total market, while non- financing may be available, but the relatively residential refrigeration (such as cold storage high upfront cost of more efficient equipment for farm products and transport) accounts for is often a disincentive. Households and firms 25 percent. While China is currently the largest with severe affordability constraints or with low market, accounting for 46 percent of the total, it access to finance will require additional support is expected to grow less than other developing in the form of grants and fiscal incentives such regions including Africa and South Asia where as tax breaks and subsidies. Financing structures the markets are projected to at least double in and instruments can be designed to incentivize size by 2050. High-level estimates imply that the transition to sustainable cooling solutions on passive cooling for new builds and retrofits could both the supply and demand side. be currently between $15 billion to $25 billion and $10 billion to $15 billion, respectively. These There is a scarcity of systematic data on markets could see substantial growth in the cooling markets and financing across coming decades if the application of building countries and market segments, especially energy codes is expanded across developing for developing economies, as well as on economies. passive strategies and rural cold chains. COOLER FINANCE Page 143 There is a clear business and economic case Despite the business case, there are for accelerating the adoption of sustainable many challenges to mobilizing sufficient cooling in developing economies, with private sector investment in sustainable passive cooling strategies and more energy cooling products and services in emerging efficient cooling equipment together markets. Effective solutions will require reducing electricity demand and lowering comprehensive government strategies. the need for additional power generation. While there are several dimensions in addition Projected scenarios that consider increased to financing to bring developing economies to a adoption of passive cooling strategies and an sustainable cooling pathway, a number of these acceleration in the use and adequate operation have significant influence on the availability of of high efficiency cooling equipment show that financing and the capacity to mobilize private consumers would avoid $5.6 trillion in electricity financing for sustainable cooling. These include consumption costs by 2050. They would also systemic issues like affordability, electricity save $800 billion in new equipment needs and access, technical skills, availability of finance, and $1.8 trillion in additional power infrastructure cooling supply chain development. In addition, investments that would be required to satisfy despite its importance at the aggregate level, peak demand. Countries would also benefit cooling is usually a broader project component substantially from improved outcomes in across sectors which does not necessarily receive health, education, the wellbeing of women, and the attention it deserves. There are also barriers productivity by mitigating the impact of extreme in many developing countries to the emergence heat events. of innovative solutions, including low awareness, regulatory or legislative complexity, and the A focus of this report is on the creation of absence of adequate supply chains. Solutions for conditions for attracting private investment low-income consumers are challenging given the toward the creation of sustainable outsized weight of initial costs, low awareness commercial markets. However, closing of affordable solutions such as passive measures, existing cooling gaps for households and and ignorance of the long-term benefits of SMEs across developing economies facing sustainable cooling. Effective cold chains for rural constraints on affordability and access farmers imply a complex systemic end-to-end to finance would also require substantial approach at scale that needs to combine private public support to achieve investment of up and public sector efforts. Weak regulatory to $800 billion. Technological and business and administrative environments with poor model innovations could provide additional enforcement capacity, long off-take agreements, opportunities for private investments to deepen and unsuitable building codes, among other cooling markets, and in many cases will also issues, also present challenges to financing require additional support from concessional sustainable cooling in these countries. financing mechanisms. Page 144 Conclusions and Recommendations Regulation and policy play a critical role in created heat action plans and positions for heat creating an enabling environment for private officers, often with the support of donors and investment. There are increasing efforts to NGOs. develop strategies to address the challenges There is a diverse range of financing in developing economies that are hindering mechanisms and instruments available to the provision of financing for sustainable address existing challenges. However, there cooling. is no one-size-fits-all approach. The design of Robust regulation around building codes, energy financing mechanisms for sustainable cooling efficiency labeling and certification as well as must reflect the needs of provider firms and regulatory approaches that include minimum consumers—both households and firms—, the energy performance standards across a growing business models that define the terms of the number of countries all contribute to creating transaction between providers and consumers, market conditions that attract private investors. and the operational context. Other government initiatives to promote more One significant focus has been the adoption sustainable cooling include bulk procurement of business models addressing challenges to lower prices and utility rate structures that related to affordability constraints and reward efficiency. However, many developing the higher upfront costs of more efficient countries lack the capacity to effectively equipment. These include, for instance, pay- implement such measures, a challenge addressed as-you-go programs that smooth out payments through donor-funded initiatives from bodies for consumers and cooling-as-a-service that such as BASE, CLASP, and other international addresses consumers’ needs without requiring organizations and NGOs. them to acquire equipment. On-bill financing, There are also many innovative strategies, leasing and energy service company models are most still early stage, for promoting also bringing energy and monetary savings to sustainable cooling solutions. One example clients—mostly SMEs—while bulk procurement are holistic systemic approaches to cold chains strategies for equipment help lower costs per such the ACES program in Africa. Others include unit. innovation promotion through various prizes and Adequate financing mechanisms and grants, urban programs using passive strategies instruments also differ according to the and nature-based solutions, and new business stage of business maturity. Research and models addressing first-cost barriers. On the development activities are highly dependent other hand, many technologies and business on fiscal and financial incentives as well as models successfully tested through some of other forms of government or donor support. these programs remain fragmented and cannot Innovations can be supported by grants, scale up due to lack of appropriate financing. and venture capital financing from a mix of In recent years, a growing number of cities, public and private sources while early-stage including many in developing countries, have commercialization requires working capital COOLER FINANCE Page 145 and longer-term CAPEX financing. Instruments attention are the creation of effective cold chains that mitigate risk are important for scaling for small scale rural farmers, and supporting up the adoption of new technology, including early-stage cooling technologies, including sustainability-linked guarantees and public the provision of follow-on financing to fund private partnerships to mobilize private expansion. Meeting these challenges will enable financing. These can be combined with energy positive market disruption that nurtures broader labeling, standards and other regulations. adoption of sustainable cooling. Financing sustainable cooling requires Development finance institutions have a key an understanding of existing financial role to play in mobilizing private investments infrastructure and capacity. Market studies at scale for sustainable cooling. Given their are necessary to identify where public and mandate for mobilizing private capital to support private funds are currently being allocated to interventions that generate development impact, address unmet needs for cooling and to enable measures that include sustainable cooling merit a transition from conventional to sustainable significant attention. As these organizations cooling. Depending on the characteristics have also made commitments to increase of cooling providers and consumers, the funding for climate adaptation, sustainable appropriate financial instrument may be cooling solutions are also a good fit as they revolving funds, working capital loans, typically provide both climate mitigation and results-based finance, risk-sharing facilities, adaptation. Development finance institutions conventional equity, or cooling bonds. benefit from wide private sector networks with both cooling providers and user firms, as well There are many instruments for financing as finance providers from venture capital and sustainable cooling in emerging markets, private equity funds to commercial banks. This but significant challenges remain which will means they are better able to participate in the require a combination of private investment design and roll out of financing mechanisms and financing with public and concessional to support innovation, fund expansion, and investment in addition to comprehensive encourage adoption of sustainable cooling. government strategies. These include They also have access to donor support and providing sustainable cooling solutions for poor experience in implementing concessional finance populations across developing countries, many mechanisms that maximize capital mobilization of which are still without access to reliable through appropriately designed incentives. power. These challenges are the focus of Furthermore, they are in a unique position to increasing efforts, many still at an early stage, help create greater awareness of the importance to find business models that meet the needs of of sustainable cooling for development and the both vendors and low-income consumers. Two potential for creative financial solutions. additional challenges in need of much greater Page 146 Conclusions and Recommendations 5.2 Recommendations This report provides further support to the to support the adoption of sustainable cooling recommendations outlined in the Global Cooling in developing countries. These prescriptions, Watch report which are summarized in Table 5.1. which amount to a call to action to different stakeholders, should be shaped according to the It also provides additional recommendations for different conditions in the countries where they scaling up finance as part of a broader strategy are applied. TABLE 5.1 Global Cooling Watch Recommendations to Scale Up Financing for Sustainable Cooling Market Data Systematically track cooling finance and its impacts as the market grows Strengthen the role of Minimum Energy Performance Standards, efficiency, and sustainability standards in cooling financing decisions Regulation & Safeguards Incorporate sustainable cooling into the environmental, social, and governance safeguards for multilateral development banks Expand public funding, mobilize private capital, and develop needs-based funding models to support implementation of energy efficiency improvements alongside the refrigerant transition. Direct wholesale finance for sustainable cooling in large real estate projects and in district cooling Provide retail finance for cooling for households and small and medium enterprises Financing Support innovative business models and financing to make sustainable cold chains affordable, distribute risks and costs fairly, and overcome investor concerns. This includes financing the cold chain through public-private partnerships and protecting smallholder farmers in developing countries with seed financing Validate consumer-financing interventions through pilots Source: UNEP COOLER FINANCE Page 147 Multilateral organizations, development would aid the design of appropriate finance institutions and Cool Coalition policies and regulations across sectors members should work with local business and should be followed by effective and financial sector associations as well as implementation through improved public national and subnational governments to: sector capacity, funding and infrastructure. To foster public sector action and Improve underlying data and evidence necessary reforms, agencies must on cooling by building consensus around understand the interrelated development definitions, metrics and methodological and economic impacts of sustainable assumptions, including differentiating cooling. This includes improvements sustainable cooling applications and to health and education, empowering gathering information on capital costs women, reducing food loss, averting and financing. Measuring cooling activity productivity losses, and creating new is fundamental to moving the cooling jobs and value chains. Adoption of more and financial markets to accelerate the sustainable cooling will also reduce the transition to sustainable cooling. Initiatives need to divert investment toward power in this regard lack consistency in terms of infrastructure. In addition to strengthening basic definitions, metrics, assumptions, standards, the design of cross-cutting and methodologies. Thus, knowledge and and sector-specific policies embedded expertise should be leveraged to continue in broader strategies is important for building a systematic and consistent body facilitating the transition to sustainable of evidence and data on cooling markets. cooling. These can include adoption Incorporating this into the objectives of and effective enforcement of building the newly created Cool Coalition working energy codes to untap the large market group on data will be an important first potential for passive strategies, as well step. Special attention should be given to as utility policies that reward consumers underlying data for assessing market size for purchasing efficient equipment. and gaps in passive cooling strategies and Coordinated inter-institutional action and rural cold chain infrastructure. effective enforcement of regulations are Develop and implement a comprehensive critical for the adoption of sustainable strategy led by the public sector that cooling approaches. The work that the addresses the dimensions identified in this Montreal Protocol community, along with report as challenges to fostering private UNEP, Cool Coalition members, multilateral finance mobilization for sustainable development banks and other institutions cooling. This should start with improving are doing with governments across understanding of the development and different countries should be expanded economic impacts of sustainable cooling and funded appropriately, especially to throughout public sector agencies. This support Global Cooling Pledge signatory Page 148 Conclusions and Recommendations countries. The inclusion of targets related benefits of transitioning to sustainable to adoption and enforcement of regulation cooling and embedding cooling as a design in the conditions of technical assistance dimension of products and projects. programs and development financing Developing country-specific granular can nurture better market environments market assessments and micro case for investments. Furthermore, there are studies of such benefits across different important synergies and potential for sectors would be instrumental in delivering multi-country regional approaches in this clear messages to these stakeholders. regard. Targeted campaigns would be more effective when done in partnerships with • In low-income or less developed business associations and the financial markets, there should be an increased sector, as well as with national and local focus on underlying infrastructure, governments. Increasing inter-institutional minimum regulation required, and basic coordination on targeted dissemination enforcement capacity; as well as on by international organizations, including the critical role of the public sector to those in the Cool Coalition, would increase jumpstart markets and to foster the the impact of individual initiatives in this expansion of basic credit. regard. One focus for such efforts may be • In middle-income or more developed the development of national cooling action markets, efforts should emphasize plans to support the implementation of improving existing infrastructure and a broader strategy following a multi- adapting regulation to encourage stakeholder consultative process. innovation and increase standards, • In low-income or less developed boosting enforcement, and incentivizing markets, dissemination should prioritize market growth with appropriate policies. policymakers, financiers, and cooling This should include regulation that fosters consumer industries. innovation around financial instruments. • In middle-income economies or Amplify dissemination efforts targeting key countries with more developed markets, cooling market stakeholders to increase dissemination efforts should cover all awareness of business opportunities and cooling providers of goods and services financing alternatives across developing including intermediaries, consumer countries. These should include innovators, industries, policymakers, investors and cooling provider firms, consumer firms financiers. and households, financiers, governments, and regulators. Given the nature of cooling applications as components of broader projects and investments, there is a lack of awareness of the importance and COOLER FINANCE Page 149 Cool Coalition members, development technologies ready to be scaled-up. This finance institutions, and multilateral is in addition to bringing capital resources, organizations should provide technical including through demand aggregation, to assistance to governments, regulators, poorer consumers such as lower-income donors, investors, and financiers on: households and smallholder farmers. The design of such financing mechanisms Prioritizing finance for the adoption of should be informed by a comprehensive passive cooling strategies. The Global understanding of the perceived risks and Cooling Watch report makes a compelling the limits of commercial approaches case for the importance of promoting to deepening markets. This will help passive cooling to reduce cooling loads to leverage as much as possible public, and limit the need for electricity-powered philanthropic or donor funds in blended cooling equipment. This is complemented and concessional financing approaches. by high-level estimates in this report implying substantial potential growth of • In low-income countries or less developed passive cooling markets in the coming markets, this could be led by donor- decades. Given the possibility that funded grant programs. projected growth in cooling markets • In middle-income or more developed could prompt higher energy demand markets, alternative blended or as well as the sizable savings inherent concessional financing structures should in adopting passive cooling, there is be considered, in addition to donor- ample justification to embed incentives funded programs. to back passive cooling in the design of financing instruments. Combined with Leveraging existing business models and conducive regulation, these could center financing instruments, adapting them on certifications like IFC’s EDGE and use to support the transition to sustainable results-based and sustainability-linked cooling. Financing mechanisms already financing mechanisms. used for cooling applications should be redesigned as necessary to foster Using blended and concessional finance the transition to sustainable cooling in the design of business models and and incorporate lessons learned from financing mechanisms to address previous utilization. Existing business persistent gaps related to scaling-up models and financing instruments applied tested technologies and help users facing in other industries to promote specific affordability constraints. This includes priorities (e.g., inclusion, gender, green financing that reduces risk around firms and blue bonds) or adoption of innovative developing innovative cooling technologies technologies should be considered and and extending funding to companies that adapted to sustainable cooling. For provide or adopt tested sustainable cooling instance, certain trade and supply chain Page 150 Conclusions and Recommendations financing instruments—especially climate- Development finance institutions should linked products and sustainability-linked work with local entrepreneurs as well as pricing—can be adapted to meet the needs mobilize local and international investors to: of sustainable cooling. Increase seed and risk capital funding to • In low-income countries or less developed pilot technologies and business models markets, standard financing instruments and communicate results to relevant should be prioritized such as trade finance audiences. Given the sizable business or working capital loans, with longer opportunity that cooling represents in the tenors for CAPEX loans. coming decades, it is critical to continue supporting new technologies and business • In more developed markets, innovative models that can underpin the growth of financing instruments should be fostered sustainable cooling. Promoting continued to complement traditional financing financial support in the form of grants, structures. prizes and even equity or quasi-equity Promoting the development and financing instruments will be crucial to building of large cooling infrastructure services. an entrepreneurial ecosystem that For certain large-scale and systemic supports the transition to sustainable applications, cooling business models cooling. International organizations and could be designed and integrated as other development finance bodies are infrastructure services, like those for well positioned to mobilize investors providing access to other essential and financiers to support these business services such as electricity, water, or initiatives. waste collection. These include integrated • In low-income countries or less developed district cooling systems for cities and large markets, funding should be directed urban areas as well as cold chain end- toward adapting existing solutions to to-end infrastructure linking farmers to local needs and emphasize technology retail food markets. These applications diffusion. should leverage the capacities and roles of the public, private, and financial sectors, • In middle-income countries, a greater leveraging knowledge and experience from portion of funding could be dedicated to financing basic infrastructure in developing domestic research and development while economies. The public sector’s capacity continuing to emphasize adaptation and to support the delivery and unlocking of diffusion. private investment needed for the scale of expansion of such infrastructure needs to be financed too. COOLER FINANCE Page 151 Multilateral organizations, development finance institutions and Cool Coalition members should: Create a Sustainable Cooling Finance Partnership to foster international cooperation and promote the development of sustainable cooling financing solutions. This partnership could promote financing programs and the use of financial instruments appropriate for supporting different sustainable cooling solutions in specific countries. It could grow and lead a network of international as well as local investors and financiers to share knowledge and support pilot programs, encouraging further cooperation. This partnership could be comparable to the World Bank Group’s Energy Storage Partnership. Annexes Photo by Africanstar via Shutterstock COOLER FINANCE Page 153 Annex 1: Technical Description of the Global Cooling Emissions and Investment Model Stock Estimates drivers are calibrated against available primary data for selected countries and extrapolated The Global Cooling Emissions and Investment for others based on similar levels of economic Model is a bottom-up model to estimate the development and technology availability. stock of air conditioning and refrigeration Additional calibration is done for reported data equipment across countries. The model projects on refrigerant gas consumption and emissions, cooling equipment stock for 40 different and energy consumption and associated CO2 technologies based on climate, economic emissions, to further improve the model’s growth, and population growth. For each year, estimates. the model requires data for each technology type to quantify (i) the total number of While the model's methodology may vary across equipment in stock, (ii) the number of new different technologies, it generally follows this equipment units, and (iii) the number of units structured approach: reaching end-of-life status. Cooling capacity and 1. Macro-economic and climate data: The stock estimates are based on available primary algorithm leverages historical and forecasted data points from various sources, combined with data on population, GDP, and Cooling Degree a series of assumptions and secondary data. The Days (CDD). primary data includes, for example, reported gas consumption from Montreal Protocol reports, 2. Demand drivers: Various additional factors import and export data for RACHP equipment, influencing demand, such as number of market reports, national cooling plans, national dwellings, building floor area, and number or regional MEPS studies (incl. EU EcoDesign) of vehicles, are incorporated from external and national surveys and statistics (such as the sources. In cases where specific data is American Housing Survey for the United States unavailable, estimates are derived based on and China Statistical Yearbooks). The secondary population and GDP per capita. set is comprised of country data from different 3. Market penetration rate: Penetration sources, population statistics and forecasts from rates, such as proportion of households the UN World Population Prospects, GDP history equipped with refrigerators or air- and forecasts from the World Bank, climate data, conditioning available for certain countries access to electricity, electricity consumption, and years; and estimated for the others. as well as number of households, vehicles, supermarkets, residential and commercial floor area, among others. Functions based on key Page 154 Annexes 4. Cooling demand intensity: Metrics such TABLE A.1 as air-conditioning cooling load (kW) per Primary Variables for m2 or per household are based on industry guides and extrapolated based on wealth the Stock Model and climate. VARIABLE SOURCE 5. Technology splits: Distribution of technology types is estimated based on • UN World Population Prospects. GDP and technology availability. Population • The model uses the UN Macroeconomic and climate historical data and “Medium” population projections are based on the following sources: growth forecast to 2050. • “GDP per capita, purchasing power parity (constant 2017 international $)” from the World Development Indicators. GDP • Future estimates of GDP per capita growth are based on the UNFCC’s “Shared Socioeconomic Pathways (SSPs)”, using the “Middle of the Road, SSP2” pathway. • The model uses humidity adjusted Cooling Degree Days at the national level, CDD with a base temperature of 18 degrees C, based on data published by the IEA COOLER FINANCE Page 155 TABLE A.2 Intermediate Variables for the Stock Model VARIABLE SOURCE • "Database on Household Size and Composition 2019", UN, Number of households Department of Economic and Social Affairs, Population Division (2019) • "Retail in London: Working Paper C – Grocery Retailing", GLA Grocery retail floor area Economics, 2005. per capita • "Have grocery stores reached the saturation point?", Grocery Dive, 2017 Residential floor area per • "How Big is a House? Average House Size by Country." Shrink That capita Footprint, www.shrinkthatfootprint.com/how-big-is-a-house/ Rate of household • “Future of Cooling”, IEA 2018; ownership of air • Household surveys from the World Bank Microdata Library and conditioners authors’ calculations. Cooling load per floor area • ASHRAE Handbook; (residential sector) • Industry “rule of thumb” guides Proportion of population employed in commercial • International Labor Organization sector Commercial floor area per • “Modelling China's Building Floor-Area Growth and the Implications employee for Building Materials and Energy Demand”, LBNL (aceee.org) Cooling load per floor area • ASHRAE Handbook (commercial sector) Number of vehicles per • International Organization of Motor Vehicle Manufacturers (OICA) capita Access to electricity • World Development Indicators • “The evolution of automotive air conditioning”, ASHRAE Journal (reprinted in HVAC&R Nation), 2008; Proportion of new vehicles with air conditioning • Anfavea (Brazilian Association of Automotive Vehicle Manufacturers), February 2020, https://anfavea.com.br/docs/apresentacoes/ apresentacao_fevereiro_2020.pdf Page 156 Annexes In addition, the algorithm uses a series of Overview of the Baseline Scenario’s intermediate variables (i.e., demand drivers). Underlying Assumptions These may be available from reliable data sources or are estimated based on relationships Population growth is projected according to with macroeconomic and climate data. Table A.2 the UN World Population Prospects Medium displays the set of intermediate variables used scenario, which considers the median trajectory along with the data sources. across several projections of fertility and mortality. GDP growth is projected according These variables are combined with additional to the Shared Socio-Economic Pathway SSP2. factors such as access to electricity, technology The Shared Socio-Economic Pathways SSP1 availability and cultural factors to estimate stock to SSP5 describe a set of plausible trends in level for each of the technologies modeled. These socio-economic developments over the 21st factors are important to differentiate demand Century.200 They consist of storylines regarding for specific markets or technologies between GDP, population, urbanization, economic otherwise similar countries. collaboration, and human and technological From macroeconomic and climate data, development projections that describe different intermediate variables and additional factors, the future scenarios. Each pathway future scenario model estimates stock level for each technology does not account for the effects of climate type following the algorithm discussed change or additional climate policies. The previously. The model predictions are calibrated five SSPs differ in terms of the socioeconomic against real-world data up to the year 2022, and challenges for climate change mitigation and use the resulting parametrization to forecast the adaptation. The SSP2 scenario, or “Middle of the equipment stock levels in the future. Road Scenario,” assumes intermediate challenges both in terms of mitigation and adaptation. The estimated stock data is used to estimate Regarding climate change, the baseline scenario refrigerant gas consumption, emissions, and assumes a further 1°C of global warming by energy usage, which are validated against 2050.201 external references. This "feedback loop" is used to further improve the model’s calibration. Following the Medium Variant population projection and the SSP2 scenario, world population is expected to grow by 20 percent from 2023 to 2050, and GDP per capita to grow by 70 percent. Africa should see the largest growth in population, by 70 percent, while in For details, see United Nations World Population Prospects (https://population.un.org/wpp/) and United Nations Intergovernmental Panel 200  on Climate Change (IPCC) Climate Change 2021 (https://report.ipcc.ch/ar6/wg1/IPCC_AR6_WGI_FullReport.pdf) and Climate Change 2023 (https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_LongerReport.pdf) reports. The model does not produce projections beyond 2050, but it could be expected that the influence of climate change would be larger than 201  that of population and economic growth in the second part of the century. COOLER FINANCE Page 157 FIGURE A.1 Population and GDP Projections Population GDP, PPP Millions Trillions , High Variant , SSP Medium Variant , SSP Low Variant SSP , SSP SSP , , Source: World Development Indicators, United Nations World Population Prospects, Riahi et al. (2017), Dellink et al. (2017) East Asia the population is expected to be stable. Global Cooling Watch report. Under that more GDP per capita is predicted to more than double conservative scenario, no high-efficiency units in Africa, East Asia and South Asia. are introduced by 2050, and medium efficiency units are introduced slowly. The accelerated Regarding equipment efficiency, the baseline efficiency gains considered in our baseline scenario assumes a business-as-usual trajectory scenario reflect recent trends and assume with moderate improvements in efficiency. national efforts toward more sustainable cooling Under this scenario, the market is composed of a practices going beyond commitments under the mix of equipment with different efficiency levels. Kigali amendment. The share of low-efficiency units will gradually decline as they are phased out and replaced. In the baseline scenario, passive cooling New units with medium energy efficiency are strategies are assumed to remain at current low introduced more rapidly, while high-efficiency levels. This assumption is intrinsically captured solutions are adopted at a slower pace. Notably, through the historical relationship between these baseline projections depart from the cooling needs and active cooling loads, which assumptions of low efficiency gains in the 2023 already incorporates any reductions due to Page 158 Annexes FIGURE A.2 Population and GDP Projections Across Regions GDP per capita, PPP Population Thousands Millions , South Asia , Africa East Asia , Emerging South Asia Europe Central Asia , East Asia Latin America , Middle East Middle East Latin America Emerging Africa Europe Central Asia Source: World Development Indicators, United Nations World Population Prospects, Riahi et al. (2017), Dellink et al. (2017) existing passive strategies. These assumptions report, while the Mid-Efficiency Gain scenario is are consistent with those considered in the our baseline. Additional scenarios assuming load 2023 Global Cooling Watch report for passive reduction from passive strategies are considered. strategies in the baseline scenario. To calculate specific capital costs for different efficiency levels across years, we rely on research Active Cooling Market Size Estimates from online retailers in countries like Brazil, Market size estimates for active cooling are Colombia, Ethiopia, India, Nigeria, Pakistan, and calculated based on the capital cost of new Thailand. We also reference reports like the Oeko items projected by the stock model. The Research Report for the EU Commission, along expanded model considers equipment prices with data from HVAC.com (U.S.), EIA (U.S.), and and efficiency levels, with different scenarios BSRIA (China). In addition to estimating the unit regarding equipment efficiency. The Low, Mid cost, the capital cost also includes estimates and High Efficiency Gain scenarios assume for other ancillary equipment and materials as improvements in efficiency over time, varying well as labor costs (based on SPON’s 2024 price the degree with which new units become more guides and international labor rates) but does efficient. The Low Efficiency Gain scenario was not include maintenance costs. the baseline for the 2023 Global Cooling Watch COOLER FINANCE Page 159 FIGURE A.3 Capital Costs Across Emerging Markets for Different Efficiency Scenarios Baseline comparison with Higher e ciency and the Global Cooling Watch passive strategies Capital costs Capital costs Billions Billions High E ciency Baseline Baseline Mid E ciency Mid E ciency Global High E ciency & Cooling Watch Passive Strategies Low E ciency Mid E ciency & Passive Strategies Source: Global Cooling Emissions and Investment Model Figure A.3 displays the total estimated capital against the assumptions considered in the costs across developing economies for the model. The dashed lines in Figure A.4 represent scenarios outlined. contours of equal capital cost per unit cooling capacity ($/kW). The data indicates that costs Assumptions on Capital Costs vary from around $80/kW to $2,000/kW. Most The capital cost assumptions considered in air conditioning costs in emerging markets this study are derived from industry reports range between $80/kW and $180/kW and are on equipment costs and efficiencies, as well as greater than $180/kW in advanced economies. desk research on equipment prices from online Refrigeration costs are even higher, ranging retailers of residential equipment in various between $1,000/kW and $2,000/kW. The emerging markets (including Albania, Brazil, capital costs assumed in the model fall within Colombia, Nigeria, Pakistan and Thailand). Figure these ranges. A.4 illustrates the relationship between capital The wide range in costs reflects significant costs and cooling capacity from different sources differences between the very different Page 160 Annexes FIGURE A.4 Capital Costs and Cooling Capacity , , y= x y= x IND AC , , y= x BRA/COL AC y= x CHN AC , Capital Cost USA AC EUU AC , IND Refrig BRA/COL Refrig , EUU Refrig Model EMDEs AC Model EMDEs Refrig Model Advanced Economies AC , , Model Advanced Economies Refrig Cooling Capacity kW IND India: desk research, using Amazon India BRA/COL Brazil & Colombia: desk research CHN China: BSRIA, 2019. “China’s residential air conditioning prices set to increase” USA USA: EIA, 2023. “Updated Buildings Sector Appliance and Equipment Costs and Efficiencies” EUU EU: Oeko Recherche report for EU Commission (Schwarz et al., 2011) Model - EMDEs Model estimates for developing economies (e.g. Africa, South Asia) Model - Advanced Economies Model estimates for advanced economies (e.g. N. America, Europe, Japan, Australia) COOLER FINANCE Page 161 technologies in the chart, from small room For transport cooling, the cost estimates air conditioners and domestic refrigerators to focus solely on the cooling systems rather very large office air conditioning systems and than the entire vehicle. The analysis centers commercial or industrial refrigeration systems. on refrigerated road transport and ISO The cost range reflects both inherent differences containers. International shipping costs are not in the technologies and the effects of large- specifically included in the calculations. Although scale manufacturing efficiencies for some high- refrigeration and air conditioning are utilized in volume sectors. rail transport, their contribution is minimal and has not been separately modeled. In addition, there is a wide range of installation costs associated with different technologies. Based on the baseline estimates for each For example, domestic refrigerators require technology, we include multipliers according almost no additional installation costs. They to efficiency and regions, which evolve over come supplied with a mains power lead and time. Initially, higher efficiency models are often can be plugged in to the home by the owner. At accompanied by a significant cost premium, the other extreme, the installation of an air- reflecting the advanced technologies and conditioning system in a large office building manufacturing processes involved, and include a involves not only the main cooling plant items higher multiplier. Over time, the cost associated (e.g. chillers), but also very significant ancillary with higher efficiency equipment is assumed to equipment (e.g. condensers, chilled water pumps decrease as manufacturing efficiencies improve and pipework, air-handling units, ductwork, and technologies become more common.202 and packaged terminal units) as well as skilled installation technicians incurring significant labor Differences in Active Cooling costs. It is not always clear from the sources Market Size Estimates Compared whether their estimates are based on the costs to Recent Market Sizing of the main cooling plant alone, or total installed The current active cooling market size estimates costs (i.e. with ancillary equipment and labor presented in this report significantly surpass costs). Equipment costs for split air conditioning recent market sizing conducted by both the systems and residential refrigerators, sourced Economist Intelligence Unit (2019) and the from online retail platforms, are generally University of Birmingham (2020). inclusive of all applicable taxes. In contrast, costs for non-residential air conditioning and The Economist Intelligence Unit’s (EIU) 2019 refrigeration systems, as derived from the Oeko cooling market size and demand forecasting Recherche study for the EU F-Gas Review and focuses on eight sub-sectors (space cooling various U.S. studies, likely exclude VAT. and refrigeration for residential, commercial, industrial, and transport/mobility uses) and For instance, in Japan, the efficiency of room air conditioners has improved nearly threefold since 1970, while prices, adjusted for the 202  consumer price index, have dropped by 65 percent from 1997 to 2010. Phadke et al., (2017). Page 162 Annexes six countries (China, India, Indonesia, Japan, Previous estimates sized the global cooling Mexico and the United States). The EIU uses market at approximately $140 billion in 2018, panel regressions to establish correlations whereas the model used for this report between underlying demand drivers (like estimated a global market size of $530 billion urbanization, income, temperature and by 2020. A significant portion of the disparity in electricity access, among others) and unit estimates arises from the inclusion of installation sales of cooling equipment across sub-sectors costs and ancillary equipment in the current and countries of interest. It uses aggregates analysis—factors that are not believed to be of air conditioning equipment sold by leading accounted for in earlier studies. When we producers and recognizes the limitations on exclude these additional expenses, the global refrigeration equipment due to broader market market estimate for all sectors stands at $380 fragmentation. billion in 2020, projected to grow to $585 billion by 2030 under a mid-efficiency gain scenario. Additionally, previous market estimates, last TABLE A.3 revised in 2016, would see an approximate 40 percent increase when adjusted for global Variations in Market Size Estimates inflation rates. Lastly, the data utilized in these estimates, from the Global Cooling Initiative,207 PARAMETER GLOBAL MARKET VALUE may be reflective of manufacturers’ sales of Reference 2030 equipment. In contrast, the estimates in this Year report are based on prices to end consumers, Sector All sectors All sectors which include markups above factory prices. Estimates Estimation of market for from $135bn204 - previous $143bn205 (2018) $170 bn206 passive cooling measures studies203 UNEP and IFC have undertaken an analysis of Global the potential current market for building-level estimate passive cooling measures, including reduction $380bn (2020) $585bn (equipment in window area, shading of windows, use of only) reflective roof and wall surfaces, wall and World Bank (2022) projects India's cooling market by 2038 at $29 billion for refrigeration, $8 billion for mobile air conditioning, and $1.5 203  trillion for green buildings (based on IFC, 2017). Our estimates for 2040 are $23 billion for refrigeration and $8 billion for passenger vehicles. The green buildings market estimate is not comparable as it goes beyond cooling solutions; our estimate for space cooling in India for 2040 is $50 billion. 204 EIU (2019). University of Birmingham, 2018. "The Clean Cooling Landscape Assessment". 205  206 EIU (2019). 207  https://www.green-cooling-initiative.org/country-data. COOLER FINANCE Page 163 roof insulation and high-performance glazing. • A lack of data on informal settlements in Integration of these measures into building developing economies and the transition into energy codes and the timeline of their adoption formal housing. Such dwellings could benefit and enforcement follows the same global significantly from passive cooling and their assumptions as the Global Cooling Watch inhabitants are most at risk amid poor access report. UNEP and IFC used a building stock to active cooling; model for developing economies to estimate the • Limited data on retrofit markets and on market potential and current size including cost measures such as shading or cool roofs, the estimates for passive cooling in new builds and cost of which can be spread over several retrofits for different markets. years and do not require large scale building The modelling of the impact and market for refurbishment. passive cooling measures is highly complicated The current built-up area of residential and for the following reasons: commercial buildings in developing economies • Lack of validated data on current quality was adopted from various national and global of building stock and divergent ranges for sources and then weighted and set to match future building stock growth; IEA estimates in 2022.208 Growth rates for floor space are highly uncertain and a range of • Poor understanding of application of building sources were used including the IEA growth rate energy codes in countries; for developing economies up to 2030.209 Beyond • Significant variation in the resource and 2030, increases in floor areas for buildings is installation costs between countries within estimated using the incremental floor areas by regions and across developing economies; 2050 mentioned in the UNEP-IEA Global ABC regional roadmaps210 for Africa, Asia and Latin • Climate variation within countries that America. affects motivation to implement passive cooling. Nevertheless, the vast majority of The penetration of building energy codes emerging market populations and countries across emerging markets is sourced from the have high potential to benefit from passive Global Cooling Watch data survey. Rates of cooling measures; building energy code adoption and enforcement up to 2050 are highly uncertain and, given • The scope and rate of building energy the significantly higher cost of retrofitting code adoption and enforcement is highly with passive cooling measures as opposed uncertain. to regulating their requirement during new 208 IEA (2023b). 209 IEA (2023b). 210 IEA (2020b); IEA (2020c); GlobalABC, IEA and UNEP (2020). Page 164 Annexes construction, this has a huge impact on the impact on integrating passive cooling measures potential market for passive cooling in 2050. at the design stage itself. Cost estimates vary Rates of building energy code adoption significantly by country, as do construction costs have been previously modeled by the IEA.211 in general. Furthermore, the IEA’s Net-Zero Energy Scenario Given the significant uncertainties around in 2050 requires global coverage of building costs, the pace of retrofits and building energy energy codes and fast retrofit of buildings at 2 code adoption, and other variables mentioned percent a year through to 2050 for developing above, UNEP and IFC have not estimated the economies. cumulative cost for passive cooling up to 2050 Based on the cost analysis across several nor the market size in 2050. Further analysis countries, assumed cost ranges for a at the country or sub-regional level should be combination of passive cooling strategies undertaken. were developed for different new building An example of cost estimates213 for passive types in different climate zones that deliver cooling measures that can deliver 24 percent energy reduction of 16 percent to 27 percent reduction in cooling demand in terms of from cooling. On average across these additional capital costs for new builds is provided regions, additional incremental costs lie in the in the table for India. range of 3 percent to 5 percent over the new construction costs,212 which shows a positive 211 IEA (2021b). 212 CBRE Global Office Fit-out Cost Guide 2024, https://www.cbre.com/insights/books/global-office-fit-out-cost-guide-2024. 213 Costs include material and labor and exclude transport, taxes. COOLER FINANCE Page 165 TABLE A.4: Example of Cost Estimates for India PASSIVE MEASURES COST ($/M2) SOURCE Cool Paint 0.32 Multiple cool surface service providers Roof insulation 7.75 Multiple insulation contractors Glazing 36.29 India Schedule of Rates and local contractors Wall insulation 7.75 India Schedule of Rates and local contractors Average of cost of concrete for 500 mm overhang and plastic Shading 1.3 overhang with fixtures in India Note: There is significant variation for costs even within one country and these cost figures should not be used in actual projects nor should they be used as a benchmark. Page 166 Annexes Annex 2: Methodology for Estimating the Total Cost to Close Cooling Gaps Residential Cooling Residential Refrigeration Residential cooling gaps are estimated according The methodology employed to estimate the cost to the following equation: to close residential refrigeration gaps is outlined below: Data Sources where: The estimation process relies on data generated • target level denotes the target share of from the global stock model, specifically the households that are expected to need a output concerning residential refrigeration, cooling appliance. For example, while it is coupled with projections regarding the number reasonable to assume all households need of households. Survey data on penetration of a refrigerator, not all households need refrigerators is also used. active space cooling equipment, and the target level will depend on climate. Target Level • penetration rate denotes the share of Given the critical importance of refrigeration for households that own a cooling appliance. household food preservation, our target level for residential refrigeration is set at 100 percent of The gap represents the share of households that households. do not own a cooling appliance. To calculate the costs to close these gaps, the gap is multiplied Penetration Rate Calculation by the projected number of households in the Penetration rates are calculated by dividing country, the assumed number of units per the projected number of refrigerators in each household, and the average cost of the cooling country by the projected number of households, appliance. with the assumption that each household In the following subsections we provide a owns one refrigerator. The estimated numbers detailed analysis of each of these elements for are validated against penetration rates of the residential refrigeration and residential space refrigerators obtained from household surveys. cooling sectors, as well as the data sources used for the estimation. COOLER FINANCE Page 167 Residential Refrigeration Gap Target Level The residential refrigeration gap is determined Household survey data indicate that not all by calculating the difference between the households require cooling in some countries, target level of 100 percent and the projected as shown in Mexico and Colombia, where penetration rate. This calculation enables the even households at the top income deciles do identification of households lacking adequate not universally own fans or air conditioners. refrigeration access. Therefore, the target level of space cooling varies by country, according to climate. The Estimating the Costs to Close the Gap target level for space cooling needs is estimated The total cost to close the residential based on fan ownership in different climates, refrigeration gap is quantified by multiplying the obtained from surveys. For countries with number of households with access gaps by the available household level data, cooling needs are equipment prices, assuming one refrigerator per determined by the ownership rate of fans or air household. These prices are determined based conditioners by households in the top deciles of on the assumptions outlined in section Annex 1. the income (or wealth) distribution. For countries where this kind of data is not Residential Space Cooling available, a saturation curve representing a There are two bounds for the cost to close maximum space cooling penetration rate for the space cooling gaps. The lower bound different levels of CDDs is estimated based estimate assumes that households without on cross-country fan and aggregate air access to space cooling solutions fulfill their conditioner ownership data. The underlying needs with fans only, while the upper bound rationale in estimating this saturation curve is estimate assumes that air conditioning becomes that households with higher levels of income universally available for all households seeking (or other features that make cooling solutions active cooling needs. more accessible) will, in general, face lower constraints to access the cooling solutions they Data Sources need. Therefore, the observed largest ownership The estimation process relies on data generated rates of space cooling solutions (fans or air from the global stock model, specifically the conditioners) reflect closer the space cooling output concerning residential space cooling, needs of households in countries facing similar coupled with projections regarding the number temperature levels. Figure A.5 shows the data of households. Additional survey data on and estimated saturation curve. As expected, penetration of air conditioners and fans is used. most countries with higher income levels are Box A.3 illustrates the available survey data and the main drivers of the saturation curve. In the differences in access to air conditioners and addition, fan or air conditioner ownership among fans across the distribution of households (by households in the top deciles of the income (or income, expenditure, or wealth). wealth or expenditure) distribution observed in countries with available microdata, are broadly BOX A.2 Detailed Analysis of Refrigerator Ownership by Household Distribution There are notable differences in access to In contrast, countries with available ownership residential refrigeration across the household microdata in Africa (Namibia, Nigeria, and Sierra distribution (by income, expenditure, or wealth) for Leone) and South Asia (Bangladesh and India1) countries at various stages of development. show significant access gaps for refrigeration. At least 60 percent of households in the bottom Countries with available data for Latin America 60 percent of the distribution across all these (Brazil, Colombia, and Mexico) and East Asia countries do not own a refrigerator. This is (Thailand and Viet Nam) have relatively high rates followed by steep increases toward 80 percent of refrigerator penetration for households in the ownership by the households in the top decile bottom deciles of the distribution, with between for Bangladesh, India, and Namibia. Nigeria and 40 percent and 80 percent of households in the Sierra Leone show the largest access gaps, with bottom 20 percent of the distribution owning a less than 50 percent and 20 percent of households, refrigerator. These countries also show ownership respectively, in the top decile of the distribution rates close to or above 90 percent for all owning a refrigerator. households above the bottom 40 percent. Household ownership of refrigerators (average within income, expenditure or wealth deciles) Latin America and East Asia Africa and South Asia % % Bangladesh Brazil % % Namibia Colombia India Thailand Mexico % % Nigeria % % Viet Nam % % Sierra Leone % % Source: NBS and UNICEF (2019, 2019b, 2021), IBGE (2018), DANE (2018), INEGI (2018), NSSO (2012), Namibia Statistics Agency (2016), NBS (2018), SSL (2018). Household survey data from India is from 2012 (NSSO, 2012) and is useful for highlighting within-country patterns. However, it 1  is important to note that refrigerator ownership has increased from close to 20 percent in 2012 to almost 40 percent by 2019 (according to the 2019-2021 India DHS Survey).The 2019 data was not used in this analysis as this survey does not provide data on income or expenditure. COOLER FINANCE Page 169 in line with the saturation curve. This approach space cooling penetration. From the first set of ensures the target level for space cooling is countries, this was identified as a better proxy estimated based on both direct survey data than adding fan penetration to air conditioning and the modeled saturation curve for different penetration (Figure A.7, right panel). The left climates. panel of Figure A.7 illustrates the relationship between GDP per capita and space cooling Penetration Rate Calculation penetration. Air conditioner penetration rates are calculated Residential Space Cooling Gap by dividing the projected number of air conditioners in each country by the expected The residential space cooling gap is determined number of households, adding an adjustment by assessing the difference between the target factor to account for the fact that households level of space cooling estimated for each climate that own air conditioners often own more than and the estimated space cooling penetration one unit. The adjustment factor is calibrated rate (for the lower bound) or the air conditioner to follow penetration predictions for China penetration rate (for the upper bound). from IEA (2019).214 Figure A.6 illustrates the Estimating the Costs to Close the Gap ownership rate from the model, the penetration suggested in the report, and the adjusted The total cost to close the residential space penetration curve. cooling gap is quantified by multiplying the number of households with access gaps by the To calculate the total cost to close the gaps equipment prices. Air conditioner prices are using fans, we estimate the penetration rates of determined based on the assumptions outlined space cooling (fans or air conditioners). Space in Annex 1, assuming the gap will be filled with cooling penetration rates are estimated based one 3.5 kW unit per household. For the lower on GDP per capita, using penetration rates bound, we assume an average price of $40 per collected from surveys, filtered for countries with fan to calculate the current gap, assuming one warmer climates. For countries where the data super-efficient fan per household.215 source enables distinction between ownership of only fans, only air conditioners or fans and air conditioners, space cooling penetration is calculated as the share of households that own fans or air conditioners (the share which only own fans is added to the share which own air conditioners). For the remaining countries, the fan penetration rate is used as a proxy for 214 IEA (2019), The Future of Cooling in China, IEA. Although there might be cheaper fans available, this assumption considers the use of super-efficient ceiling fans. The unit price is similar to 215  the one used in Aggarwal & Agrawal (2022). BOX A.3 Fans and Air Conditioner Ownership Across Households for Selected Emerging Markets This analysis was done for eight countries across country according to what is available in each four regions, where household-level data on survey, with some using income, others using ownership of fans and refrigerators was available. expenditures, consumption, or wealth levels, as These countries are Ghana and Nigeria in Africa, indicated in each graph's heading. Bangladesh and India in South Asia, Colombia and Each of the graphs below compares the share Mexico in Latin America, and Thailand and Viet of households that have air conditioning with Nam in East Asia. For each of these countries, households that have fans only—but not air the graphs below show fans and air conditioner conditioning.* ownership rates across deciles of the household distribution. The distribution metrics vary by Household ownership of fans and air conditioners Ghana Nigeria Average within Income Deciles Average within Consumption Deciles % % % % Fans and Fans and no AC no AC % % % % % % AC % AC % CDDs , CDDs , GDP per capita , GDP per capita , Ghana and Nigeria, the countries with the lower income levels in the sample, show the largest gaps as air conditioning ownership is very low for most households, even those in the top income deciles. While about 60 percent (or more) of households in Ghana own fans across all deciles of the income distribution, ownership of fans in Nigeria grows between 40 percent for the lowest expenditure decile to about 70 percent for top deciles. This may be driven by access to electricity which is close to 60 percent (of the population) for Nigeria, compared to 86 percent for Ghana. COOLER FINANCE Page 171 Bangladesh India Average within Wealth Index Deciles Average within Expenditure Deciles % % Fans and no AC % % % % Fans and no AC % % AC % % AC % % CDDs , CDDs , GDP per capita , GDP per capita , In Bangladesh and India, countries with relatively low income levels within the sample, there is also a large air conditioning access gap across households. In Bangladesh, fan ownership is above 80 percent while air conditioning ownership is close to zero for most households and less than 20 percent for those in the highest wealth decile. On the other hand, in India, the air conditioning access cooling gap is large and increasing up to the sixth (expenditure) decile, where it starts closing gradually up to the top (expenditure) decile where half of households own air conditioners and half own fans. Colombia Mexico Average within Income Deciles Average within Income Deciles % % % % % % Fans and no AC % % AC Fans and % no AC % AC % % CDDs , CDDs , GDP per capita , GDP per capita , Colombia and Mexico have higher income levels but colder temperatures (measured by CDDs), which imply less cooling need as evidenced by the rate of fan ownership throughout the income distribution. However, there is still an air conditioning access gap, which remains relatively constant in Colombia across the income distribution, while it closes slightly for Mexico in the highest three income deciles. While Colombia is warmer than Mexico, air conditioner ownership in Mexico is higher (and grows across income deciles) given higher economy-wide income levels. Page 172 Annexes Thailand Viet Nam Average within Wealth Index Deciles Average within Wealth Index Deciles % % AC AC % % % % % % % % Fans and Fans and % % no AC no AC CDDs , CDDs , GDP per capita , GDP per capita , Thailand and Viet Nam have similar temperatures to sampled countries in Africa and South Asia, but significantly higher income levels. This implies an increase in air conditioner ownership that starts at lower deciles (around the fifth wealth decile). It is worth noting that air conditioner ownership increases from zero for the poorer households to a level above the (decreasing) fan ownership for households in the top three wealth deciles; and reaching close to 100 percent for households in the top wealth decile. Source: NBS and UNICEF (2019, 2019b, 2021), DANE (2018), INEGI (2018), NSSO (2012), NBS (2018), GSS (2017). Note: It is important to note that households in the top income levels tend to be underrepresented in household surveys, and therefore some of the shares for the top deciles may be underestimated. Non-Residential Space However, based on the cooling demand Cooling and Refrigeration estimates from Section 2.2 we can estimate the total cost required to address non-residential While it may be possible to identify key sectors cooling gaps for small and medium enterprises underlying the bulk of the total non-residential (SMEs). The analysis divides firms into two cooling market estimated at the country level categories: large firms and SMEs. Large firms in Section 2.2 (based in part on total GDP), using have no financial constraints and can fully information about the sectoral composition satisfy their cooling demands. SMEs are further of the economy, there is in general no data classified as either fully financially constrained available on access to cooling solutions for or partially constrained (or unconstrained). firms across different sectors, and not enough It is assumed that partially constrained and sectoral granularity on other types of economic unconstrained SMEs satisfy all their cooling data. Therefore, it is not possible to estimate needs, while fully financially constrained SMEs non-residential cooling access gaps by sector. cannot satisfy any of their cooling needs.216 Further evidence and research are required to establish a more robust relationship between access to finance for firms and their ability to 216  satisfy their cooling needs. COOLER FINANCE Page 173 FIGURE A.5 Estimated Space Cooling Saturation Levels % % Space Cooling Penetration Rate % Low income Lower middle income % Upper middle income Survey top decile % Saturation Curve % , , , , , Cooling Degree Days Source: Various surveys, International Energy Agency The model assumes that satisfied cooling demand is proportional to the value added generated by firms. The unsatisfied SME cooling demand is calculated as proportional to the total satisfied demand, with the factor determined by two terms: the percentage of SMEs that are financially constrained ( ) and the share of overall value added generated by SMEs ( ): Page 174 Annexes FIGURE A.6 Air Conditioning Per Household, Penetration Rates and Adjustment Factor in China . . ACs per households Adjustment Adjustment factor factor . . Adjusted AC penetration . . IEA . . . . . AC per household Source: IEA (2019), estimates from authors. Note: Adjustment factor is a number of air conditioners per household for households that own at least one The methodology is outlined below: The value of the non-residential cooling stock is an outcome from the global market size model. Data Sources for Baseline Estimating Methodology The percentage of SMEs that are fully financially constrained is obtained from the IFC and SME Based on the data available, the share of value Forum MSME Finance Gap dataset. added generated by MSMEs is estimated as a fifth-degree polynomial based on GDP per The share of value added generated by SMEs capita. Figure A.8 shows the fitted line. is obtained from several sources, including the IFC SME database, OECD, CEPAL, Asian The percentage of SMEs that are fully financially Development Bank, and various studies for constrained is estimated as a second-degree African countries. 217 polynomial based on GDP per capita. Figure A.8 shows the fitted line.218 217 It is worth noting that there is no consistency across these datasets on the definition of the firms being included in their estimated share of GDP. There is also lack of clarity about the inclusion of micro and SME firms, or only SME firms in the estimate. 218 There is substantial cross-country variation at similar levels of GDP, especially for the percentage of SMEs that are fully constrained. COOLER FINANCE Page 175 FIGURE A.7 Space Cooling Penetration Rates and GDP Per Capita Across Countries Measures of Space Cooling Penetration Rate countries sorted by GDP per capita % % Fan Only + AC Space Cooling Penetration Rate % % Fan % % Fan + AC % % CDDs < % % < CDDs < CDDs > % % , , , GDP per capita Source: Various surveys, International Energy Agency, World Development Indicators Note: GDP per capita is measured in constant 2017 International $ at PPP The estimates are plugged into the formula this scenario the share of the total cost for above to estimate the total cost to close the China would decline from 69 percent in 2023, SME cooling gap. to 25 percent in 2050, while South Asia’s total cost share would increase from 7 percent to Evolution of Estimated Costs to Close the 20 percent, reaching $36 billion. Africa’s share SME Cooling Gaps would increase from 2 percent to 19 percent, or The projection of estimated cots to close SME $33 billion in 2050, implying a fivefold increase. Cooling Gaps through 2050 depends on the On the other hand, under a status quo scenario underlying assumptions regarding the evolution where SMEs’ access to finance remains broadly of access to financing by SMEs. unchanged, the total cost to close the SME Following the assumption that SME access to cooling gap would continue increasing in China finance will improve in the next three decades as well, to $317 billion in 2050, accounting for across developing economies, the cost to close 54 percent of the total. Under such a scenario, SME cooling gaps would decline from $268 the cost to close the SME cooling gap for Africa billion in 2023 to $179 billion in 2050. Under would increase by seven times in 2050 to Page 176 Annexes FIGURE A.8 SME Financial Constraints and Share of GDP Related to GDP Per Capita MSMEs share of GDP and GDP/Capita % SMEs fully constrained and GDP per capita constant USD PPP % LI / LMI UMI HI % % % % % Source: IFC and SME Forum MSME Finance Gap, IFC SME database, OECD, CEPAL, Asian Development Bank, and various studies for African countries. $48 billion, while the cost for South Asia and the Middle East would increase by four and four- and-a-half times respectively. 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IFC UN Environment Programme (UNEP) IFC—a member of the World Bank Group—is the largest UNEP is the leading global voice on the environment. It global development institution focused on the private provides leadership and encourages partnership in caring sector in emerging markets. We work in more than 100 for the environment by inspiring, informing and enabling countries, using our capital, expertise, and influence to nations and peoples to improve their quality of life without create markets and opportunities in developing countries. compromising that of future generations. In fiscal year 2024, IFC committed a record $56 billion to private companies and financial institutions in developing countries, leveraging private sector solutions, and mobi- lizing private capital to create a world free of poverty on a livable planet. For more information, visit www.ifc.org. 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