The world, simplified: Is the international order dead or dying?
“The world, simplified” is a weekly edition where we will break down the most interesting stories in finance and economics from around the globe.
In this edition, we talk about about globalization—whether it’s dying and if the world is breaking apart. In the second story, we explore what’s happening with the green transition and the challenges that poorer countries are facing.
You can listen to this episode on Spotify, Apple Podcasts, or wherever you get your podcasts and video on YouTube.
The global energy transition: challenges and investments
First up, let’s talk about energy transition, we will dive into three main ideas: why we need renewable energy, how the transition is going, and the truth behind where money is— or isn’t—being invested in different parts of the world. We'll look at the progress, the gaps, and the challenges ahead. Let’s kick things off by talking about the temperature targets set at COP28.
COP28 is a big climate summit where leaders from around the world gather to set goals for tackling climate change. After the summit, nearly 200 countries agreed to keep global warming well below 2°C, aiming for 1.5°C by 2050.
This target is crucial to avoid the worst impacts of climate change, like extreme weather, rising sea levels, and disruptions to farming and water supplies.
In 2023, global temperatures hit record highs, briefly crossing the 1.5°C mark. Climate scientist Zeke Hausfather, in his report for Carbon Brief, showed that the world is warming faster than expected, raising alarms about when we might cross the 1.5°C limit for good.
Reaching 1.5°C for a year or two doesn’t mean we've crossed it permanently, but it’s a serious warning. It’s a glimpse of what’s to come if emissions aren’t reduced quickly. Carbon Brief projects that we could permanently cross the 1.5°C threshold as soon as 2030, or even by 2028. The urgency is real: these rising temperatures aren’t some future threat—they're happening now. The longer we wait, the harder it becomes to avoid the worst outcomes.
This isn’t just something activists are worried about. The world is at a critical point. Nearly 200 countries have agreed to triple renewable energy capacity by 2030. That means adding a lot more solar, wind, and other clean energy sources to replace fossil fuels.
It’s a huge commitment, not just for the environment but for the survival of economies and people. About half of the emissions cuts we need to stay within safe warming limits depend on renewable energy. Solar, wind, and hydropower are key if we want to meet climate goals and keep the global economy running. The need is urgent, and time is running out.
So, are we moving fast enough?
The short answer is no. Solar installations are breaking records, with 593 gigawatts expected to be installed in 2024, according to the International Energy Agency (IEA). This is huge—enough to power hundreds of millions of homes. But even with this growth, Bloomberg NEF reports that we’ll still be 29% below the net-zero target by 2030. To stay on track, capacity needs to increase by another 13%.
While the renewable energy market is growing, it's not expanding quickly enough to meet the 2030 goals, meaning we risk falling behind on our climate targets. Much of this growth is happening in places like China, the US, India, and Europe. On the surface, it looks like we’re making big progress, but the situation is more complicated.
Most of the growth is in advanced economies and China. China alone is adding 28% more solar capacity this year, and it makes up over half of all global solar installations. The US, India, and Germany are also making big strides.
It seems like the green transition is picking up steam, but we’re still off-track to meet the 2030 goals. If we keep going at this pace, we’ll be about 29% short of what’s needed for net zero. Net zero means balancing the emissions we produce with those we remove, bringing the total to zero. Despite big investments, Bloomberg says the world needs to invest around $1 trillion a year in renewable energy from 2024 to 2030, plus $193 billion annually for battery storage and $607 billion for power grids. Power grids are the systems that deliver electricity, including power lines and substations. These investments are far higher than what we’re currently spending.
According to IEA, in 2024, global investment in clean energy is expected to surpass $2 trillion for the first time, outpacing fossil fuels.
That sounds great, but here’s the catch
85% of these investments are in China and advanced economies like the US and Europe. Emerging and developing economies—called EMDEs—outside of China only get 15% of global clean energy investment, even though they make up two-thirds of the world's population. If we want real progress, we need more money flowing to these countries. They're facing the fastest energy demand growth and are on the front lines of the climate crisis.
But we can’t ignore the ongoing investments in oil. According to the latest IEA report, oil and gas investments remain high, with only a small portion shifting to renewables. In fact, just 4% of industry spending is on clean energy, while 96% still goes to fossil fuels. In 2024, oil investments are set to top $500 billion. There’s also the issue of stranded assets—oil and gas projects that could become unprofitable as the world shifts to green energy. If we keep investing in fossil fuels, it’ll be harder to meet our climate goals.
Now, let’s talk about the cost of financing in emerging economies
Financing a solar project in an emerging economy can cost more than twice what it does in countries like Germany or the US, mostly due to higher interest rates and economic risks. For example, the average cost of capital for solar projects in places like Mexico and South Africa is about double that of advanced economies. This makes it much harder for these countries to expand renewable energy.
One big reason for the high cost is the dominance of the US dollar in international finance. Many emerging economies have to borrow in dollars, making them vulnerable to changes in US interest rates. When the Federal Reserve raises rates, dollar loans get more expensive, driving up costs for these countries.
Even as renewable tech gets cheaper, high financing costs make it tough for many nations to make real progress. In fact, financing costs make up the biggest share of clean energy project expenses in these regions, often accounting for half or more of the total cost. In India, for example, financing costs for large solar projects are still more than double what they are in Europe, making renewable energy projects too expensive upfront.
Reducing the cost of capital by just 1% could save an estimated $150 billion annually in clean energy financing costs from 2024 to 2050 in emerging economies. That would make a huge difference in their ability to shift to renewables.
Now, let’s talk about how some institutions and wealthy countries are trying to tackle this problem with a strategy called 'derisking.'
Economist Daniela Gabor has studied the ‘derisking’ approach extensively. In simple terms, governments and public institutions take on some of the financial risk of green projects to make them more attractive to private investors. The idea is to make risky projects look safer so that investors are more willing to jump in.
But here’s the catch: the government takes on most of the risk, while private investors get most of the profits. This is often described as ‘socializing losses and privatizing gains,’ meaning taxpayers cover the losses, but private investors get the rewards.
Another issue with derisking is that it often focuses on the safest, most profitable projects, ignoring riskier but important ones. These riskier projects, especially in vulnerable communities that need green solutions the most, often get left behind. Derisking doesn’t fix the root problem of high financing costs in developing countries—it just offers a short-term solution.
So, to wrap it all up: the green transition is happening, but it’s not happening fast enough or fairly enough.
Advanced economies and China are leading the way with record-breaking investments in solar and wind projects. But emerging economies are struggling with high financing costs. Even with ‘derisking’ efforts, we’re still far from leveling the playing field.
To make this transition work—for the climate and for people—we need to significantly increase investments and make sure funding reaches the developing countries that need it most. The systems in place are making progress, but we need to move faster, go deeper, and ensure that it’s fairer.
Globalization: past, present, and future
Let’s dive into a topic that’s been a big part of economic conversations over the last decade: globalization. You’ve probably heard headlines like “Globalization is dead” at some point. It first came up during the 2008 financial crisis, when countries started focusing inward. Then it popped up again when COVID-19 hit in 2020, disrupting global supply chains. The narrative picked up steam with Russia’s invasion of Ukraine in 2022, which threw global stability and access to key resources into chaos. Add to that the ongoing U.S.-China rivalry, which has sparked ideas like “near-shoring” and “friend-shoring,” where countries prefer trading within their own groups.
It seemed obvious—globalization had gone too far, and now it’s on its way out.
But before we dive into the details, let’s quickly look at the history of globalization.
A brief history of globalization
Globalization is all about interconnectedness—the flow of goods, services, capital, ideas, and people across borders. Historians often talk about different "waves" of globalization [1,2,3,4,5].
The first wave started with the Silk Road (130 BCE to the 1450s), a vast trade network that connected China, Central Asia, and Europe. It wasn’t just goods like silk and spices being traded, but also culture and technology.
Then came the Age of Empire (1500 to the 1900s), when European colonial powers expanded their reach and created global trade networks. This laid the foundation for the interconnected global economy we know today.
The 19th century saw another wave, driven by steamships, railroads, telegraphs, and the Industrial Revolution. These technologies allowed Europe and North America to trade goods and information faster, boosting global trade.
After World War II, from 1945 to the 1970s, we saw a new phase of globalization, led by institutions like the International Monetary Fund (IMF) and the World Bank. These organizations helped rebuild and connect economies after the war. This phase later morphed into the ‘hyperglobalization’ we saw in the 1990s.
During this time, developing countries started catching up with the West through increased trade, investment, and new technologies, marking what some call the 'Great Convergence.'
The third wave of globalization
The third wave of globalization began in the 1980s and 1990s, fueled by technology like the internet and personal computers. These advancements made it easier for companies to break down production and move different stages of manufacturing to places with the best resources or cheapest labor. For example, a company might design a product in the U.S., make its parts in China, assemble them in Mexico, and sell it globally. The iPhone is a great example of this, as its parts come from many countries and are assembled in places like China and India.
This phase of ‘hyperglobalization’ accelerated after the fall of the Soviet Union, the rise of China, and the creation of the World Trade Organization (WTO) in 1995. Trade and financial ties between countries grew rapidly, and developing countries began integrating into global supply chains.
While globalization brought many benefits, like lifting millions out of poverty, it also had its downsides. Jobs moved overseas, wages stagnated, and inequality grew, especially in developed countries.
The 2008 financial crisis exposed these problems, leading to a rise in populism and nationalism. When COVID-19 hit, followed by geopolitical tensions like the U.S.-China trade war, people began questioning whether globalization was even worth it, as it seemed to make economies more vulnerable.
Is globalization really dying?
Despite the backlash, saying globalization is dead is an exaggeration. Experts like Richard Baldwin and Brad Setser argue that we’re not seeing deglobalization—we’re seeing a shift.
Take trade, for example. While there’s been a slowdown, world trade hasn’t collapsed—it’s just changing. Countries are diversifying their supply chains, and services trade is booming. Thanks to digitalization, we’re seeing a rise in the trade of services like consulting and digital content. Baldwin calls this a shift toward a more digital, service-oriented form of globalization, driven by automation and technology.
Even with geopolitical tensions, China’s exports have remained strong. From 2019 to 2023, China’s exports grew, driven by competitive prices on high-tech products. U.S. tariffs didn’t cut off trade; they just rerouted it through countries like Vietnam and Mexico, showing the resilience of global trade.
The new global trade landscape
Recent research from the Bank for International Settlements (BIS) shows how politics are reshaping global trade. Countries are increasingly trading with allies and less with rivals. This isn’t just a U.S.-China thing; it’s happening globally. The European Union’s stance on Russia and China’s growing influence in Asia are examples of how trade is shifting based on political decisions.
Gita Gopinath, the First Deputy Managing Director of the IMF, calls this shift “bloc-alization.” Countries are forming tighter economic ties within friendly groups, splitting the global economy into distinct blocs—like a U.S.-led bloc, a China-centered bloc, and a Russia-focused bloc. This can lead to more trade between allies but also makes countries more dependent on their friends, which could reduce global integration.
IMF research points out the risks of this fragmentation, such as less integration, reduced capital flows, and slower spread of technology. In the worst-case scenario, global GDP could drop by up to 1.5%, and for some countries, the losses could be as high as 12% if technological decoupling happens.
But this shift isn’t the end of globalization—it’s just a transformation. Fragmentation could increase trade costs, but it might also make global trade more resilient by reducing reliance on single partners.
Globalization has gone through many phases, and each phase has brought new opportunities and challenges. While we are seeing fragmentation and shifting alliances, globalization isn’t dead—it’s evolving. We’re in a new phase where technology, politics, and shifting alliances are shaping the future of global trade.
That’s it from us. please do let us know your feedback in the comments about the length, the choice of the topics, and whether we are keeping things simple enough.
While reading this I felt like I was reading economics text book. Completed in 3 mins
just a small request, can you please introduce dark mode on the website thedailybriefing.substack.com. it would be highly useful