Scaling up private sector investment in climate change mitigation

26 October 2009

Experts indicate that investments of around $500bn a year will be needed to assist developing countries adapt to climate change while powering low carbon growth. Much of the money will come from the private sector but will only flow if creative public policies that reflect the differing circumstances of developing economies are swiftly adopted, according to the report issued by the UN Environment Programme (UNEP) and a global partnership of investors and insurance companies.

The report Catalysing Low Carbon Growth in Developing Economies: public finance mechanisms to scale up private sector investment in climate solutions, was prepared by Vivid Economics based on case studies.

The total investment required to avoid dangerous climate change is more than $1tn per annum, according to the International Energy Agency (IEA). The World Bank suggests that around half of this will have to be deployed in the developing world.

The public and private sectors have complementary roles to play in meeting this challenge. Demands on public finances are acute, particularly following the recent financial crisis. Private sector investment is therefore critical.

A recent study commissioned by the United Nations Framework Convention on Climate Change (UNFCCC) said the private sector will have to supply close to 90 per cent of the funds needed to meet the climate challenge. However, at present, the private sector is unable to undertake the level of investment needed in developing countries because the returns on low carbon investments are not commensurate with the risks.

The report considers how public sector funds can be deployed most effectively to leverage private sector investment in developing countries. This requires an effective distribution of roles between public and private sectors. It asserts that through appropriate public finance mechanisms (PFMs), the public sector can assist in managing those risks the private sector is not able to control and alter the risk reward balance for private investors.

PFMs can also fund the technical assistance required to generate demand for low-carbon projects at a scale likely to be attractive for large private sector investors. Furthernore, PFMs can leverage significant private capital, with previous research suggesting that $1 of public money spent through well-designed mechanisms can leverage between $3 and $15 of private sector investment.

One of the report’s recommendations is for the establishment of a forum for on-going dialogue between the public and private sectors, to improve the design of the proposals outlined and implement the mechanisms proposed.

Achim Steiner, United Nations Under Secretary General and UNEP executive director, said
‘Combating climate change represents an important opportunity to move economies onto a low carbon, resource efficient, green economy path. If this is to succeed, developing countries should and must be part of that transformation. Today’s report underlines a range of public policy options that reflect the varying circumstances currently prevailing in developing economies and show how existing barriers to a Green Economy can be leap-frogged. In doing so it opens the door to a new partnership between North and South.’

Lord Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, and special adviser to the group chairman of HSBC, added, ‘Now is the time for investors and policy makers to work together, not just to limit the severe risks from climate change, but also to seize the opportunities available from low-carbon economic growth. This is a critical moment, with barely 40 days until the United Nations Climate Change Conference in Copenhagen in December, when governments from around the world will attempt to agree on a strong and effective international agreement. This report offers valuable examples of how public and private finance can be mobilised effectively to drive the transition to a future era of dynamic low-carbon growth.’

The United Nations Environment Programme Finance Initiative (UNEP FI) is a global partnership between UNEP and the financial sector, comprising over 170 institutions, including banks, insurers, fund managers and investors. The UNEP FI Climate Change Working Group (CCWG) aims to identify the common grounds shared by the societal goal of effective climate change mitigation/adaptation and the core interests of financial institutions, investors and capital market actors.

Copyright © 2009 NewNet

This story was published on Monday, October 26th, 2009 at 12:02 am and is filed under deals, knowledge. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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