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Bring in Smart Policies, Clear the Air on Clean Energy

This post was co-authored with Jamshyd Godrej, chairman of Godrej & Boyce Mfg. Co. Ltd and a WRI Board Member. It originally appeared in The Economic Times.

Ministers are gathering in New Delhi today to address an urgent challenge: how to unlock the full potential of clean energy to drive economic growth, expand energy access, and protect the climate. The 4th Clean Energy Ministerial — which brings together energy ministers and other delegates from more than 20 leading economies — is a critical opportunity to inject new life into the global clean energy transition.

While we've seen progress on renewable energy, the sector still faces barriers to increase financial support and create strong national policies that will enable it to flourish. First, some good news: The renewable energy market has blossomed in recent years. In just the last decade, global clean energy investment has increased five-fold, from $50 billion a year to more than $250 billion. And more than 100 countries have renewable energy targets in place.

India has set itself on a remarkable journey by ushering in renewable energy growth. The National Action Plan on Climate Change, launched in 2008, aims to have 15 percent of India's electricity consumption from renewable energy by 2020. Currently, the country produces slightly more than 12 percent of its energy from renewables, putting it on track for that goal. India has been using various policy levers to advance renewable energy, including tax and generation-based incentives, capital subsidies, and feed-in tariffs. The Renewable Portfolio Obligations is also providing support for renewable energy developers. Even so, the country is not yet achieving its full potential — which is critical for the 400 million people who lack access to basic electricity.

Falling Short

The same story is playing out around the world, where renewable energy deployment is falling short of what's needed. Private equity and venture capital investment in renewables dropped by 34 percent in 2012. While much of this has been a result of reduced government support and falling technology prices, more can be done to drive investment into this sector.

When it comes to the global policy environment, there is a lack of strong and consistent policy signals. According to a recent analysis by WRI, countries with comprehensive, predictable, and targeted policies have seen the greatest success in scaling up domestic installation and manufacturing capacity. More countries need to adopt such policies.

Further, excessive fossil fuel subsidies are distorting energy markets. The IMF just released an analysis that found that the total value of fossil fuel subsidies worldwide is nearly $2 trillion, including direct subsidies and "mispriced" fossil fuels. While it's true that subsidies targeted towards the poorest consumers are often necessary, these broad-based subsidies are buoying the mature fossil fuel industry, while holding back rapid expansion of clean energy.

Innovations Needed

The barriers can be overcome. What's needed is to set the right policies that will create a stable investment environment and drive innovation.

Beyond policy measures, clean energy deployment calls for government officials, regulators, and businesses to truly shift their mindset when it comes to clean energy.

One innovative example is the Green Power Market Development Group in India. Already, more than seven businesses representing more than $450 billion in market value have joined this group. The goal is to enable corporate buyers to access reliable and clean energy, while diversifying their energy portfolios and reducing their impact on climate change.

This group is developing procurement models to help large industrial and commercial energy consumers get more value from using renewable energy. These strategies can drive down costs and overcome challenges of fragmented demand.

Other exciting examples are emerging, like Husk Power, a company that provides affordable electricity to rural communities through rice husks. The Clean Energy Ministerial should help drive such innovations.

It can enable smart policies, improved regulatory framework, and private sector leadership. Ministers and other delegates should also work towards mobilizing financial resources, increasing access to data, and developing new tools to accelerate the use of best practices. The ministerial should break down barriers and inject renewed momentum in clean energy development.

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