Making the transition to a low-carbon, climate-resilient economy is going to take a lot of investment, and the limited budgets of the public sector can’t tackle it alone. But by targeting their support, governments can create incentives for significant private investment into climate activities; in other words, they can “mobilize” private investment. So estimating how much private finance is being mobilized by public support will be key in the run-up to an international climate agreement next year, and the UNFCCC is considering how to make these estimates more accurate.
Two Reasons Why Policymakers Need Better Estimates
Policymakers need more accurate estimates of mobilized private climate finance because:
Policymakers from industrialized nations are working towards meeting the developed countries’ UNFCCC commitment to provide $100 billion per year by 2020 to help developing nations address climate change. The private sector will play a key role in meeting this target, and accurately estimating how much finance has been mobilized is crucial to assess progress toward this goal.
Policymakers want to more effectively increase climate finance in the longer term. Continuing with business as usual will require $89 trillion in infrastructure investment through 2030, with shifts and additional requirements of $13.5 trillion to move to a low-carbon pathway. More accurate estimates will help countries better understand which of their resources, such as the development of policies to support low-carbon development, are most effective at mobilizing finance. This will help them tailor their support in the most appropriate way.
How to Start Estimating the Private Finance That Has Been Mobilized
Creating accurate estimates of the links between public support and private finance is a complicated and challenging endeavor. To start addressing this complexity, the Research Collaborative on Tracking Private Climate Finance – a network of research organizations, international finance institutions and governments – proposes a framework, with options to address key questions relevant to estimating mobilized finance that can guide the development of more robust estimation methods. The questions fall under four broad categories:
How can we define concepts relevant to estimations, such as developed and developing countries, public and private sector, and so on?
How do we identify which types of public support can be credited for mobilizing finance?
How do we determine the values of this support and the total private finance?
How do we decide what share of total private finance the public support for responsible for mobilizing?
Each question can be addressed in different ways, and the accuracy and feasibility of the estimates will vary depending on how the questions are addressed. This means policymakers will have to make trade-offs as they make these decisions; however, they should take care that their choices promote effective means to increase climate finance.
What Decision Makers Need to Do
In the short term, to better assess progress toward the $100 billion commitment, policymakers should transparently test and implement estimation methods that are practical and easier to standardize, without compromising accuracy. One way to do so is to select options that reduce double-counting of private climate finance when multiple public-sector entities are involved, and to coordinate on the method used. This would minimize the risk of different types of public-sector support claiming credit for mobilizing the same slice of private capital.
In the long term, decision makers should work to understand what drives mobilization of finance. Building consensus on definitions of core concepts, building data systems for data collection and reporting, and improving estimation methods will make the resulting estimates more accurate while still being practical.