As part of the international climate negotiations, developed country governments committed to provide developing countries with “new and additional resources, including forestry and investments through international institutions, approaching $30 billion in the period 2010-2012 with balanced alloc
The World Bank’s annual spring meetings take place this week in Washington, D.C. One big topic on the agenda is how to update the World Bank’s “safeguard” policies. Created in the early 1990s, these policies ensure that the Bank considers the social and environmental effects of proposed projects. For example, the safeguards require those borrowing money to assess the project’s environmental impacts and to compensate households who are negatively affected.
The full suite of safeguards is now under review for the first time. Among other things, the Bank hopes to make its safeguard policies reflect changes in the global economic and political landscape that have occurred in recent decades.
World Bank Safeguards vs. National Safeguards
One question on the table is how the World Bank safeguards should interact with national systems already in place in recipient countries. Since the creation of the Bank’s safeguards, many countries have strengthened their own rules and institutions to ensure that large-scale projects are implemented in a manner that protects people and the environment. These include, for instance, laws requiring environmental impact assessments, or government agencies to oversee land use changes. Relying on these domestic systems can potentially improve protection of people and the environment. National laws, for example, allow governments and citizens to work within their own familiar structures, and they’re sometimes more appropriate for local circumstances than Bank policies.
Shifting to a low-carbon economy will require current emitting countries and projected future emitters to rapidly scale up their investments in renewable energy. In recent years, major emerging economies like China, India, and Brazil have been catching up with leading developed
Ministers and senior officials from developed countries will gather this Thursday in Washington, D.C. to tackle one of the world’s foremost challenges: how to mobilize private sector capital to reduce greenhouse gas (GHG) emissions in developing countries and help them adapt to climate change’s impacts. The meeting, organized by the U.S. State Department, comes on the heels of another meeting of climate finance experts and researchers in Paris, organized by the Organisation for Economic Cooperation and Development (OECD).
This global attention on climate finance comes at a critical moment: Research shows that the world will need to invest at least $5.7 trillion in clean water, sustainable transport, renewable energy, and other green infrastructure annually by 2020 in order to keep global temperature rise below 2 degrees Celsius, thus preventing climate change’s worst impacts. We’re currently directing only about $360 billion annually toward these activities.
While these discussions are necessary, what’s more important is whether or not ministers and officials are talking about the right issues and asking the right questions. Addressing three questions—on the correct investment figures, the most effective policy and financing tools, and the importance of collaboration—will be critical to ensure that the April 11th Ministerial Meeting on Mobilizing Climate Finance achieves meaningful results.
This is the first installment of our blog series, Climate Finance FAQs. The series explores the often nebulous world of climate finance, providing clarity on some of the key terms and current issues. Read more posts in this series.
Surprising as it may sound, there is no standard definition of climate finance. In fact, there are many differing views on what type of funding constitutes climate finance, how it should be delivered, and how much money developing nations will need to mitigate climate change and adapt to its impacts. This vortex of information can be confusing to navigate. Here, we'll do our best to break down all of the components that define “climate finance.”
Defining Climate Finance: Broadly to Narrowly
In its broadest interpretation, climate finance refers to the flow of funds toward activities that reduce greenhouse gas emissions or help society adapt to climate change’s impacts. It is the totality of flows directed to climate change projects—the same way that “infrastructure finance” refers to the financing of infrastructure, or “consumer finance” refers to providing credit for purchases of big-ticket household items.
The term is most frequently used in the context of international political negotiations on climate change. In this context, climate finance—or international climate finance—is used to describe financial flows from developed to developing countries for climate change mitigation/adaptation activities, like building solar power plants or walls to protect from sea level rise. This interpretation builds off the premise that developed countries have an obligation to help developing countries transform their economies to become less carbon-intensive and more resilient to climate change.
The private sector is a crucial partner in advancing sustainable development, and bilateral aid agencies are grappling with ways to learn from and leverage the activities of companies and markets. As the worlds of business and of aid increasingly intersect—and as development budgets are reined in even as demands on them grow—the pressure is to do more in partnership with the private sector. The real challenge, though, is to do better.
This was the headline message from a recent roundtable discussion with representatives from nine bilateral donor agencies and invitees from the private sector, co-organized by WRI and the International Institute for Environment and Development (IIED) in London (see notes from the roundtable).
Both sides desire a strengthened relationship. Donor agencies see the private sector as an indispensable partner for improving the effectiveness and efficiency of aid. Agencies are looking for important sources of ideas, technology, and financing to scale up development solutions.
One example is the Africa Enterprise Challenge Fund (AECF), which is funded by the Australian, British, Danish, Dutch, and Swedish aid agencies. AECF is improving livelihoods of poor people in rural Africa by supporting innovation and new business models to help small-scale farmers adapt to climate change and promote investment in the generation of low-cost, clean, renewable energy.
Private sector actors seek clearer policy signals and more consistent support from donor agencies, particularly in understanding and navigating local politics. They also seek opportunities to develop new products and new markets, benefiting from the “de-risking” role that the public sector can play.
Now is a critically important time for the world to focus on climate finance. Developing nations—those least responsible for causing global warming but most vulnerable to its impacts—need funding to adopt clean energy, protect infrastructure from sea level rise, and engage in other adaptation and mitigation strategies. But these activities are costly—the world will need to figure out how to fund them now in order to protect countries from future climate change.
The problem is that it’s hard to draw attention to a topic that’s difficult to understand. The issue of climate finance is decidedly complex. Several entities--think-tanks, banks and other financial institutions, international institutions, governments, and public sector agencies--are involved in myriad activities related to climate finance. Understanding how they operate, interact, and contribute can be confusing. Even the vocabulary that defines climate finance can be inconsistent, abstract, and nebulous at times. These complexities make climate finance an issue that’s hard for people--even experts, sometimes --to wrap their heads around.
Introducing the Climate Finance FAQs Series
That’s where WRI’s new blog series, Climate Finance FAQs, comes in. Our experts will attempt to shed light on basic climate finance issues through a series of blog posts. By explaining these topics in plain language, we can make climate finance more accessible--and hopefully, draw broader attention to the pressing issue of how to pay for climate change mitigation and adaptation.
These documents are drawn from WRI’s working paper, Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies.
This document is drawn from Appendix I in WRI’s working paper, Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies
Research shows that developing countries will need about $531 billion of additional investments in clean energy technologies each year in order to limit global temperature rise to 2° C above pre-industrial levels, thus preventing climate change’s worst impacts. While developed countries have pledged to provide $100 billion of climate finance per year, this amount is well below what’s needed to help developing nations mitigate and adapt to climate change.
So how can countries bridge this funding gap? The answer lies in part on how well developing countries implement “readiness” activities, as well how effectively developed nations and international institutions like the Green Climate Fund (GCF) can mobilize finance to support them.
The Need for Readiness
To attract investments on the scale required, developing country governments must provide an attractive investment climate—one that encourages public and private sector investors to put their money into climate-friendly projects like solar and wind energy. On their end, developed countries need to offer financial and technical support for “readiness” activities that create the right conditions for said investments. Readiness includes any activity that makes a country better positioned to attract investments in climate-friendly projects or technologies. A few examples include: developing a policy to promote energy efficiency in industry; passing a law that gives a new or existing institution the mandate to promote renewable energy; conducting an assessment of a country’s wind energy resources; or strengthening a bank’s capacity to lend to small businesses in low-carbon sectors. International institutions such as the GCF can play a big role in supporting readiness activities, thereby helping developing nations attract the investments that will help them transition onto a low-carbon, climate-resilient development path.
Between now and 2050, developing countries need an estimated $531 billion per year of additional investment in energy supply and demand technologies in order to limit global temperature rise to 2° C above pre-industrial levels. To achieve this scale of investment, developing country governments
In a little more than one generation—by the time your grade-schoolers will be seeing their own kids off to school—our planet will be home to 9 billion people. This will create an unprecedented demand for water, food, and energy--and stress the supporting infrastructure required for life in the 21st century. How are we to meet this demand while respecting planetary boundaries? And importantly, how will we pay for it?
A recent publication by the Green Growth Action Alliance (G2A2), aims to provide some answers. WRI and others provided guidance, case studies, research, and data to the publication, The Green Investment Report: The ways and means to unlock private finance for green growth. The findings were discussed widely at the recent World Economic Forum meeting in Davos.
Under current OECD growth projections, the world will need to invest $5 trillion annually until 2020 in the water, agriculture, telecommunications, power, transport, buildings, industrial, and forestry sectors. However, solely delivering this investment to maintain “business-as-usual” economic growth will not lead the world onto a sustainable growth path. We need to find ways to “green” our growth to cope with resource scarcity and alleviate risks from climate change and environmental degradation. Greening this investment will require a mix of appropriate policies and capital. The lion’s share will need to come from the private sector, given the scale required.
The “Green Investment Report” estimates that an additional $700 billion will be needed annually to green the business-as-usual investment in the global economy. This is a large sum, but relatively insignificant compared to the cost of inaction as negative environmental impacts increasingly take their economic toll.
This piece originally appeared on CNN.com.
As leaders gather for the World Economic Forum in Davos today, signs of economic hope are upon us. The global economy is on the mend. Worldwide, the middle class is expanding by an estimated 100 million per year. And the quality of life for millions in Asia and Africa is growing at an unprecedented pace.
Threats abound, of course. One neglected risk--climate change--appears to at last be rising to the top of agendas in business and political circles. When the World Economic Forum recently asked 1,000 leaders from industry, government, academia, and civil society to rank risks over the coming decade for the Global Risks 2013 report, climate change was in the top three. And in his second inaugural address, President Obama identified climate change as a major priority for his Administration.
For good reason: last year was the hottest year on record for the continental United States, and records for extreme weather events were broken around the world. We are seeing more droughts, wildfires, and rising seas. The current U.S. drought will wipe out approximately 1 percent of the U.S. GDP and is on course to be the costliest natural disaster in U.S. history. Damage from Hurricane Sandy will cost another 0.5 percent of GDP. And a recent study found that the cost of climate change is about $1.2 trillion per year globally, or 1.6 percent of global GDP.
Shifting to low-carbon energy sources is critical to mitigating climate change's impacts. Today's global energy mix is changing rapidly, but is it heading in the right direction?
This post originally appeared on Bloomberg.com.
As we enter 2013, there are signs of growth and economic advancement around the world. The global middle class is booming. More people are moving into cities. And the quality of life for millions is improving at an unprecedented pace.
Yet, there are also stark warnings of mounting pressures on natural resources and the climate. Consider: 2012 was the hottest year on record for the continental United States. There have been 36 consecutive years in which global temperatures have been above normal. Carbon dioxide emissions are on the rise – last year the world added about 3 percent more carbon emissions to the atmosphere. All of these pressures are bringing more climate impacts: droughts, wildfires, rising seas, and intense storms.
All is not lost, but the window for action is rapidly closing. This decade--and this year--will be critical.
Against that backdrop, experts at WRI have analyzed trends, observations, and data to highlight six key environmental and development stories we’ll be watching in 2013.
With more than 400 million of its 1.2 billion citizens without access to electricity, India needs extensive energy development. A new initiative aims to ensure that a significant portion of this new power comes in the form of renewable energy.
The Green Power Market Development Group
Today, WRI and the Confederation of Indian Industries (CII) launched the Green Power Market Development Group (GPMDG) in Bangalore, India. The group will help boost the country’s use of renewable energy like wind and solar power.
The public-private partnership brings together industry, government, and NGOs to build critical support for renewable energy markets in India. For starters, the group will connect potential industrial and commercial renewable energy purchasers with suppliers. A dozen major companies belonging to a variety of sectors—like Infosys, ACC, Cognizant, IBM, WIPRO, and others—have already joined the initiative and have committed to explore options for increasing their use of renewable energy.
The group also aims to make India’s clean energy development more mainstream. Green power buyers and generators in India currently face policy and regulatory barriers—such as high transmission costs and extensive approval processes. Through the GPMDG, the private sector will be able to work constructively with government agencies to instigate the types of renewable energy policies that will spur greater clean energy development.
The purpose of this guide (Guide) is to help industrial companies (Hosts) finance energy efficiency projects (EEPs) at their facilities as defined in Annex C of this document. The Guide is designed to help Hosts know what information is required of them by financing entities (Financiers) to
BNDES is Brazil’s key financial institution for domestic long-term financing, and it’s one of the main financial engines behind Brazil’s take-off as a leading Latin American economy. Its lending and equity investments are becoming increasingly important internationally.
But what’s driving all of this growth? And what standards exist to ensure that Brazil’s overseas investments aren’t coming at the expense of the environment and human well-being? WRI seeks to address these questions and more in its new slide deck, “Emerging Actors in Development Finance: A closer look at Brazil’s Growth, Influence and the Role of BNDES.”
This is the fourth installment of a five-part blog series on scaling environmental entrepreneurship in emerging markets. In this series, experts in the field provide insights on how business accelerators, technical assistance providers, investors, and the philanthropic community can work with developing market entrepreneurs to increase their economic, environmental, and social impacts. Read the rest of the series.
What do development banks, impact investment funds, foundations, and business accelerators have in common? Each of these organizations plays a significant role in supporting entrepreneurs in developing countries, including those who are trying to solve environmental problems through commercial enterprises.
But in most cases, these groups have traditionally occupied distinct niches in the support they provide. Development banks specialize in providing businesses with grants, loans, and technical assistance; impact investors provide debt or equity at market or near-market rates; foundations channel their philanthropy to create change; and business accelerators help entrepreneurs hone their business skills and attract investors.
What would happen if these groups worked more closely together? As we discussed at a recent WRI event, if organizations were able to combine their respective strengths, entrepreneurs could capture greater benefits than if groups work alone.
The Doha negotiations that just concluded earlier this month have again drawn attention to the urgent need for climate adaptation and emissions reductions. Government representatives, civil society stakeholders, development aid organizations, and corporates agree that the world must make big strides—soon—if we are to have any hope of keeping global average temperatures to 2 degrees Celsius above pre-industrial levels.
One problem, though, is how to generate enough finance to fund these activities. A new WRI working paper aims to address this challenge by examining the role multilateral agencies can play in mobilizing private sector finance for climate change adaptation and mitigation.
Leveraging the Private Sector to Bridge the Climate Finance Gap
Developing countries—those most vulnerable to climate change’s impacts—will need $300 billion annually by 2020 and $500 billion annually by 2050 for mitigation activities alone. The newly established Green Climate Fund (GCF), meant to channel $100 billion annually into climate-relevant investments starting in 2020, is a significant first step, but does not fill the gap of what’s needed.
The public sector cannot tackle this challenge alone, and indeed, the GCF already envisions funding from a mix of public and private sources. The key, then, is to mobilize the private sector to create new investment opportunities and new markets.
When it comes to overseas development finance, China is definitely a country to watch. Due to the country’s unprecedented economic growth, China’s overseas investments have increased exponentially in recent years. Between 2009 and 2010, two Chinese state-owned banks lent more money to other developing nations than the World Bank did. In fact, between 2002 and 2011, China’s outward foreign direct investment (OFDI) stock grew from $29 billion to more than $424 billion.
But what factors are driving all of this growth? What areas of the world are on the receiving end of China’s OFDI flows? And what sorts of social and environmental standards are in place for banks’ and enterprises’ investments? WRI seeks to answer these questions and provide additional background information in its recently updated slide deck, “Emerging Actors in Development Finance: A Closer Look at China’s Overseas Investment.”