BLENDING PUBLIC, PRIVATE CLIMATE FINANCE
Achieving ambitious climate targets requires major investments by the public and private sectors, writes
WITH the landmark Paris Agreement now almost two years old, funding for climate-related activities continues to be a challenge. However, efforts have been underway to bring two seemingly very different sectors together to address climate change.
While developed countries have committed to channelling US$100 billion (RM398 billion) to developing countries by 2020, trillions may be needed to keep global warming below 2°C.
“Trying to address climate change at current financing levels is like walking into a Category 5 hurricane protected by only an umbrella,” said United Nations Framework Convention on Climate Change (UNFCCC) head Patricia Espinosa at a conference.
“Right now, we are talking in millions and billions of dollars when we should be speaking in trillions,” she continued.
Achieving the ambitious climate goals set out by the international community will require major financial investments by both the public and private sectors to fill funding gaps. It also requires coming up with ways for the two sectors to work together.
“International organisations such as the Global Green Institute (GGGI) and development banks are trying and testing different structures, different methods of financing, different blends of public and private financing all the time. And occasionally, things work,” said GGGI’s Principal Climate Finance Specialist Fenella Aouane.
The Green Climate Fund (GCF), set up by UNFCCC, was given an important role to serve the Paris Agreement and has since used public investment to mobilise private finance towards low-emission, climate-resilient development.
In March, the GCF approved concessional funding to 23 projects in developing countries valued together at US$1 billion.
“This large volume of projects for both mitigation and adaptation, and the additional US$60 million for readiness support, shows that GCF is ready to shift gear in supporting developing countries to achieve their climate goals… The projects adopted here will make a real impact in the face of climate challenges,” said GCF co-chair Paul Oquist.
Aouane echoed similar sentiments about GCF’s efforts, stating: “They are testing the waters, but that was a very good move by the GCF to say if we’re going to get the private sector, we have got to start dealing with them.”
And waving a magic wand won’t get the private sector, whose sole purpose is to make profits, to funnel money into climate mitigation and adaptation.
“[We need] to make projects more attractive for private sector investment. Reduce the costs, reduce the risks, and do a few using that concessional funding to show that they worked,” Aouane said.
Already, successes can be seen in renewable energy development.
With the help of concessional finance and continued political will, there has been a boom in renewable energy development across the world, opening the door to more players.
According to the International Renewable Energy Agency, the private sector paved the way in renewable energy investment in 2016, providing 92 per cent of funding compared with eight per cent from the public sector.
This has helped rapidly reduce the cost of renewable energy, which is set to be cheaper than fossil fuels by 2020.
In fact, solar and wind energy is already cheaper than fossil fuels in many parts of the world.
The forestry sector, on the other hand, is finding it more difficult to attract investments, Aouane said.
“Forestry is a struggle in the sense of what is the return, where do you make your money in a project?” she said.
But there is an ongoing initiative by the aviation industry that could help protect forests, Aouane said.
To offset its carbon emissions, the International Civil Aviation Organisation has looked to buy credits from projects that reduce emissions, such as forestry.
This not only helps level out emissions, but also helps nations protect forests from deforestation and ensure biodiversity.
“If they do this, then there will be a possible clear return for investors in forestry because they will be able to purchase the forest and then sell the emission reduction assets to an airline who will pay for it. If the price is sufficient, then it’s attractive enough for the private sector,” Aouane said.
The idea has been controversial, however, with environmental groups noting that the move is not enough to substantially offset or reduce emissions.
The environmental group Fern also found that a British airline’s carbon offsetting projects in Cambodia have actually led to local residents being “exploited and kicked off their land”, while another project in the Democratic Republic of Congo by an Austrian airline and an American airport authority has resulted in increased deforestation.
Other challenges arise when bringing together two very different sectors with different goals, Aouane said.
“Using some World Bank finance and some GCF finance is relatively simple because they are both heading in the same direction culturally. But when the private sector gets involved, there can often be an issue with trying to get mindsets to work together,” she added.
“You can imagine that the mindsets are very different about how you put a deal together and how you actually get the motives right that the project is right for everybody,” Aouane continued.
The GCF provides a model for bringing the two sectors together, and its new projects could help the private sector become even more involved. But it will take time, Aouane said.
“There is work happening, but I think quite often people forget how long it takes for things to change… but it will get done.”
According to the International Renewable Energy Agency, the private sector paved the way in renewable energy investment in 2016, providing 92 per cent of funding compared with eight per cent from the public sector.