Tag Archives: private investment

Businesses Lead on Climate Change: The Road from Paris to Davos

January 22, 2016 |

 

When asked about last month’s Paris Agreement earlier this week at Davos, UNFCCC executive secretary Christiana Figueres remarked, “The signal is very clear. The signal is toward long-term transformation that is urgent…it is a transformation to decarbonizing the global economy.”

Many of this year’s World Economic Forum (WEF) attendees have already recognized that signal, and after Paris, more have become aware of the opportunities this transformation can bring. Costs of electricity for most renewables — including wind and solar — are now becoming comparable to those of fossil fuels, decreasing drastically over the past five years while costs for coal and natural gas have increased. And now that the Investment Tax Credit (ITC) and Production Tax Credit (PTC) have been extended, the US renewables industry finally has the policy stability it needs to securely finance a pipeline of projects without the risk of the tax benefits going away at the end of the year.

These factors and others have spurred private investors into pouring $243 billion in renewable energy in 2014, up 26 percent from the previous year. As climate exposure begins to pose serious fiduciary and business risks for investors, more and more financial leaders — including Blackrock, Citi, and Bank of America — are recognizing the risks and opportunities surrounding our current energy production and adjusting their portfolios accordingly. Tools, investment vehicles, and other products exist in the market to help businesses realize such exposure and make the necessary decisions to capture them.

Landscape_Figure5-transparent

Breakdown of total private investment by actor, 2012-2014 in USD billion

However, more can and needs to be done to effectively transition to a low-carbon economy. One area of opportunity is in unlocking additional international, cross-border finance. The majority of climate investment (74%) originates and is spent in the same place, illustrating limited cross-border investments. Domestic policy frameworks in many countries, as well as innovative financial interventions can help business scale up overseas investments, and help emerging markets embark on a path of sustainable growth.

The Paris Agreement demonstrated the recognition by the global community that action on climate change and economic growth can occur simultaneously, and the business leaders at the WEF this week are instrumental to keeping this momentum. Only by working in tandem can we realize a rapid transformation to a low-carbon economy, and it is evident from Davos that many are already on board.

Read More

Making Climate Finance Count – Increasing Transparency in the Lead Up to COP 21

November 23, 2015 |

 

As 2015 draws to a close, there is a strong hope that the Paris climate summit could represent a turning point in the global fight against climate change. To support discussions, Climate Policy Initiative (CPI) recently published two reports.

Earlier this week, we released our Global Landscape of Climate Finance 2015, the most comprehensive information available about which sources and financial instruments are driving investments, and how much climate finance is flowing globally. This report sheds light on global progress towards the level of low-carbon and climate-resilient investment needed to constrain greenhouse gas (GHG) emissions to levels consistent with the 2°C global temperature goal and to adapt to an already changing climate. It also illuminates how different types of public support are addressing different needs, and how they are interacting with private sources of finance. Such understanding can position policy makers and investors to more effectively manage the risks and seize the opportunities associated with climate change.

We found that global climate finance flows reached at least US$391 billion in 2014 as a result of a steady increase in public finance and record private investment in renewable energy technologies. Public actors and intermediaries committed US$148 billion, or 38% of total climate finance flows. Private finance increased by nearly US$50 billion in 2014 and resulted in a record amount of new renewable energy deployment, particularly in China. About 74% of total climate finance flows, and up to 92% of private investments were raised and spent within the same country, confirming the strong domestic preference of investors identified in previous years’ Landscape reports and highlighting the importance of getting domestic frameworks for attracting investment right.

This global outlook provides a complementary, big picture perspective to a recent report prepared by the Organisation for Economic Co-operation and Development (OECD) in collaboration with CPI to provide an up-to-date aggregate estimate of mobilized climate finance and an indication of the progress towards developed countries’ commitment under the UNFCCC to mobilize US$100 billion annually for climate action in developing countries by 2020. While US$100 billion will not meet the climate challenge by itself, it is currently the primary political benchmark for assessing progress on climate finance and an important starting point for getting us on a low-carbon, climate-resilient pathway.

Our estimates indicate that climate finance reached US$62 billion in 2014 and US$52 billion in 2013, equivalent to an annual average over the two years of US$57 billion. Bilateral public climate finance represents a significant proportion of this aggregate, provisionally estimated at US$22.8 billion on average per year in 2013-14, an increase of over 50% over levels reported in 2011-2012. Multilateral climate finance attributable to developed countries is estimated at US$17.9 billion in 2013-2014. The remaining finance consists of preliminary and partial estimates of export credits and of private finance mobilized by bilateral and multilateral finance attributable to developed countries.

The OECD report makes a significant contribution to informing international discussions and enhancing transparency on climate finance ahead of COP 21 in Paris in two ways. It provides a robust number including preliminary estimates of mobilized private finance for the first time and does so based on a transparent methodology. This represents real progress. In 2011, when we began gathering data for our Global Landscape of Climate Finance reports there was very little in the way of common methodologies and definitions. Since then, we have worked with the OECD, a group of Multilateral Development Banks, the International Development Finance Club and the UNFCCC Standing Committee on Finance and others, to develop definitions and methodologies that have helped to close data gaps, improve comparability and increase understanding of climate finance.

Ultimately, of course, it is up to international negotiators to decide what should and should not count towards the US$100 billion commitment and how best to approach the wider climate challenge. Our hope is that the lessons learned from our recent climate finance reports can help to further improve the transparency and comprehensiveness of climate finance measurement and reporting to develop tracking systems that ultimately help governments to spend money wisely.

A proper measurement, tracking, and reporting system is a critical building block to ensure finance is used efficiently and targeted where it is needed the most. By shedding light on the intersection between public policy, finance and private investment, we will continue to help decision makers from developed, developing and emerging economies optimize the use of their resources.

This article was originally published on Climate Change Policy & Practice, a knowledge management project of the International Institute for Sustainable Development (IISD). See: http://climate-l.iisd.org/

Read More

3 Reasons for Measured Optimism about Climate Finance

December 4, 2014 |

 

A version of this blog first appeared on Responding to Climate Change: http://www.rtcc.org/2014/11/21/three-reasons-to-be-optimistic-about-climate-finance-flows/

This year’s UN climate talks opened in Lima earlier this week and for those who hope the world can avoid dangerous climate change, some major recent announcements have given cause to celebrate. Last month, the world’s two largest emitters – the U.S. and China – reached a deal to tackle emissions. Then, the U.S., Japanese, and UK governments joined others by pledging billions to the Green Climate Fund to help developing nations deal with climate change. These political announcements are clearly timed to inject momentum into the negotiations taking place in Lima. But key questions remain unanswered: What do these financial pledges mean in terms of existing investment in a low-carbon economy future? How should money be spent? And are we on the right track?

At Climate Policy Initiative, our analysis of global climate finance flows helps to identify who is investing in climate action on the ground, how, and whether investments are keeping up what is needed to transform the global economy. We have just released the latest edition of our Global Landscape of Climate Finance report. It shows global climate finance has fallen for the second year running and we are falling further behind the level of investment needed to keep global temperature rise below two degree Celsius – but reveals some positive news as well.

Firstly, that nations around the world are investing in a low-carbon future in line with national interests. Last year, climate finance investments were split almost equally between developed and developing countries, with USD 164 billion and USD 165 billion respectively. With almost three-quarters of total investments being made in their country of origin, the majority of climate finance investments are motivated by self-interest—either for governments or businesses. Motivations include increasing economic productivity and profit, meeting growing energy demand, improving energy security, reducing health costs associated with pollution, and managing climate risk including investment risks.

Secondly, that getting domestic policy settings right offers the best opportunity to unlock new investment. When policy certainty and public resources balance risks and rewards effectively, private money follows. In 2013, private investments made up 58% of global climate finance with the vast majority (90%) of these being made at home where the risk to reward ratio is perceived relatively favorably. Addressing the needs of domestic investors offers the greatest potential to unlock investment at the necessary scale. This is not to say that international and domestic public policies, support and finance don’t have complementary roles to play. It is significant, for instance, that almost all of the developed to developing country finance we capture in our inventory of climate finance flows came from public actors. But ultimately, it is getting domestic policy frameworks right, with international support where appropriate, that will drive most of the necessary investment from domestic and international sources.

Thirdly, that despite a fall in overall investment, money is going further than ever. While investment fell for the second year running, this is largely because of decreased private investment resulting from falling costs of solar PV and other renewable energy technologies. In some cases, deployment of these technologies is staying steady or even growing, even though finance is shrinking. In 2013, investment in solar fell by 14% but deployment increased by 30%. Technological innovation is reducing costs and because of this renewable energy investments in some markets are cheaper than the fossil fuel alternatives, particularly in Latin America. Achieving more output for less input is one of the basic foundations of economic growth, so this is great news. From solar PV, to energy efficiency and agricultural productivity, growing numbers of low-carbon investments are competing with or cheaper than their high-carbon counterparts. This despite a highly uneven playing field in which global subsidies to fossil fuels continue to dwarf support for renewables and where carbon prices do not reflect the true costs of emitting CO2.

So what do our findings mean for the recent China/U.S. deal and Green Climate Fund pledges? Increasing political pressure on other countries to keep pace in terms of their domestic action and international commitments is an encouraging sign as the deadline nears for finalizing a new global climate agreement in Paris just one year from now. Reaching a global accord offers the best prospect for tackling climate change. But we must recognize that international agreements are themselves, guided by collective national interests. There is clear recognition that international public resources should complement and supplement national resources where these are insufficient. But if we are to bridge the investment gap they should also be focused on finding ways to lower costs, boost returns and reduce risks for private actors. Public finance alone will not be enough to meet the climate finance challenge.

Many private investors are ready to act. In September, over 300 institutional investors from around the world representing over $24 trillion in assets called on government leaders to phase out fossil fuel subsidies and implement the kind of carbon pricing policies that will enable them to redirect trillions to investments compatible with fighting climate change. Businesses and citizens are investing, and technological innovation means more and more investments are making economic and environmental sense. Accompanying innovation with policy, appropriately targeted finance and new business models can build the momentum and economies of scale to make the low-carbon transition achievable. The low-carbon transition isn’t just a way of reducing climate risk, it also represents a huge investment opportunity.

Read More