Climate Action 2011-2012

Investment in renewables in India in 2010 increased by 25%.
© Flickr/Warrenski
are put in place, it is too early to judge the likely long-term
impact of these changes.
Investors will necessarily be cautious while policy
frameworks are still in the early stages of development,
and will need to be convinced that policy commitments
are stable – as well as seeing finance continue to flow
from domestic and international sources. It is, however, a
promising start.
High perceived risks
translate into higher
return expectations.
change. Since then the country has set a series of low carbon
policy targets which include the reducing of carbon dioxide
emissions per unit of GDP by 20-25 per cent from 2005
to 2020 and increasing the proportion of electricity from
renewables to 15 per cent by 2020.
Stricter building standards for lighting, heating,
ventilation and air conditioning have also been set and
demand side management initiatives promoted. The
evidence so far suggests that there has been some success in
India, with investment in renewables growing by 25 per cent
in 2010 alone. While this indicates what can be achieved
when credible and comprehensive climate change solutions
eFFeCtive PoliCy measures
Lessons from other regions and other major development
efforts, such as the Marshall Plan, the preparation for EU
accession and sub-national infrastructure development
programmes, suggest that the risks associated with
investments in climate solutions in developing countries
can be substantially reduced through a combination of
policy and capacity building measures and the provision
of public financing mechanisms. The latter should
be based, as far as possible, on existing mechanisms
such as export guarantees or lending arrangements by
development banks and must be adapted as domestic
policy frameworks are strengthened and carbon markets
develop. It is also critical that any policy programmes
are embedded within mainstream policy frameworks
so that climate finance becomes more than just a
niche activity for a small number of investors.
Another country taking positive steps on climate change
policy is South Africa. The South African government last
year announced the South African Renewables Initiative
(SARi), which aims to determine how South Africa’s
renewable ambition could be substantially increased as part
of its broader economic and industrial strategy. SARi has
identified the potential for international sources of finance to
stimulate privately-led investment in renewables through the
provision of a combination of concessionary debt and risk
guarantee instruments from international sources.
It addresses the constraints on government finances in a
realistic manner and acknowledges that it will take more
than a well-designed policy mechanism, such as a feedin
tariff, to stimulate significant private investment.
However, it is encouraging that the government is
undertaking a comprehensive review and many investors
are hopeful that it will lead to positive action on policy and
infrastructure.
the international dimension
When it comes to specific investments, national, regional
and even local policy frameworks are key. However, progress
at the international level would also send a convincing signal
to investors that there is strong global resolve to implement
relevant policy measures.
Therefore, in addition to progress in individual developing
economies, investors continue to support positive action at
international level, including a binding international climate
agreement which sets the framework for robust action on
climate change. In addition, international agreement could
provide an overarching global system of monitoring and
review which registers, oversees and evaluates national action
plans – and as such provides an important influence on and
a guarantor of stable domestic policy.
Any international agreement should also support the
development of robust carbon markets and a strong, sustained
carbon price. Assigning a relatively high price to carbon
sends a clear signal to companies and investors that reducing
greenhouse gas emissions is a policy priority. Carbon markets
also offer opportunities for companies to identify the most
cost-efficient options to meet emissions reduction targets.
35 climateactionprogramme.org