Climate Action 2016-2017

BUSINESS & FINANCE
Twenty-one years is a long time. Long
enough to raise a child and send him or her
off to college. That’s how long it has taken
to get to the Paris Climate Agreement. Climate
leaders are meeting this November in Marrakesh
to talk about concrete action to implement this
historic treaty, and much of that discussion
needs to focus on money.
I started off my career more than 15 years ago
as a development economist, and for a few years
climate change and climatefinance never really
crossed my mind. But after years spent on the
ground and seeing devastating floods, droughts and
the effects of unpredictable weather – particularly in
sub-Saharan Africa – I realised how climate change
would compromise and potentially roll back the
hard-won economic and social progress made by
poorer countries, something I care about dearly.
While development economics is my pursuit,
these days my life and work revolve around
finance. I believe in the key role of innovative
and scalable ways to finance climate projects to
move us away from an ever-warming planet and
its dire consequences.
The signing ceremony of the Paris Agreement
was not an unalloyed cause for celebration,
because of the dissonance and contradictions
observed between the investments and policies
taking place worldwide. In particular, there is not
yet nearly enough patient and long-term climate
finance – whether from public or private sources
– to trigger the revolution we need.
We need to realise the urgency, speed and
scale of action that is needed and act accordingly.
Limiting warming below 1.5°C by 2100 is still
feasible, but time is running out. And we need to
demonstrate that it makes good business sense
for the private sector to step in and step up.
HUGE INVESTMENT NEEDED
Research by Bhattacharya, Oppenheim and
Stern (2015, www.brookings.edu) shows that
in the next 15 years, the world will need to
invest around US$90 trillion in sustainable
infrastructure assets if it strives for a climate
smarter world – surely the world we all want to
live in and most importantly that we want our
children to live in. This includes investment in
cities, transport systems, energy systems, water
and sanitation, and telecommunications. This
$90 trillion of new infrastructure, most of which
will be built in developing countries, represents
more than the current global stock.
These investments have the potential to bring
a lot of benefits but only if they are socially,
environmentally and economically sustainable.
That means they need to be consistent with a
net zero emissions and climate resilient future
world. Failure to align the climate action and
Noor provides the foundation for Morocco's plan to produce 2GW of solar power by 2020.
"There is not yet nearly
enough patient and
long-term climate
finance to trigger the
revolution we need."
infrastructure investment agendas could lock-in
technologies, planning models and businesses
to a high carbon and low resilience pathway for
decades to come.
We also know that overall it is more expensive
to finance infrastructure projects in developing
countries where the needs for renewable energy
and other sustainable infrastructure are greatest.
Real and perceived risks, including country and
political risk, technology risk, and off-taker risk
(for power projects) are often too high to attract
investors and project developers to invest in
climate-smart projects in emerging markets.
Investing institutions often feel it is safer to
invest money elsewhere, leaving many of these
countries without the investment needed to
move towards a low-carbon economy.
CONCESSIONAL FINANCING
Responding to real and perceived risk is
where public concessional financing proves
its usefulness. Concessional financing is
money that is provided at below market-based
rates in order to help de-risk the project and
attract other investors that would not provide
finance otherwise. Concessional financing can
therefore unlock climate-smart investments
Credit: World Bank Group
that are deemed too risky for investors, and
in some cases, even for development banks.
Well-targeted use of this type of financing is
necessary to push new technologies, create new
markets, and to crowd in private sector financing.
Concessional finance is also increasingly
necessary to support investments in climate
resilience and adaptation, especially in the
poorest and most vulnerable countries.
Concessional financing that is ‘blended’
with commercial financing is not an abstract
concept, but rather a sound financial strategy
that is leading to innovative projects in roof-top
solar energy, flood-proof roads and bridges, or
reforestation – all of which have real, positive
impacts on people’s lives.
For the past six years I have been engaged
in the implementation of the Climate Investment
Funds (CIF) to support developing and emerging
countries make these types of investment
choice. I am proud because I see us helping
countries like Kenya invest in geothermal energy,
while also reducing the costs of electricity to
its population. Or India, where an investment of
around US$1.2 billion by multilateral financing
partners will lead to a serious expansion in
rooftop solar energy. Or Mexico, where access to
finance empowered local communities in driving
sustainable forest management.
SHINING EXAMPLES
As host country of the 2016 COP, Morocco provides
one of the best examples of what concessional
financing paired with other public and private
capital and technical partners can accomplish.
Last year, the Noor Concentrated Solar Plant
(CSP) in Ouarzazate – the largest CSP plant in the
world, so big it can be seen from space – was
opened. About US$435 million of CIF funds have
been invested in the Noor project, which will
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