Article: Climate Investment

In 2009, developed countries agreed to mobilize jointly USD 100 billion a year by 2020 from various sources. According to a report issued in October 2015 by the Organization for Economic Co-operation and Development (OECD) estimated that developed countries mobilized USD 62 billion in 2014 which represents an increase of USD 10 billion from 2013.

The Prime Minister, Justin Trudeau, announced on November 27, 2015, that Canada will contribute an historic $2.65 billion over the next five years to help developing countries tackle climate change. The Prime Minister made the announcement ahead of the Paris climate conference while attending the Commonwealth Heads of Government Meeting in Malta. The science on climate change is indisputable and its significant impacts are already being felt by economies and communities, particularly in the world’s most poor and vulnerable countries.

Canada is committed to ambitious action on climate change, and is focused on the economic opportunities of our environment and creating the clean jobs of tomorrow. Canada’s positive contribution will support the transition to low-carbon economies that are both sustainable and more resilient. Countries in need will receive support, in particular the poorest and most vulnerable, to respond to climate change and adapt to its impacts.

The definition of Investment Climate according to Investopedia:

  • “The economic and financial conditions in a country that affect whether individuals and businesses are willing to lend money and acquire a stake in the businesses operating there. Investment climate is affected by many factors, including: Poverty, Crime, Infrastructure, Workforce, National Security, Political Instability, Regime Uncertainty, Taxes, Rule of Law, Property Rights, Government Regulations, Government Transparency, and Government Accountability”.

According to REUTERS, China will plow 2.5 trillion yuan ($361 billion) into renewable power generation by 2020, the National Energy Administration (NEA) said, as the world’s largest energy market continues to shift away from dirty coal power towards cleaner fuels.

The investment will create over 13 million jobs in the sector, the NEA said in a blueprint document that lays out its plan to develop the nation’s energy sector during the five-year 2016 to 2020 period.

The NEA said installed renewable power capacity including wind, hydro, solar and nuclear power will contribute to about half of new electricity generation by 2020.

The investment reflects Beijing’s continued focus on curbing the use of fossil fuels, which have fostered the country’s economic growth over the past decade, as it ramps up its war on pollution.

Here are the highlights of a report published in SDG Knowledge Hub:

  • The 2017 edition of Bloomberg’s ‘New Energy Outlook’ estimates that through 2040, US$10.2 trillion will be invested in electric power generation, 7.4 trillion of which will go to renewable energy;
  • While falling costs of solar and wind power will accelerate a global energy transition, an additional US$5.3 trillion is required to put the power sector on a trajectory to limit global warming to 2ºC; and
  • The European Bank for Reconstruction and Development, the Asian Development Bank and the World Bank, have undertaken renewable energy projects in Turkey, China and Solomon Islands, respectively.

2015 was another record-breaking year for investment in new wind power, solar power, and hydropower plants: 152 gigawatts (GW) of renewable energy became operational, and global investment in clean energy increased to $348.5 billion – more than twice as much as coal- and gasfired power generation. Global energy-efficiency potential is large and growing – governments and business invest more than $300 billion each year to improve the efficiency of power grids, transport, industry, and buildings. The global green buildings market continues to double in size every three years. Climate-smart agriculture is also a growing private sector opportunity, as companies seek to increase crop resilience and food productivity, as well as their profits.

The growth in greenhouse gas emissions (GHG) is expected to come mainly from emerging markets – which require $4 trillion per year to build and maintain infrastructure. How these rapidly growing middle-income nations respond to their infrastructure needs will directly affect whether the Paris Agreement can be achieved. The good news is that these economies can invest in new, climate-resilient infrastructure and offset higher upfront costs through efficiency gains and fuel savings.

International Financial Corporation (IFC), World Bank Group, assessed the national climate change commitments and other policies in 21 emerging markets, representing 62 percent of the world’s population and 48 percent of global GHG emissions. Based on this information, IFC estimates that key sectors in these countries have an initial investment opportunity of nearly $23 trillion from 2016 to 2030. This figure is likely an underestimate as there are data gaps for important sectors like climate-smart agriculture.

Key climate-smart investment opportunities in these countries include:

  • Green buildings in the East Asia: China, Indonesia, the Philippines, and Vietnam have a climate-smart investment potential of $16 trillion, most of which is concentrated in the construction of new green buildings;
  • Sustainable transport in Latin America: Argentina, Brazil, Colombia, and Mexico have an investment potential of $2.6 trillion, almost 60 percent of which is for transport infrastructure;
  • Climate-resilient infrastructure in South Asia: Bangladesh and India have an investment potential of about $2.2 trillion, which is concentrated in the construction of green buildings, ports and rail transport infrastructure, and energy efficiency;
  • Clean energy in Africa: Côte d’Ivoire, Kenya, Nigeria, and South Africa’s total investment potential is nearly $783 billion, which is spread across renewable energy generation ($123 billion) and buildings and transportation ($652 billion);
  • Energy efficiency and transport in Eastern Europe: Russia, Serbia, Turkey, and Ukraine’s estimated climate-smart investment potential is $665 billion, with over half focused on new green buildings. Energy efficiency is a priority sector, while renewable energy investments are only beginning to accelerate; and
  • Renewables in the Middle East and North Africa: Egypt, Jordan, and Morocco’s total climate-investment potential is $265 billion, over one-third of which is for renewable energy generation ($97 billion), while 64 percent ($169 billion) is for climate smart buildings, transportation, industrial energy efficiency, electric transmission and distribution, and waste solutions.

To unlock private investment, governments must prioritize the following actions:

  • Achieve Nationally Determined contribution (NDC) goals. Countries should act quickly to integrate their NDC commitments into national development strategies and budget processes. Governments must put in place clear and consistent policies – such as carbon pricing, performance standards, and market-based support – and ensure that climate considerations are integrated into other sector policies;
  • Strengthen the private sector investment climate. Attracting private investment will require a robust domestic enabling environment, with reduced risks, strong competition, and measures to promote investment and capital flows; and
  • Strategically use limited public finance. Government budgets will not be enough to address climate change. Governments should use public funds strategically to mobilize private capital by, for example, reducing risk and providing project support.

The good news is that a dramatic drop in the price of clean technologies and the rise of smart policies are driving businesses to climate-smart investments. China has invested in building large-scale solar plants which helped dropped price by as much as 40 percent since 2010. Consequently, China became the world’s top solar generator last year.

The bottom line is that although many countries are making good progress on amending policies and improving investment climates, more can be done to set comprehensive long-term targets, provide targeted public finance, eliminate counterproductive policies (including fossil fuel subsidies), and provide the right incentives, such as carbon pricing and market responsive support mechanisms.

Resources:

1. Justin Trudeau, Prime Minister of Canada;
2. REUTERS;
3. SDG Knowledge Hub;
4. Investopedia; and
5. Climate Investment Opportunities in Emerging Markets – IFC