Investment incentives urged to fight climate change

Private enterprise has already played a large part in the investment, mostly through renewable-energy projects. Last year, it provided the lion’s share, contributing US$224 billion (Bt6.97 trillion), or 62 per cent of total spending of approximately $359 billion. This included $182 billion invested in developing countries, according to data compiled by the independent Climate Policy Initiative (CPI) group. Of the total, $337 billion was invested in mitigation, while the rest went towards adaptation interventions. Renewable-energy investments in 2012 totalled $102 billion, or 28 per cent of total.

According to CPI’s “Global Landscape of Climate Finance 2013” report released on Tuesday, the 2012 investment was lower than the previous year’s $364 billion. The group believes policy-makers must take action, especially because in May this year, the world crossed a symbolic threshold. The observed concentrations of the main atmosphere-warming greenhouse gas, carbon dioxide, exceeded 400 parts per million for the first time, indicating that climate-resilient investment goals are a more urgent task than ever. 

“In global terms, climate finance levels have fallen short of estimated investment needs for a further successive year, making the goal of shifting the global economy on to a below-2-degree stabilisation pathway more challenging,” it said in the report.

CPI, consisting of analysts and advisers committed to gauging climate-resilient investment needs, urged policy-makers to allocate public resources to cap carbon emissions and create incentives for private investors to accelerate their investment significantly in low-carbon and climate-resilient growth options. 

It noted that according to the latest data, to ensure that the global temperature does not go more than 2 degrees Celsius above pre-industrial levels, recent estimates of annualised additional investments needed for mitigation range from an average of $490 billion per year in 2010-2020 to $910 billion per year in the period 2010-2050. Estimates for adaptation investment needs could range from $4 billion per year to well over $100 billion per year by 2030.

It said incentives were necessary to accelerate private investment, to fill the large financing gap.

The challenge is that private investors, who can and should provide the lion’s share of global climate finance for good reasons – as asset owners (project developers) and end users (households, corporate manufacturers) of renewable technologies – only invest their money when the returns on offer outweigh the costs, it said.

It noted that on one hand, there is some cause for optimism: Although private investment has declined in general terms, technology costs for large-scale renewable energy have fallen further, perhaps as economies of scale start to take hold.

 On the other hand, climate-related investments have fallen well short of even the most conservative estimates of needs for successive years, making the catch-up requirement very real.

In Germany, although the private sector contributed more than 95 per cent of overall climate finance in 2010, almost half of this was supported by concessional or low-cost loans from national development banks such as KfW. This highlights the importance of public finance instruments other than grants and subsidies as mobilisers of private investment.