New drivers of green growth
By Caio Koch-Weser and George Soros
FRANKFURT ― United Nations Secretary General Ban Ki-moon has just released the final report of his High-Level Advisory Group on Climate Change Financing (AGF).
As the two private-sector members of the AGF, we are proud of our work. The report lays out the available options for mobilizing $100 billion annually for climate-change mitigation and adaptation in developing countries, and establishes the conditions that would make it possible to achieve this goal by 2020.
One essential condition is setting a robust carbon price of $25 per ton of CO2 in order to unleash the large private-sector investments that are necessary to finance the transition to a low-carbon economy. We are concerned, however, that the political will for carbon pricing is lacking.
The world cannot wait until 2020 to find the necessary resolve: while international negotiations drag on and the momentum that has been generated in the private sector is in danger of dissipating, global warming is progressing. There is an urgent need to start producing concrete results now, based on several promising initiatives that deserve to be scaled up.
One such initiative is the REDD+ framework (Reducing Emissions from Deforestation and Forest Degradation), an effort to create financial value for the carbon stored in rainforests. Dealing with deforestation and forest degradation cannot wait until 2020.
The very resources that we need to protect will have been substantially depleted by then. Done properly, protecting rain forests is a cost-effective method both to abate climate change and to provide sustainable livelihoods for many millions of people now living in rural poverty.
In this regard, the recent agreement between Norway and Indonesia breaks new ground in three ways. It both protects and restores the forest cover of peatlands that have become a major source of carbon emissions; it provides an effective mechanism for fighting corruption; and it improves the effectiveness of official development assistance. Such programs can be expanded by the participation of additional like-minded countries, along with civil-society organizations.
We attach great importance to the AGF’s recommendation for establishing Green Funds for forestry and Africa. We urge that early action be taken, as it is much cheaper to preserve rainforests than to rehabilitate them.
Moreover, the Green Fund would help fill the vacuum between the Fast Track Funding for 2010-12 that was pledged in Copenhagen and the target date of 2020.
A second initiative is climate-related financing offered by multilateral development banks (MDBs). The MDBs have been able to leverage large flows of private investment by mitigating risks and developing the capacity of domestic financial institutions.
For example, the International Finance Corporation’s China Utility Energy Efficiency Program has been highly successful in using small amounts of risk capital and money from donors to generate large amounts of loans, with a stunning leverage factor of more 100:1.
Equally, the European Bank for Reconstruction and Development has placed energy efficiency center-stage in much of its work on market-led sectoral transformation programs across Eastern Europe and the former Soviet Union.
MDBs should work expeditiously with the private sector to expand greatly the scale of such new mechanisms, and their capital should be increased if they demonstrate success.
A third initiative concerns renewable-energy development. Well-designed feed-in tariff programs offer investors the transparency, longevity, and certainty that they seek _ and these incentives have backed approximately 75 percent of solar photovoltaic capacity and 45 percent of wind capacity built worldwide through 2008.
The GET FiT program is a proposal to promote access to renewable energy in the developing world through new public-private partnerships. Money from bilateral and multilateral donors, along with coordinated technical assistance and capacity-building programs, would provide incentives for power producers to generate renewable energy.
Using a GET FiT-type structure to underpin the early financing of initiatives such as DESERTEC, a large-scale program to generate solar and wind power in the Sahara desert for use in North Africa and export to Europe, holds particular promise.
Suitably adapted, such mechanisms could also dramatically expand off-grid renewable-energy solutions across rural economies, providing reliable energy to billions of people and triggering a new green revolution in the countryside.
Taking concrete action now will reinvigorate the momentum of fighting climate change and help restore faith in international cooperation. Moreover, at a time of insufficient global demand and fiscal constraints in the developed countries, there is an urgent need for new drivers of growth.
The initiatives described here, as well as others discussed in the AGF’s report, offer a major opportunity to reorient the global economy toward resource-saving, low-carbon growth by using limited public resources to stimulate large-scale private investment.
Caio Koch-Weser is vice chairman of Deutsche Bank Group; George Soros is chairman of Soros Fund Management. For more stories, visit Project Syndicate (www.project-syndicate.org).