Thinking Big and Bold on Climate FinancePeyton Fleming
The transition to a thriving, clean economy that protects the global climate while providing equitable access to sustainable development does not come cheap. The energy innovation and climate-resilient infrastructure we need requires finance at scale. This is why the climate finance discussion is so difficult and so important.
On the one hand, developing countries legitimately need developed countries, and other Parties willing to do so, to scale up the mobilization of climate finance from USD 100 billion per year from 2020. They also need predictability of finance flows to think long-term. On the other hand, developed countries, grappling with financial and fiscal constraints need to find innovative ways to make finance available. They further need developing countries to improve their own domestic enabling environments, to attract a broader range of finance from a wide variety of sources, including public and private. During the first week at COP the inability to resolve two legitimate parts of the climate finance puzzle has resulted in deadlock.
We would encourage governments to step back and think differently about this puzzle because when you’re trying to move a whole system, going big and bold can be less risky and expensive than going incremental. The truth is building the low carbon economy will take trillions – not billions – of dollars in climate finance and that scale of finance is available to us if we can land this agreement.
According to BNY Mellon, the world’s largest custodian bank, anticipate that the deployment of low-carbon technologies, including renewables, nuclear, and carbon capture and storage could lead to an additional investment opportunity of US$4.7 trillion. The 184 INDCs tabled before Paris begins to open up that market. Now we need to use COP21 to go further.
Over the next week, we need to think big, bold and three-dimensionally about climate finance. If we want to move money at scale we need to look at the whole package and avoid the temptation to focus too narrowly on the $100bn.
A long-term goal provides the durability and longevity that investors need. Five-year reviews and ratchet mechanism starting before 2020 progressively increase ambition and provide the certainty that long-term investments will yield returns and provides confidence that investors need to expand this market further. And a sophisticated approach to leveraging private sector finance in the Paris Agreement will enable investors and businesses to provide the money, but they need clearer, long-term policy signals.
More than 400 global investors collectively managing $24 trillion in assets called for exactly this in a call to action issued to government leaders last month.
“Stronger political leadership and more ambitious policies are needed in order for investors to scale up our investments,” said Mindy Lubber, president of Ceres. “We believe that well designed and implemented policies would encourage investors to invest significantly more in areas such as renewable energy, energy efficiency, sustainable land use and climate resilient development.”
If governments can provide the billions and deliver an ambitious final agreement, investors and businesses will unlock the trillions. And that will be a win-win for everyone in putting the world on sustainable path for the climate and the global economy.
The message to negotiators this week is simple. If climate finance is your goal look beyond Article 6 of the new agreement and built a complete package in Paris that will be a catalytic instrument for the whole of the real economy.