Auctions are ubiquitous. On any given day, somewhere in the world, bidders compete for energy, wireless spectrum, used vehicles, agricultural products—the list goes on. Auctions can help resolve uncertainties in the market, convening buyers and sellers to help them achieve the best possible price for goods or services that are otherwise difficult to value.
Auctions can also resolve uncertainties in the development sector, identifying the projects most likely to succeed and determining the right level of funding. To test this hypothesis in the climate arena, the World Bank has been piloting an approach to incentivize green projects in developing countries. The Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) held its second online auction earlier this month, allocating $20 million in funding directly to the private sector for projects reducing methane emissions.
Today, over 80 million tons of CO2 will be emitted from economies around the world. Tomorrow will be the same, as will the day after that. The emitted amounts of CO2 will likely stay in the atmosphere for hundreds, if not thousands of years, further compounding the challenges in reversing the current and expected effects of climate change.
This past December, in Paris, leaders of 195 nations of the world agreed that this trend must be reversed, signaling a historic turning point in the global fight against climate change. The Paris Agreement ratified a global consensus to limit the global average temperature rise to ‘well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.’ Developing nations were at the forefront of this agreement, with almost every one of them setting carbon reduction goals. While the public sector will play a major role in helping achieve the ambitious targets, the sheer volume of investment required to support low-carbon energy, transportation, and agriculture projects throughout the developing world leaves a gap of hundreds of billions of dollars that only the private sector is in a position to fill.
Barbara Buchner is senior director at the Climate Policy Initiative and lead author of the Global Landscape of Climate Finance reports.
In December 2015, countries will gather in Paris to finalize a new global agreement to tackle climate change. Decisions about how to unlock finance in support of developing countries’ low-carbon and climate-resilient development will be a central part of the talks, and understanding where the world stands in relation to these goals is a more urgent task than ever.
Climate Policy Initiative’s Global Landscape of Climate Finance 2014 offers a view of where and how climate finance is flowing, drawing together the most comprehensive information available about the scale, key actors, instruments, recipients, and uses of finance supporting climate change mitigation and adaptation outcomes.
New carbon pricing systems are being developed in China, Chile and other countries to help reduce greenhouse gas emissions and encourage clean energy and sustainable development. This will mean new reporting requirements and regulations for an increasing number of national and multi-national companies.
To help corporate leaders prepare, we studied the experiences of three companies that are already operating within one or more carbon pricing systems and the steps they took to prepare for a world where greenhouse gas emissions have a price.
Our report released today by the Partnership for Market Readiness describes the impacts of a changing climate on business strategies, analyzes risks and opportunities as new climate policies are implemented, and distills lessons learned by Pacific Gas and Electric Company, Rio Tinto, and Royal Dutch Shell. The three companies represent a variety of energy-intense industries, including oil, gas, metals, mining and energy generation, transmission and distribution. Two operate in more than one jurisdiction with emissions trading.
Amy Ericson, U.S. country president for technology company Alstom, spoke at the World Bank Group about the interplay between carbon pricing and innovation that can lower carbon emissions for cleaner, more sustainable development. Alstom is involved in the Carbon Pricing Leadership Coalition.
Late last month, I retired after spending more than 30 years in the climate arena, the last decade as a principal climate change specialist at the International Finance Corporation.
During the span of my career, climate change has moved from the sidelines to be recognized as a serious development challenge. And while we’re still far from achieving the international commitments needed to avoid potentially dangerous and even catastrophic climate events, much has been accomplished.
Scientists have reached near-consensus about climate change and its impacts. We’ve also seen the creation of several significant donor-supported climate funds, as well as a steady increase in policy and financial support for climate-friendly technologies.
In one critical respect, however, we need more progress: making the private sector a partner in helping nations build resilience and adapt to climate change.
As world leaders convene in Doha for this year’s UN Climate Change Conference developing countries are looking for ways to maintain momentum for change to help them transition to climate-smart growth.
When it comes to delivering improved, cost-effective infrastructure and services – a precondition for green growth – public-private partnerships (PPPs) are one way forward. At a recent event co-sponsored with the United Nations Development Programme (UNDP) in Doha, we shared our unique perspective on public sector efforts to attract and leverage private sector climate finance through PPPs.
Some key takeways from the event include:
- PPPs help tap new money for infrastructure: Since the 2008 financial crisis, governments have limited financial resources to devote to capital expenditures and expanded public services. Involving the private sector offers a solution.
- PPPs boost efficiency through cost savings and shorten delivery periods. They also spur innovation by bringing in private sector know-how.
- PPPs facilitate projects under one umbrella: When it comes to climate initiatives, PPPs can efficiently organize and consolidate the numerous and complex arrangements that make a renewable energy (or any other climate-related) project work.
- PPPs allow for appropriate allocation of supply and risk demand to the private sector, reducing taxpayer costs.
- Since 1989, IFC has been the only multilateral institution providing advice to national and municipal governments on designing and implementing PPP transactions to improve infrastructure and access to basic services such as water, power, agribusiness, transport, health and education.
As the Climate Investment Funds (CIF) and its stakeholders from the private sector, government, the multilateral development banks, civil society and indigenous peoples’ groups gathered in Istanbul to participate in the first CIF Private Sector Forum, their attention is increasingly focused on synergies between the private and public in addressing climate change. There is a growing understanding among both governments and private sector players - from investors to small project developers to large utility companies - that gains are much larger if common strategies are developed and new partnerships are forged.
Michael Liebreich, CEO of Bloomberg New Energy Finance, opened the day with an energetic keynote address, provocative and positive, setting up the stage for the day by announcing the scope of challenge and opportunities for dynamic, and pragmatic climate investment strategies. Sessions on private sector adaptation, and business attitudes towards climate risk followed. The `Matching Expectations' panel brought together indispensable partners, the triangle of project developers-investors-policy makers, into discussion of regulations, fund raising challenges and investors' expectations and requirements.
The day also showcased five CIF projects, beginning with the highlight of the Morocco Ouarzazate CSP project, a unique PPP model, presented by Paddy Padmanathan, the CEO of the project's developer ACWA Power.
Consensus emerged that the private sector will deliver much of the innovation and finance required for investments in low carbon technologies and climate resilience in rich and poor communities alike. With scientists warning that we are not on a path to limit global warming to 2° or less, there is growing urgency to identify effective ways in which the public and private sectors can best work together to tackle and adapt to climate change. The CIF provide a platform for learning by doing to develop such models for effective collaboration and share experiences among the network of CIF recipient and contributor countries.
I was at the Climate Investment Funds meetings in Cape Town last week with several other representatives from development banks, NGOs and governments to discuss results, impacts and the future of this financial mechanism. One of many themes cutting across meetings in Cape Town was the importance and challenge of engaging the private sector in climate finance. The private sector is by far the largest source of investment, the dominant provider of technology, and often essential for implementation of mitigation and adaptation measures. However, based on the discussions this week, it’s apparent there is much to learn about what is actually expected or sought from the business community. Here are some of my observations from the meeting:
- In my experience references to “the” private sector are common but largely meaningless and often confusing in failing to distinguish between entities as different as major multinational manufacturers, international financiers, and locally- based entrepreneurs. Some speakers even used the term more broadly to encompass markets, including policies directed at consumers.
- There are some unavoidable tensions between emphasizing country plans and priorities and the promotion of markets for climate-friendly products and services. This is particularly true in smaller and poorer countries. Control of donor resources is fundamental for many governments but sometimes difficult to reconcile with the flexibility, consistency, and speed required by investors. Public-private partnerships (the focus of a Cape Town session) is one solution but not always appropriate or workable. Finding models which can blend the two, as in the collaborative IFC/World Bank Lighting Africa project, will be increasingly important. The World Bank was able to build a relationship with energy ministries while IFC focused on helping businesses. Together, they have been able to address a wide range of issues from regulatory systems to that of supply chain development.
|An IFC investment helps provide clean, affordable water to underserved communities in developing countries.|
Many of the measures proposed in the World Development Report (WDR) 2010 will require substantial engagement with the private sector. The UN Framework Convention on Climate Change has estimated that more than 80 percent of the investment required for climate change mitigation and adaptation will have to be privately financed. For this to happen, the key requirement will be meaningful targets and supportive public policies.
One area in which private initiative will be critical is in the development and dissemination of new climate friendly technology. As the advance edition of the WDR states, "Technological innovation and its associated institutional adjustments are key to managing climate change at reasonable cost. . . . Mobilizing technology and fostering innovation on an adequate scale will require that countries not only cooperate and pool their resources but also craft domestic policies that promote a supportive knowledge infrastructure and business environment."
For several reasons, an increased focus on accelerating new technology is urgently needed.