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Disciplined financial mechanisms

Rachel Kyte's picture

"Innovative financial mechanisms" is another one of those amorphous phrases on the lips of Bali climate change goers. Every international agency, wrestling internally with their climate change strategies, the GEF, the UNFCCC secretariat and of course the parties who are also donors, dance around how to pay for all that needs to be done.

The few private sector players here are after market opportunities and sniffing, as one said to me yesterday, around where the tipping point will be – the "a-ha" moment, when a market transformation is realized and investment starts to fly and valuation soars. And the developing world is wondering at whose and at what expense the climate change agenda will come.

So what if climate change became the organizing principle for development? And what if money was not the problem? Do we have the discipline to put the right money to work in the right way, in the right place? Just as we can ask ourselves do we have the industry discipline to really focus on agencies' relative comparative advantages?

Let's take McKinsey's adaptation curve as a rough guide. Everything below the line – that which is commercially possible today – should be the domain of the private sector. Government, agencies and others should focus on setting the conditions to stimulate and grow that investment.

That which is above the line – which is soon to be commercially available with a price on carbon - is the domain of public private partnerships, with risk shared between the two. The public and private sectors have different risk appetites by mission and by persuasion. Through these partnerships we can introduce new products and services, educate the markets and see them grow.

And that which is on the horizon – the far right of the curve – that is the stuff of vision, of concessional aid funds, and of philanthropy. That is where we should be arriving at decisions to launch "climate manhattan projects of our time," to experiment and come forward with models that can lead to markets, that can scale solutions on the right time lines.

Innovative financial mechanisms – yes. Urgent – absolutely. But also disciplined.

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