Every year, the World Development Report focuses on a different topic of global importance, and, as part of its preparatory activities, consults with various groups around the world. The 2010 World Development Report on Development and Climate Change is no exception. This report has required unique attention to varying points of view because climate change affects different countries in drastically different ways. Over the past year, as we approached the task of putting together a report on such a significant topic, we sent our team of authors all over the world to consult with representatives from over 40 countries. We listened to stories about how climate change is affecting them, and sought their views on our report’s evolving messages, which I described in an earlier blog post. We compiled this feedback as it was received, and have posted summaries of these consultations on our website.
Proposals aiming to boost innovative climate change solutions often include some form of publicly-supported global venture capital (VC) fund. The rationale for such a fund is that government funding is generally available for R&D and private financing is available for the commercialization of mature technologies; but funding is unavailable for entrepreneurial activities—such as proof-of-concept, piloting, firm-building, and marketing—that happen between these two stages. Given this situation, a global climate change VC fund could have a decidedly stimulating effect. Of course, it would also be important for governments not to put all their eggs in this basket, since the VC instrument could quickly reach its limits.
The financing gap is particularly severe for climate change mitigation and adaptation technologies for a number of reasons. Not only is the market for these technologies still at a very early stage of development but it is also driven by regulation. Both of these factors represent significant risks for investors. In addition, low carbon technologies tend to be more capital-intensive and require much more start-up financing than other typical VC investment sectors like information technology. The funding gap is particularly deep in the developing world, which presents a riskier business environment and a more fragmented market for investors.
Several VC-style climate-change funds have recently been launched. The Carbon Trust, established by the British government, already invests in clean-technology firms based in the UK. In partnership with the Qatar Investment Authority, the Carbon Trust plans to set up a £250 million fund called the Qatar-UK Clean Technology Investment Fund, to be supported by both governments. The fund will primarily invest in the UK, but also to some extent in continental Europe and the Gulf Region. This will be the first major publicly-supported climate change VC fund of its size involving more than one country.
The author, Kwasi Owusu Gyeabour, won third place in an international youth essay competition sponsored by the World Bank and other partners. He answered the question “How can you tackle climate change through youth-led solutions?” The awards were announced in Seoul in June, 2009.
“There is never a time in the future in which we will work out our salvation. The challenge is in the moment, the time is always now.” -James Baldwin (1924 - 1987) Nobody Knows My Name, "Faulkner and Desegregation”
It is a privilege to be called on to share ideas on issues of our time, issues that can be solved through youthful action. In my essay, “Greening the Ghanaian Youth” I proposed several ideas that would help tackle climate change. Here is a sample of the ones I consider most practical.
Youth action at the community level is the most potent force in our fight against rapid climate change. So I proposed the establishment of a Green Sector Mutual Fund. This community-based fund will invest in firms that operate in the green/environmental sector. Now I consider this feasible because I have friends who have established mutual funds such as the University of Ghana Campus Mutual Fund which have turned out successful. The success of a fund mostly depends on factors such as advertising and the prestige and market reach of the fund managers. Most asset management firms these days would jump at the opportunity to manage something ethical just to create a sense of social responsibility and goodwill.
I had heard that the world spent less on energy R&D than on pet food, so I decided to check. Actually, it's worse than that.
|Photo © Sophielouise at Dreamstime|
Worldwide energy R&D spending in 2007 was about $12 billion according to IEA statistics that we are reporting in the upcoming World Development Report. I could not find what the world spends on pet food - so I looked up what happens in the US. In 2005, Americans spent $34 billion on pet products, 41 percent (or $14 billion) of which was on food and treats.
The two great challenges of the 21st century are the battle against poverty and the management of climate change. On both we must act strongly now and expect to continue that action over the coming decades. Our response to climate change and poverty reduction will define our generation. If we fail on either one of them, we will fail on the other. The current crisis in the financial markets and the economic downturn is new and immediate, although some years in the making. All three challenges require urgent and decisive action, and all three can be overcome together through determined and concerted efforts across the world. But whilst recognising that we must respond, and respond strongly, to all three challenges, we should also recognise the opportunities: a well-constructed response to one can provide great direct advantages and opportunities for the other.
Some readers and activists may question why the World Bank Group funds coal-fired power plants and yet professes to embrace sustainable development. The answer is that there is an urgent need for energy in the poor countries that we serve and indeed in my home country, China. There are roughly 1.6 billion people in developing countries--700 million of whom are in Africa and 550 million in South Asia--who lack access to electricity.
The financial meltdown dominates agendas across the world today, in the wake of two other recent shocks--high food prices and energy price volatility--that have particularly affected many developing countries. Yet, even in a time when countries are preoccupied by pressing economic problems, we cannot afford to take our eye off the ball of another emerging crisis---global warming caused by climate change. Every crisis is an opportunity. With the right handling, we could simultaneously solve the current financial crisis and prevent the emerging climate change crisis.
“The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality.[...] But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response..” Alan Greenspan, former Governor of the US Federal Reserve, writing in the "Opinion" column of the FTMarch 16 2008.
|Photo © Dominic Sansoni/World Bank|
The world's attention is sharply focused on the financial crisis right now. Even Europe, which has always pushed for climate change, has begun to talk about potentially postponing the target to reduce greenhouse gas emissions. While the world leaders can bail out the financial crisis, climate change is a crisis that’s already happening and will not wait. A green energy technology revolution can not only mitigate climate change, but also create jobs and stimulate economies.