Opinion

Tackling global warming through international cooperation among funding providers

Alain Grandjean is a French economist specializing in the fight against climate change and a member of the Economic Counsel for Sustainable Development affiliated to the French ministry for the Ecological and Inclusive Transition. He founded Carbone 4.
  • logo linkedin
  • logo email
Alain Grandjean
The Paris Agreement calls upon us to reduce global greenhouse gas (GHG) emissions swiftly in order to achieve carbon neutrality by the end of the current century. This represents a daunting challenge in terms of both the scope and the pace of the actions required. But roughly speaking, we have our work cut out for us. Meeting that challenge involves a drastic push for energy efficiency, which will ultimately account for half of the emissions avoided, along with a drive to decarbonize power generation, the electrification of a broader range of activities and the restoration of natural carbon sinks like forests and biomass. This “2-degree trajectory” offers a number of other advantages as well, particularly with regard to health, in that it will reduce atmospheric pollution. It will also compel us to devise a new form of economic development – a necessity for poor countries and the least fortunate members of our society. In contrast, inaction will lead to serious economic and social trouble as a result of climate damage.

THE PUBLIC SECTOR’S ROLE AS CATALYST

Such an approach requires massive investment, an estimated US$6 trillion per annum worldwide over the next 15 years according to the 2016 New Climate Economy Report. Then again, that’s only slightly more than the US$89 trillion that would be spent in any case if no changes were made. That money is reachable, but funding from governments and multilateral institutions alone won’t be adequate to the task. Today more than ever, private-sector involvement is crucial. Public-sector bodies have to fulfil their function of safeguarding the general interest by offering effective incentives through carbon pricing, regulations and standards, as the economists Nicholas Stern and Joseph Stiglitz stress in their report.

Public spending should be redirected towards climate investment, while at the same time encouraging private capital flows into sustainable projects. For example, governments can contribute to early-stage project finance, by providing guarantees for part of the attendant risks, by leveraging private-sector funding, by issuing sovereign green bonds as France did in early 2017 and, of course, by participating in the Green Climate Fund. The sheer scope of the financing required points to the need for a change of scale, as well as greater financial and practical cooperation among funding providers. Banks and development agencies have a key role to play in the process. They are increasingly in a position to address climate issues through both GHG emissions mitigation and the partially and regrettably unavoidable adaptation
to climate change. Proparco, in any case, has committed to devoting €2 billion between now and 2020 to the fight against climate change and to reducing CO2 emissions from its investment projects by 15 million tonnes per year from 2020 onwards.

PROMOTING A DIVERSIFIED ENERGY MIX AND CLEAN ENERGY

The pursuit of low-carbon alternatives is a way of boosting access to electricity and diversifying the energy mix by harnessing the potential of solar, wind and hydro power, or even by recycling waste water and other forms of waste. That was the rationale behind Proparco’s Khi Solar One project in South Africa and its Azito project in the Ivory Coast, which have led to the construction of concentrating thermal power plants. The success of such initiatives hinges on the extent to which international and local private-sector organizations grasp the value of adapting to climate change and developing solutions that address local geographic constraints. Financed by the European Union and initiated in March 2017, the African Renewable Energy Scale Up facility will allow Proparco to raise €12 million for off-grid power systems (using solar kits and mini-grids) that are particularly well-suited to rural areas and the urban hinterland.

ENCOURAGING SYNERGY AMONG FUNDING PROVIDERS

The change of scale needed to meet the COP21 commitments simply won’t happen without greater cooperation. Strengthening the green, or climate, bond mechanism and mutual investment funds dedicated to “climate” projects is part of a particularly promising step in that direction. A prime example is the Interact Climate Change Facility (ICCF), which is very much in the same vein as the Green Climate Fund. Established in 2011, the ICCF finances renewable energy (e.g., wind, solar and hydro power)
and energy efficiency projects in the private sector. Another example is the project of creating a private equity fund dedicated to investing in small-scale clean and renewable energy infrastructure projects in South East Asia. All these initiatives show that it is possible to marshal different, yet complementary, sources of funding to serve a cause that has become an increasingly pressing obligation for us: the fight against climate change.