The climate change is forcing a low carbon growth model not only for the developed nations but also for the developing countries, and particularly the emerging major emitters belonging to the emerging economies like China and India. New types of policies, partnerships and instruments, which dramatically scale up present climate change efforts, will be needed, if efforts to mitigate climate change and adapt to its effects are to succeed. The focus of this chapter will be on these and related issues pertaining to financial and technological aspects of the challenges confronting us in this context. The methodology used is essentially based on current literature and tacit knowledge arising from related experience along with its explicit accounts.
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The IEA estimates that limiting GHG concentrations to 450 ppm CO2eq would require US$550 billion to be invested in clean energy from now to 2030. UNDP estimates the cost of adaptation at US$86billion. Most of the financing in the coming years will have to come from private sources, or from innovative funding mechanisms currently available or being developed. Current levels of ODA, while significant, are unlikely to be sufficient to finance the necessary investments.
For example, for energy-related activities, ODA, at present, provides US$5-7 billion per year, which is only 1% of the total amount required.
The international community is currently piloting a number of public policies, new market-based instruments and innovative financial mechanisms, to attract and drive direct investment towards lower-carbon and climate- resilient technologies and practices. In 2007, the private sector invested nearly US$150 billion of new money in clean energy technologies in response to these new policy and financial incentives. However, these financial flows often remain restricted to OECD countries and a small number of rapidly developing countries; barriers still need to be removed before they can be widely disseminated for easier access by other developing countries.
For example, the Kyoto Protocol created the Clean Development Mechanism (CDM) to promote both sustainable development and GHG emission reduction in developing countries. The CDM is a global cap-and-trade mechanism, which allows developing countries to earn credits for their emission reduction projects and sell these cheaper credits to industrialised countries. Despite its potential, there is strong concern that only a limited number of countries will benefit from the CDM, and that this mechanism could bypass Africa entirely. (UNEP, 2009)
Only five countries–China, India, Brazil, South Korea, and Mexico–are expected to generate over 80 percent of CDM credits by 2012. Current market rules all too often fail to attract investors into lower-carbon technologies and sustainable land-use projects. The specific market conditions of developing countries will need to be incorporated into the design of new market-based and innovative financial mechanisms. A number of reforms to the CDM are currently being discussed to achieve this objective (programme approaches, etc.). At the same time, developing countries will need assistance to put into place an enabling environment (e.g. public policies, institutions, human resources) so that they are in a better position to leverage these new sources of finance. A new order of partnership is needed between developed and developing economies–one that supports the development needs of developing countries but assists them onto a low carbon trajectory that leap-frogs the 20th century development patterns of the North.
Encouraging financial flows between rich and less well off countries is key as is the involvement of the private finance sector and global investment community. UNEP Finance Initiative and the UNEP Sustainable Energy Finance Initiative are some examples. More recently, the interaction between UNEP’s Initiatives and other private finance networks has intensified.
Combating climate change is not about costs to the economy but an investment in the kinds of renewable, clean-tech and natural resource management economies able to generate low-footprint wealth and employment for over one billion people unemployed or under employed. The total investment required to avoid dangerous climate change is more than USD 1 trillion per annum, according to the International Energy Agency (IEA). Half of this amount could be redirected from business-as-usual investment in conventional technologies to low-carbon alternatives. The remainder (USD 530 billion) is required in the form of additional investment. World Bank estimates suggest that around USD 475 billion of the total annual investment must occur within developing countries. Around USD 400 billion per annum of investment will be required for mitigation investment. A further USD 75 billion per annum will be required for adaptation investment. (UNDP, 2009)