Green Finance’s Kaleidoscopic Calculations
The World Economic Forum’s Green Action Group, under the leadership of former Mexican President Calderon, urged a heightened private finance push to meet global infrastructure and climate adaptation needs amounting to over $5 trillion annually through 2020 in a report issued at the Davos summit. Clean energy investment has increased at two and a half times the pace in developing as in industrial countries the past five years starting from a lower base. In 2011 renewables allocation was up 15 percent to $250 billion. Government support as a major contributor is now in danger from the US and Europe fiscal crisis and fossil fuel subsidies remain in place as disincentives. Hydrocarbon “fracking” technology discourages alternatives, as emission reduction targets and environmental funding pledges continue to lag original actions. Non-OECD progress outside big emerging economies and projects other than solar and wind are absent. The public-private leverage ratio of 1:3 is under potential, and the World Bank has just estimated the world temperature rise could be worse at 4 degrees Celsius over the next two decades for a population of 9 billion. Power, infrastructure, agricultural and industrial capacity must all be modernized to meet the challenge. The International Energy Agency puts coal, oil and gas conversion cost alone at $750 billion per year, and forest maintenance at the other end of the spectrum comes to $40 billion. To bridge the money gap official and commercial allocation must jump to the respective $125 billion and $575 billion immediate ranges. Risk mitigation across the political, macroeconomic, operational and regulatory landscape should be a focus of bilateral and multilateral efforts as with World Bank MIGA and US OPIC insurance. The document cites successful case studies in Asia, the Middle East and Latin America, and notes that development finance institutions have also been involved through loans, mezzanine debt, green bonds, equity, and dedicated investment vehicles. HSBC calculates the broad climate bond market at $175 billion, with project instruments a specific subset that appeals to conventional asset managers. Pension funds have signed on to a UN initiative to boost share positions in renewable companies, and the Global Environment Facility has provided $10 billion in grants which has seeded thousands of enterprises in hundreds of countries since its 1990s launch.
The work has assumed greater urgency with the phase-out of the carbon emission rights trading scheme authorized under the Kyoto Protocol which has encountered controversy over alleged fraud and lack of transparency as volume dwindled post- financial crisis. The EBRD and African Development Bank have been active catalysts and sponsors in their regions, and a $125 million solar water heater project has been a breakthrough in Tunisia despite the past two years of struggle there. A Green Growth declaration from the 2012 G-20 meeting reiterated the importance of new trade and finance mechanisms for a “sustainable pathway” which still must clear ample underbrush, the panel concludes.
