Harnessing private finance for low-emission development: Views from COP23
Mairi Dupar of the LEDS GP Global Secretariat reports on the latest joint initiatives from developing country governments, businesses and investors to drive low-carbon growth.
Governments must create a more investor-friendly environment and build quickly on early successes in public-private partnerships – if they are to ramp up private sector support for low emission development.
A packed audience of developing country government officials, their advisors and international partners put these key recommendations at the top of their ‘to do’ lists, in a spirited discussion hosted by the LEDS GP and its partners at COP23 in Bonn yesterday.
Governments often lament the slow response of private companies to low-carbon development opportunities. “There is plenty of private money there, but the question is: how do we get them to invest in low-carbon development?” said Ms. Nguyen Thi Dieu Trinh, a senior official in Vietnam’s Ministry of Planning and Investment.
Mr. Ron Benioff, LEDS GP Co-Director, proposed that the keys to attracting private finance will be “getting the markets, the financial instruments, and the private-public partnerships right”.
Markets need regulation that supports green investment
Markets need to be regulated – of that, there’s little doubt. Regulation is needed so that commercial activities don’t undermine the natural environment, human rights and labour rights, and so that business activities are in line with countries’ social goals.
However, too much market regulation of the wrong kind can put a brake on green investments by the private sector, including renewable energy and energy efficiency investments.
Ms. Rebecca Carman, a climate specialist at UNDP, has been tracking how improvements in the regulatory environment for green industry could lead to quantifiable changes in finance flows. “In Tunisia, we looked at the solar power plan,” she said. “The clear hurdle [to investment] was around addressing transparent pricing and contractual issues in the power market. By addressing these issues in both solar and wind sectors, it will be possible to save US$1 billion in costs over 20 years.” (See the full report on Derisking Renewable Energy Investment in Tunisia for more.)
Countries are increasingly bold in testing green financial instruments
Since 2011, when the LEDS GP was founded, countries’ shared experiences with ‘green’ financial instruments have grown and multiplied. While many of these instruments were just a glint in the eye six years ago, at COP23, speakers reflected on early test-cases and soon-to-be launched trials of green financial instruments, emboldened by the ambitious global temperature goal and the direction of travel set by the Paris Agreement on climate change. For instance, speakers from Vietnam and Kenya said their governments are on the cusp of new green bond issues.
Risk guarantees are one way to boost the private sector’s comfort in low-carbon investments, said Ron Benioff. Kenya now has a programme that explicitly aims to ‘derisk investment’ for private companies in low-carbon technologies such as geothermal, solar and wind power. It is related to an initiative by the Government of Kenya and the Climate and Development Knowledge Network (CDKN) to mobilise and massively scale up private sector funding of Kenya’s Nationally Determined Contribution (NDC) – said Dr. Pacifica Ogola, Director of Climate Change Programmes Coordination, Kenya.
Meanwhile, removing the risks for private investors in renewable energy and energy efficiency projects has been pivotal to the Government of Lebanon’s efforts, reported Mr. Vahakn Kabakian, Head the Climate Change Unit at the Ministry of Environment of Lebanon. With this approach, Lebanon has raised over US $400 million from private sector for renewable energy and energy efficiency projects.
“We have come up with a renewable energy ‘grid code’ that makes it easier and clearer for the private sector to come in and invest,” said Mr. Kabakian – noting that application of the code will also reduce costs on the government’s side.
Public and private sectors are symbiotic when it comes to low emission development
The dictionary defines “symbiosis” as an “interdependent relationship”. Symbiosis seems like the perfect word to describe the relationship between governments – elected and appointed to act in the public interest – and private companies – formed to generate value and profit – when it comes to low-emission development.
Ms. Nguyen Thi Dieu Trinh described how this interdependency looks from the perspective of a provincial authority in her country: “Only 10% of the budget for renewable energy can come from provincial resources, the other 90% has to come from federal resources and the private sector”.
Partnerships between national governments and the private sector are one focus. Teamwork can also include foreign aid agencies and multilateral organisations, which also facilitate action on low emission development, using targeted investments of public money.
Kenya’s Climate Innovation Centre has even partnered with the European-funded Climate-KIC to solicit the most promising green business ideas from students at Kenyan universities. The Innovation Centre offers advice and business incubation grants to students – enabling them to pitch their ideas to investors both domestically and internationally. Of the 158 enterprises that have been nurtured by the initiative, 80 have become commercially viable and collectively, they have raised US$ 15 million.
Information and trust: the glue to bind action
Finally, national governments’ efforts to tap green investment will depend heavily on documenting and publicizing investment opportunities. The Government of Kenya is generating market intelligence about opportunities in its renewable energy sectors, said Dr. Pacifica Ogola.
Trust among private and public sector actors is perhaps the least tangible – and most slippery – concept of all, but speakers and discussants agreed that trust is a magic ingredient for taking low-emission development to a larger scale.
All the measures discussed above – market regulation that supports green investments, tested financial instruments, public sector measures to reduce private risks and extend the hand of cooperation, improved market information – will help to build trust.
However, as Ms. Maria Paz Cigaran of Libelula, Peru put it, people must also be willing to take a chance, to speak with and work with partners they have never worked with before, to achieve the formerly unthinkable. Low emission development requires an impetus from the head and the heart – a calculated risk to innovate and do things differently.
Image: Dr Pacifica Ogola address the COP23 event – credit Mairi Dupar, LEDS GP