Promoting growth and tackling climate change

Felipe Calderón writes about financing clean energy, as part of a series of blog posts linked to the Green Investment Report 2013

We begin 2013 by recovering from another year of extreme weather events that included unprecedented storms in the Philippines and United States, as well as drought, floods and heat waves in a number of regions. The economic and social impacts of climate change are increasingly being felt, and the risks of future impacts loom large as we attempt to shape a global economy that will satisfy in a sustainable way the needs of more than 9 billion people in 2050. To address the challenge of climate change – and to achieve sustainable, green global growth – will require an unprecedented transformation in technology, skills, policies and business models, along with an aligned public consciousness.

How much finance is needed to achieve this transformation? We have seen strong growth in renewable energy during the past decade – how much more green investment is required to address climate change? And, critically, how can we make this transformation a profitable investment proposition for the private sector?

To answer these questions, the World Economic Forum today releases the Green Investment Report. The report is the result of an unprecedented collaboration between leading companies, public finance agencies and green investment analysts, and is the first output of the Green Growth Action Alliance, a public-private “coalition for action” that was launched at the 2012 Mexican G20 to drive greater investment in green growth. The report finds that US$ 5 trillion per year is needed to build the global economy over the next two decades, much of it for energy and other core infrastructure. Raising and effectively deploying such large sums is a challenge in itself. Yet, we have to take a further step to secure sustainable growth and development: we must ensure that this investment is climate-friendly so that it does not further lock in our current path towards a warmer – and much riskier – world. Achieving this will add up to US$ 0.7 trillion in costs per year.

Therefore, despite positive signs of growing private finance into clean energy and other green investments, there remains a significant gap.

The good news is that we have shown that we can quickly ramp up private investment for green growth. The last decade has seen major growth in private investment in clean energy, with financial flows into renewable power worldwide now exceeding those into fossil-fired electricity. Further, developing countries are a growing source of private capital; since 2007, green investment originating from outside the OECD grew at 27% per year compared to 10% per year from OECD countries, albeit from a far lower base. Since receiving a boost at the COP16 conference in Mexico in 2010, REDD mechanisms (Reduction of Emissions from Deforestation and Degradation) are providing businesses and governments new opportunities for investing and preserving the environment in developing countries.

We can build on this momentum and close the gap by mobilizing a fraction of the over US$ 71 trillion under management by institutional investors. At a time of global fiscal austerity, there is a scarcity of new public funds to solve climate change. Therefore, governments must learn quickly how to target public funds and public policies with a laser-like focus on mobilizing private investment. We find in the report that there are a number of cases where public finance has attracted significant private capital for green investment. The Green Investment Report collects success stories from the Alliance’s partners in an effort to inform and inspire policy-makers and public and private finance providers to close the gap and deliver inclusive, sustainable growth.

The next steps are to achieve scale, by repeating these successes with some urgency. I therefore issue a personal invitation to all G20 governments, public finance institutions, investors, policy-makers and civil society leaders to join the collective members of the Alliance as we work to scale up global investment in green growth.

Climate change is a reality. Its impacts are every day more dangerous and expensive for societies and governments. It is possible to promote growth and tackle climate change at the same time. With swift collective public-private action, we can ensure that the earth’s abundant resources are available for future generations to come. Private investment mixed with the right public policies with adequate economic incentives could be the answer that the world is looking for.

Author: Felipe Calderón, former president of Mexico, is Honorary Chairman of the Green Growth Action Alliance, Switzerland

Image: Storm clouds are seen on the U.S. coast REUTERS/NOAA NOAA