23/11/2012 - The OECD offers impartial data and evidence-based policy advice on scaling-up climate finance, and incentivising green infrastructure investment and low-carbon technologies.
“In the interest of the next generation, we simply cannot afford to put climate change on the back burner. In fact, one of the enduring lessons from the global economic crisis is that the longer we wait to take decisive action, the larger the cost of finding a solution,” says OECD’s Secretary-General Angel Gurría.
The Cancún Agreements called on developed countries to mobilise public and private financing to support climate action in developing countries.
Aggregate North-South flows for mitigation and adaptation are estimated in the range of USD 70 to 120 billion annually during 2009-2010, mainly from private sources (see Figure “green” flows to mitigation projects-those for adaptation are not included-, vs. flows to carbon-intensive projects).
The member countries of the OECD Development Assistance Committee (DAC) allocated up to USD 22.6 billion, or 15% of total official development assistance (ODA), to climate change mitigation and adaptation in developing countries in 2010.
Export credits could help stimulate private investment in infrastructure in developing countries, but green projects supporting renewable energies and cogeneration/district heating represent only a tiny share of officially supported export credits to the energy sector (USD 0.7 billion out of a total of USD 32 billion in 2009).
OECD countries are taking active steps to maintain environmental accountability in officially supported export credits through a Sector Understanding on Export Credits for Renewable Energy, Climate Change Mitigation and Water Projects of the 2012 Arrangement on Officially Supported Export Credits.
Figure 1. North-South Finance Flows for Mitigation
(latest year estimates 2009-2010, billion USD)
Source: Adapted from Clapp et al., 2012., compiled from various sources.
Finding new and additional public finance is challenging for many governments in tight fiscal positions. Carbon taxes can provide a source of much needed public revenues, to support climate action and contribute to bringing down public debt. Countries such as Australia, Denmark, Finland, Ireland, Norway, Sweden, and regions like British Columbia and Quebec in Canada already implement carbon taxes, and they are under discussion elsewhere.
Private sector investments in buildings, transport and energy infrastructure will also need to be shifted toward low-carbon options. Choices made today about the types and location of critical infrastructure will lock-in costly future emissions and the vulnerability of our economies to a changing climate. Despite USD 71 trillion in assets, however, institutional investors in OECD countries such as pension funds, insurers and sovereign wealth funds invest very little in this area. Less than 1% of OECD pension fund assets are allocated directly to infrastructure projects, and an even smaller slice of this goes to green infrastructure. Only a few larger investors are beginning to see it as an asset class which can deliver steady, inflation-linked, income streams. PensionDanmark, for example, has developed a dedicated direct investing team and is targeting up to 10% of their investments in this area.
The OECD notes some of the barriers hampering private investors from investing in green infrastructure more broadly and suggests what governments can do about them. A new report Towards a Green Investment Policy Framework: The Case of Low-Carbon, Climate-Resilient Infrastructure identifies how governments can improve the conditions to shift and scale-up private investment towards greener infrastructure, e.g. in energy, transport and water sectors, to simultaneously address climate change and local development goals. It outlines key elements: set clear goals and align policies across government; strengthen market incentives for low-carbon climate-resilient infrastructure investment; establish financial regulations and instruments to provide transitional support to new green technologies; harness resources for green R&D; and promote green business and consumer behaviour through corporate reporting and consumer awareness programmes.
Investments in R&D can also lead to new technologies that radically bring down the future costs of reducing greenhouse gas emissions The OECD’s new report Energy and Climate Policy: Bending the Technological Trajectory presents empirical evidence that targeting public R&D support for smart electricity grids and for renewable energy penetration can result in important complementarities. The report also finds thata long-term price signal equivalent to the prices seen during the 2008 oil price peaks (USD 90-130 per barrel of oil in 2008 prices) would mark a turning point in innovation, triggering a permanent switch towards innovation in renewable energy sources.
For further information, journalists are invited to contact Kumi Kitamori in the OECD’s Environment directorate: mailto email@example.com