Investments in clean energy are at an all-time high, a staggering USD 329 billion. 2015 was the first time that investments in renewable energy were higher in developing countries than developed ones. Over the past decade, renewables have grown as a share of total power generation with a six-fold increase in non-hydro renewables. Prices are at some of all-time lows and likely to go lower. And just in the past few months alone, the CIF has approved 300 million dollars in solar energy for India
All this progress takes place – worryingly - against a backdrop of worsening news on the impact of climate change. According to a recent study, global warming could lead to a disintegration of the West Antarctic ice sheet – an area larger than Mexico - within decades, causing sea-levels to rise by as much as three feet by 2100. That’s much sooner than that predicted even just a few years ago. These findings once again prove that climate change poses a major threat and will require a response at an unprecedented scale.
Energy and transport systems, with their current infrastructure needs, are crucial sectors in terms of their potential to reduce emissions and limit temperature in our warming world. However, large scales of investments are needed in the two sectors to not just help scale up existing clean technologies but also develop new ones.
Whether its printable solar panels in Australia, water pumps powered by the sun in Africa or wind turbines fitted onto the Eiffel Tower in Paris, there are examples all over the world of climate-smart innovation as the new normal. As for transport, with the current advances in electric vehicles, the growing demand (not just for the much publicized Tesla’s Model 3) and coalitions of the public and private sector showing leadership, momentum is building.
But much more is needed. While there is clearly a demand for long-term, affordable financing, in an era of competing priorities – be it the refugee crisis, global economic challenges, health pandemics or new crises – resources are scarce and must be used in the most efficient manner. While a portion of these resources must be concessional and affordable, a larger share has to be mobilized through private sources so as to achieve the maximum possible impact.
Thankfully we know what is required to accelerate the shift towards cleaner energy. Here are three key ingredients that should be considered while designing a financing framework to support low carbon development:
Leveraging the private sector: Public finance, through the use of instruments that target specific risks such as early stage risk, or support new business models should be used to mobilize private sector funds. This not only helps alleviate key barriers but also bridges the financing gap for technologies with high upfront costs. As well as supporting tested technologies such as wind and solar PV to scale up, it can help innovative solutions on the brink of commercialization such as energy storage or geothermal.
Enabling environment: Some of the largest multinational companies with the deepest pockets can be hesitant to participate in certain markets due to a lack of predictable policy and regulatory framework at a sectoral and/ or a country-level. Using public money to influence and help with the development of supporting policies will help create an enabling environment that facilitates private sector participation and the flow of commercial capital - and in the process create a market which will push further deployment.
Knowledge sharing: One of the biggest barriers in the development of low carbon technologies is lack of knowledge and information. This is true not just for under-developed or developing countries but also some of the largest companies that lack the know-how to work in particular challenging contexts. New partnerships must be forged and experiences shared in order to learn and leverage lessons. Time and again, it has been proved that this reduces costs, builds capacity and, again, helps develop markets.
Essentially what’s needed is an exponentially higher degree of scaling up of the known and innovation of the unknown. Only such levels of ambition can put us on the right path to tackle the urgent challenges posed by a changing climate.