To reach the 2050 emissions reduction target, trillions of dollars in public and private capital are needed to adopt and scale green energy technologies, financial experts told participants in a session on climate finance at the 53rd World Economic Forum annual meeting. told.
Despite the urgent need for climate finance, several barriers have hindered the flow of private capital to decarbonization projects around the world, and particularly in the Global South.
Financial experts agreed that a major hurdle is the need for carbon pricing. “We are still resisting the requirement that a price for carbon be fixed, and the price has to go up,” said Kristalina Georgieva, managing director of the International Monetary Fund. Public resistance to a carbon tax has prevented many countries from pursuing carbon pricing through taxation, but taxation is not the only way to curb emissions.
Carbon trading, regulation and various pricing schemes are alternative strategies that countries have used to impose a cost on emissions. Better coordination of these strategies would encourage private capital to invest in more net-zero projects around the world.
Another barrier to private finance has been the lack of common standards and data on reducing emissions. Experts expressed disappointment that even after nearly three decades of COP summits, there is a lack of common metrics on many environmental goals.
“We need standards,” said Bill Winters, Group CEO of Standard Chartered Bank. “We are all afraid of being accused of greenwashing, even if we are doing the right thing.”
National development banks, along with multilateral development banks such as the IMF, should take the lead in catalysing private finance for climate change adaptation. “Multilateral and national development banks have had to take on too much risk,” said Patrick Khulekani Dlamini, CEO of the Development Bank of Southern Africa. One problem has been that national and multilateral development banks compete for projects and do not share information.
Better coordination among public financial institutions can encourage greater risk-taking and improve banks’ assessment of the risks of various projects. One strategy would be to forge an agreement among multilateral development banks to focus exclusively on their collective impacts on green energy rather than on individual balance sheets.
In addition, data-sharing between development banks and private funders could increase investor confidence in financing risky projects.
Different energy contexts require different national policies, but all countries can learn from best practices in the Global North and Global South. South Africa and Indonesia have become leaders in the global south for their environmental policies.
In Germany, the war in Ukraine prompted the nation to accelerate its energy transition. One area of marked progress involves intelligent demand reduction. “We have reduced energy consumption by more than 20 percent by reducing costs in our buildings,” said Oliver Batte, CEO of Allianz.
Monitoring inefficient energy use represents a straightforward strategy that many developed countries have not yet implemented on a wide basis.
Finance experts agreed that given the urgency to cut emissions, it is also necessary to understand the costs of inaction to accelerate private finance.
Expediting major projects often increases the risks of corruption and leakages, but such risks must be weighed against the cost of failing to act. Delays in mitigation in developing countries can cost hundreds of billions of dollars – a cost that rises to many millions of dollars more due to corruption or incomplete project design.
Experts agreed that many of the tools and technologies needed to accelerate decarbonisation already exist, from sustainable aviation fuels to green hydrogen. The challenge is implementing these innovations, spreading them around the world and doing so quickly.
Solar panels drop in price by 95 percent after 30 years, but as Winters said: “We don’t have 35 years in this case.”
Source: PTI
