News agency, Cape Town, South Africa
Thursday September 20th 2018

Climate finance for a green economy

Photo: Steve Kretzmann/WCN

There are an increasing number of global climate funds available to invest in climate change mitigation projects and kick-start a green economy, but accessing these funds is not as simple as it might seem, according to speakers at a Cambridge Resilience Forum event is Cape Town this week.

The funds range from the $30 billion committed to climate friendly development at the United Nation¹s Framework Convention on Climate Change (UNFCC) Copenhagen conference last year to private equity funds. But, according to Smita Nakhooda of the World Resources Institute based in Washington DC, many tensions exist as to how these funds should be sourced, committed and managed.

“At the heart of the debate is how to maintain high standards of financing, while ensuring that funding institutions are nimble enough to ensure that things get done,” she said. “And how do you ensure that the finance reaches the kind of projects that will have traction and bring about major change?”

Nakhooda said one of the major tensions was that developing nations wanted to have direct access to funding and many donors felt safest working through the tested international bodies such as the World Bank and the Global Environment Fund (GEF). Advances in meeting this challenge of Œtop-down versus bottom-up) had been made with the introduction of the Adaptation Fund and the growth of national low carbon development funds, but it was too early to judge how these would fare.

Richard Sherman of One World Sustainable Investments and a member of the South African delegation to the UNFCC said that the Copenhagen Convention included an agreement to set up a new fund that was currently being negotiated. Debated issues were over global technology intellectual property rights, insurance mechanisms, whether to make grants or loans, and what the sources of funding should be.

A possible source for this new fund could be using 1% of GDP from developed countries, but then the question would be how the UN Secretary General would decide to mobilize these funds, he said.

Funds could also possibly be sourced from the private sector via climate transactions taxation, leveraging emissions of the transport industry, and implementing George Soros¹s proposal of an IMF rights issue.

However, the good news, he said, was that the $30 billion committed at Copenhagen would flow through existing channels, and would therefore not be hampered by this process of negotiation.

The important thing for South Africa to remember was that it needed to ensure that it had established the right channels to receive these funds so that it would be ready to receive them, he said. Work still had to be done in this area.

Carl Wesselink of the South African Export Development Fund called for a pragmatic approach to accessing climate-related funds and putting them to good social and economic use. The point was not to focus on becoming “Ecarbon neutral” (which usually had zero social impact and had a negative impact on the country’s Balance of Payments) but rather to focus on “how we get energy and how we use it”.

“Our decisions need to be practical and socially responsible,” he said.

Best known for the role he played in implementing South Africa’s acclaimed gold standard Clean Development Mechanism (CDM) low-cost housing retrofit project at Kuyasa in Khayelitsha, Cape Town, he said it would cost R1500 per unit over five years to retrofit an RDP house with a ceiling and a solar water geyser.

“This might not sound like a lot to us, but we need to understand the social, and economic benefits from these simple interventions for the people who live in RDP houses. It means the inhabitants regain about 10% of their income in energy saving, get access to hot water for the first time, and avoid having to endure about 3 liters of condensation a night dampening their beds and effecting their health,” he said.

While the CDM was a useful mechanism, it was laden with bureaucratic processes that used up about 75% of the funds available, he said. Accessing funds from local funding institutions, such as the National Sustainable Settlements Facility, should not be ruled out as an interim measure to get things going.

Graham Sinclair, principal at Sinclair & Company, a boutique investment advisory firm specializing in sustainable investment in emerging markets, said private investment offered a possible source of climate finance.

“Investors are geared up to make investment decisions along ESG (Environment, Social, Governance) principles if people insist on them. The more investors ask for this kind of investment, the more the market will work in this direction,” he said.

But the bottom line for private funding, all agreed, was that the market required a reasonable degree of certainty that investment will be profitable.

As Nakhooda pointed out in her opening remarks, it is cheaper to mitigate the effects of climate change through climate friendly investments than to deal with post-event adaptation. Mitigation offers an opportunity for profiting from the development of a green economy. Adaptation is more likely to be expensive damage control.

Dirk Visser of the Cambridge Programme for Sustainability Leadership, who chaired the session, noted that, according to the World Bank, $50 billion was needed annually for Africa to cope with climate change. According to some, this figure is severely underestimated. – Monica Graaff

* Monica Graaff is an award winning freelance environmental journalist.

Tags: cambridgeresilienceforum, cdm, gef, imf, unfcc, worldresourcesinstitute

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