Sun, Jun 03, 2007 - Page 9 News List

Financing the climate change fight

Developing countries need an annual investment of US$30 billion per year to reduce their greenhouse gas emissions from the power sector alone

By Katherine Sierra

Two years ago, the G8 Summit in Gleneagles, Scotland, promised to advance a clean development agenda and mobilize financial support for greener growth in the key emerging market economies. This year's meeting, in Heiligendamm, Germany, must deliver on that promise.

Since Gleneagles, a critical mass of public support to act decisively on climate change has developed. Some say a tipping point has occurred. The science and the economics of climate change has come closer as a result of the overwhelming scientific evidence in the studies of the Intergovernmental Panel on Climate Change (IPCC) and Sir Nicholas Stern's report for the UK government on the costs of action and inaction. Around the world expert officials, the business community, concerned citizens and responsive governments are coming together to find common solutions to a global problem that may be the single most important issue we face as a global community.

In Heiligendamm, the G8 leaders, together with representatives of major emerging economies (Brazil, Mexico, China, India and South Africa, who have a critical stake in energy consumption to continue to generate economic growth), will discuss a comprehensive approach encompassing a set of energy options, from energy efficiency and renewable energy, to clean coal, carbon capture and storage and carbon sequestration. They also have a chance to advance the use of market mechanisms to do two things -- mitigate climate change, and, at the same time, create incentives for expanded use of clean energy.

An important way to achieve both objectives is by expanding carbon markets. Carbon finance is an effective vehicle for channeling funds for climate-friendly investments, including to the developing world. Last year alone the size of the world carbon market tripled to over US$30 billion, of which about 20 percent went to projects in the developing world. By one estimate, with a long term, predictable and equitable post-2012 global regulatory framework for curbing greenhouse gas emissions (when the Kyoto protocol expires), carbon markets could develop exponentially and deliver financial flows to developing countries of anywhere between U$20 billion and US$120 billion per year.

The funds are sorely needed. World Bank calculations show that developing countries need an annual investment of about US$165 billion through 2030 just to supply electricity to their people. Of this sum, only about half is readily identifiable. On top of this US$80 billion gap, developing countries will need another US$30 billion per year to reduce their greenhouse gas emissions from the power sector alone and get on a low-carbon development path, and U$10 billion to US$40 billion more per year to adapt to the already inevitable impact of climate change.

A G8 commitment to the global carbon market will foster long-term financing beyond 2012. Such carbon finance can also tackle deforestation, which represents about 20 percent of the global carbon dioxide emissions causing climate change. A forest carbon facility can reward forest conservation as a means of protecting the climate while also preserving ecosystems and generating income for poor communities in developing countries. The World Bank is keen to work with partners to experiment with such a facility for avoided deforestation.

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