Solutions discussed at COP27 include different sizes and structures for public-private partnerships and reforming international financial institutions, usually with an eye to minimizing risk for private investors. Local policies and regulations in developing nations also need to create an investment-friendly environment.
A report from the Independent High-Level Expert Group on Climate Finance launched at COP27 outlines existing examples of partnerships between businesses, governments and foreign investors intended to scale up private capital and other solutions that reduce capital costs.
Private investments will be crucial to boosting clean energy development around the world. But Aboulmagd conceded private capital is not “always easy or always readily available.”
The private sector could “definitely be encouraged to do much more, but sometimes people talk about how much the private sector could do as if it would have a magic wand,” Jonathan Walters, energy and climate economist and former World Bank director, told Cipher. “The private sector will invest where they see risks being sufficiently mitigated.”
Led by the United States climate envoy John Kerry and Mia Mottley, and the prime minister of Barbados, calls are growing across both the developing and developed worlds to reform how multilateral development banks work.
On Tuesday, Kerry announced he wants to work with other countries to create a bank reform plan by April.
It’s important to look at the “international financial architecture to make sure it’s fit for the future,” Frans Timmermans, European Commission executive vice-president, also said Tuesday.
Reforms would allow institutions, such as the World Bank, to take on more risks with the projects they choose to support. This change would give investors needed guarantees and unlock more money for private capital projects, Walters said.
Tackling developing countries’ rising debt and offering more concessional, below market rate loans are other reforms under consideration.
In addition to changing how they invest, multilateral institutions also need more cash coming in, something World Bank leaders called for during COP27.
“Developed countries cannot keep avoiding the questions of contributing more money towards multilateral development banks,” said Walters. “The world is going into a deeper and deeper global economic crisis; the demand for what these banks can offer will increase as a result of that.”
Other potential solutions are “just energy transition partnerships,” like the $8.5 billion deal South Africa struck with the United Kingdom, the U.S., France and Germany to shift away from coal. The International Energy Agency said such partnerships have “immense value” drawing in more investors.
On Tuesday, Indonesia announced a $20 billion dollar deal with the G7 countries and other internal partners, based on the South African model, meant to help the country shut coal power plants and ensure its emissions peak by 2030.
Similar multi-billion-dollar offers are being negotiated with Vietnam and India.
The U.S. promoted another possible solution at COP27: carbon offsets. The plan would raise cash for renewable energy projects or other climate initiatives in developing countries by selling carbon credits to companies wishing to offset their polluting emissions. Representatives from other countries had mixed reactions, with critics worrying the scheme removes incentives to tangibly reduce emissions.
Within developing countries, having the right policies in place that offer investors predictability is important, Tariye Gbadegesin, managing director and CEO of ARM-Harith Infrastructure Fund said during a COP27 side event.
A country’s regulatory framework also needs to encourage the scale-up of clean technologies, she said, to ensure a successful project doesn’t become a one-off.
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