Investors want money donated by rich nations to the fund to back investment in low-carbon initiatives in the world's poorest countries
LONDON, March 21 (Reuters Point Carbon) – Investors want money donated by rich nations to the U.N.’s Green Climate Fund (GCF) to back investment in low-carbon initiatives in the world’s poorest countries, which they said is necessary to mobilise cash to fight climate change.
In a joint submission to the GCF's board, which met in Germany last week, lobby groups representing companies managing over $900 billion claimed they can invest up to five times the amount governments pledge, provided public money is used to guarantee a return on investor cash.
The groups urged the GCF to provide feed-in tariffs and loan guarantees for renewable power generation, price guarantees for projects to reduce deforestation and to offer a minimum price for CO2 offsets.
“Most of the tools we have recommended don’t rely on there being a market for the thing they are doing,” said Miles Austin, chair of the Climate Markets and Investment Association (CMIA), one of the groups behind the submission.
At U.N. climate negotiations in 2010, rich nations agreed to raise $100 billion per year by 2020 to help poor countries reduce emissions and cope with the effects of rising temperatures.
The GCF was created to channel the money, but weak economic growth has dampened governments’ willingness and ability to contribute, shifting part of the burden to private investors.
“Given the fiscal challenges that many donor countries face following the financial crisis, closing the investment climate gap in developing countries is likely to be possible only with investment and finance from private sector sources,” the submission said.
It added the GCF needed to offer "financial instruments that create a more attractive risk-reward equation" because low-carbon projects in developing countries typically involve higher risks and costs than other investments.
Karen Orenstein of environmental group Friends of the Earth questioned the private sector’s involvement in the fund and said the majority if not all of the cash should come from public funding.
“Private finance is not a silver bullet. And it will be especially difficult to deploy in low and lower middle income countries… Many areas in need of funding, especially adaptation, will not turn a profit,” she added.
CDM LESSON
Over the past eight years the U.N.’s Clean Development Mechanism (CDM) has raised more than $215 billion for projects to limit emissions in the developing world.
But the CDM’s critics said the cash failed to reach the poorest areas, with 23 carbon-cutting installations in richer states such as and China and South Korea claiming more than half of all offset credits issued under the scheme to date.
Despite U.N. and EU efforts to focus new CDM investments in poorer regions, developers have little incentive to start new projects after ballooning supply from existing schemes and unrealised demand for the offsets have caused prices to crash some 97 percent in three years to just 30 cents.
NEW IDEAS
EU nations have pledged around $8 billion in climate finance for 2013 but it is unclear how much of this will go to the GCF, and talks on other possible sources of cash have stalled.
In 2010, a high-level U.N. advisory group suggested taxing emissions from global aviation and shipping could generate as much as $10 billion annually, while the same amount could be raised by raiding fossil fuel subsidies.
Three years on and countries have failed to adopt any of the proposals, potentially leaving the GCF without any funds to deploy.
The GCF board is tasked with deciding rules on how and where money will be spent, and will have at least two more meetings this year to prepare the fund for receiving cash by November.
The next board meeting will take place in June in South Korea, the fund's eventual headquarters.
The joint submission was made by CMIA, the EU Corporate Leaders Group on Climate Change, the International Emissions Trading Association and the Investor Group on Climate Change.
By Susanna Twidale – susanna.twidale@thomsonreuters.com
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