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Climate Deal Needs Enough Public Financing

Jomo Kwame Sundaram is the Coordinator for Economic and Social Development at the Food and Agriculture Organization and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

ROME, Dec 3 2015 (IPS) - Investing in a low carbon infrastructure, particularly renewable energy, is key to addressing climate change. The really big investment challenges are in the developing world where access to modern energy services is far below what is needed to achieve the Sustainable Development Goals; indeed, almost two billion people still lack access to electricity.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

Globally, more than 30 million tons of oil equivalent are consumed in the form of primary energy every day, equivalent to 55 kilowatt hours (kwh) per person per day. On average, rich countries consume more than twice the average while most emerging market economies consume less than a third of what is consumed in developed economies. For many developing countries, the figure is well under 20kwh, and China is still well below the global average.

Raising income levels in poorer countries will require closing these massive energy gaps. The big challenge is to do this cleanly.

The threshold for energy sufficiency can be established at around 100kwh per capita per day. Up to this level, there is a very strong correlation between increased energy consumption and achieving the Sustainable Development Goals. At current prices, between 10 and 20 dollars per day are needed to buy the requisite energy services. But spending 10 dollars per day on energy services would exhaust the average incomes of even middle income countries such as Angola, Ecuador and Macedonia. This takes the challenge well beyond the ‘bottom billion’ or less living below the World Bank’s recently revised $1.90 per capita per day poverty line.

Today, coal and some large hydroelectric dams are the only sources that generate energy at sufficiently low cost. Consequently, while the only way to achieve sustainable development in the face of accelerating climate change is with an energy infrastructure built around renewable energy (of which the most significant are probably solar power, wind and biofuels) as well as carbon capture and storage, these are currently still unaffordable options. Without subsidies, modern energy would remain beyond the reach of poor families and communities for generations to come.

Currently much touted market-based solutions run the risk, particularly if insufficiently regulated, of actually working against sustainable development objectives because they seek to raise energy prices to make renewable energy more attractive to private investors. Instead, what is needed is a strategy that will significantly reduce the cost of renewable energy services.

The most promising option is a massive public investment push, coupled with appropriate subsidies to offset high initial prices in the short term. If targeted at the most promising technology options (e.g., solar and wind), such a strategy would trigger an early cost write down through innovation and scale economies, giving the private sector clear and credible signals, and encouraging energy efficiency.

The main constraint to such a big push is access to predictable and affordable finance, particularly where domestic markets are small. As their carbon-fueled economic prosperity has brought us to the brink of climate catastrophe, the onus is on rich country governments to fund the big push into clean energy sources in the developing world. So far, they have not risen to the challenge; despite commitments made at Kyoto, before Copenhagen in 2009 and elsewhere since, the resources for climate change adaptation and mitigation in developing countries remain paltry.

Supporting a big push into clean energy services in the developing world will, almost certainly, exceed the Marshall Plan which committed one per cent of US annual GDP to finance European reconstruction after World War Two, equivalent to well over 150 billion dollars today. This time, the onus should not fall on one country alone, and a broader mix of additional financing sources will be needed to fund the required public investment programmes in energy efficiency, renewables and forest management.

A range of financing instruments is now on the table, from green bonds to international taxes on financial transactions and air travel. But scaling-up multilateral support will require an overhaul of international finance, particularly when the energy challenge facing developing countries is combined with the need for adaptation investments to limit the growing damage they face due to rising global temperatures.

Establishing a viable new ‘framework for climate finance’ remains a pressing challenge despite the establishment of the Climate Fund at the Durban Conference of Parties (CoP). The scale of the challenge to avoid catastrophic climate change means that addressing it cannot be delayed and short-changed anymore, as it has been so far. It will be key to restoring trust to ensure that the deal to be struck in Paris later this year will take us closer to sustainable development and climate justice.


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