SPECIAL COP20 – Governments should take the lead on low carbon finance, experts in Lima say

Climate finance is one of the major topics being discussed at COP20, especially given the ongoing funding pledges to the Green Climate Fund that have characterized the past few months.

In line with this focus, the Climate Policy Initiative (CPI) hosted a side event in Lima on “Innovation and Investment: Drivers of Low-Carbon Economic Growth for a New Climate Economy”. The panel included prominent names in climate change, including Félipe Calderόn, Nicholas Stern, Dimitri Zenghelis and Tom Heller. Government, business and academia were represented.

According to the session’s summary circulated by CPI, the panel examined the problems surrounding the funding of projects that address climate change mitigation and adaptation (climate finance) and, more significantly, discussed the path forwards. The panel emphasized that climate change action and economic growth are not contradictory goals. In particular, Tom Heller, Executive Director of CPI, emphasized that low economic growth is not the answer to climate change. Rather, it is about channeling investment to change the way we produce.

The session indicated that both private and public sectors must invest in low carbon options. Nevertheless, the public sector must lead the way by creating the right incentives and investments to facilitate the innovation that will drive economies to a low-carbon future. “Policy works. It’s clear that renewable energy and energy efficiency have reduced emissions,” said Tom Heller.

There is in fact a strong incentive for governments to do this because it is they, rather than investors and corporations that face the most stranding risk. Indeed, governments own 50-70% of global oil, gas, and coal resources, according to recent studies by CPI. The panel, as well as many others at COP20 more generally, emphasize that the action must be taken now. The longer governments take to promote low-carbon innovation, the greater the eventual cost to the environment. As Dimitri Zhengelis is reported to have pointed out in the session’s summary document, “the cost of going green is psychological. If you persuade enough people the cost will go down”.

While governments at COP20 are negotiating to lay the groundwork for a strong climate agreement to be reach in Paris next year, the panel points out that such investment in innovation is necessary. Further, it may not be so very overwhelming. In fact, governments may only need to promote low-carbon innovation for a limited period of time, just enough to kick-start the low-carbon pathway. After that, the economy will be locked-in to that pathway and there will be no need for further regulatory intervention.
That intervention is, however, needed now. The right policies must be put in place to maximize the financial benefits of a low-carbon transition. Savings and gains can both be made from this transition. For instance, CPI calculated that transitioning to a low-carbon electricity system would bring around $1.8 trillion savings to the global economy between 2015 and 2035.

There are various paths open to governments. Carbon pricing must be introduced by governments to spur innovation. Policies must also be developed that not only encourage low-carbon innovation, but also address demand-side management. The panel notes that addressing both policy and demand is important in countries such as India.

As such, the pressure is on for governments. Even so, it is encouraging to see that there is support from industry for policies that incentivize low-carbon innovation. Paul Polman, Chief Executive Officer from Unilever, is seeing the opportunities that a low-carbon pathway offers, asking “We have the opportunity to lift many people out of poverty. Don’t you want to be part of that?”.


(Image: Luis Miguel Castilla, Ministro de Economía y Finanzas, Peru; Felipe Calderón, former President of Mexico and Chair of the Global Commission on the Economy and Climate; Manuel Pulgar-Vidal, Ministro del Ambiente, Peru, and President of COP20/CMP10, during Lima Climate Finance Week, 2014. Photo credit: Ministry of Environment of Peru/Flickr)