By Center for Environmental Public Policy
The Paris Climate Agreement covers 98 percent of the world’s greenhouse gas emissions. Its adoption in 2015 at the United Nations Framework Convention on Climate Change and recent ratification create an unprecedented opportunity to address our most pressing environmental threat. Seizing that opportunity demands mobilizing trillions of dollars in public and private finance to implement the transformational climate policies required to achieve the Paris goals and sustain our communities and economies.
On October 18th BERC and the Center for Environmental Public Policy (CEPP) at the Goldman School hosted an engaging, provocative panel exploring the financial details of this immense undertaking. Over 50 students, faculty, and members of the Berkeley community attended this BERCShop on “Mobilizing Finance for the Paris Climate Agreement.”
Ned Helme, Director of CEPP, set the stage by outlining the details and significance of the Paris Agreement. There was unprecedented attendance at the negotiations by Presidents and Prime Ministers and 188 countries submitted climate plans covering 98.6 percent of global emissions. In a unique departure from the typical trajectory of these climate negotiations, the agreement got stronger as the negotiations neared their close, landing on the aspirational goal of holding warming to 1.5 degrees Celsius. National commitments and plans are a great start and have surpassed expectations, but now we need to operationalize them into specific policies and investment strategies and get private sector finance on board.
Keynote speaker Marcene Broadwater, Global Head of Climate Strategy and Business Development at the International Finance Corporation (IFC), brought her expert perspective on the key question of mobilizing private sector finance to this end. First, she established the frame of urgency that drives this work. This is a “save-the-world” effort and we are at the cusp of major changes that require all of us to do our part. We have to become carbon neutral by the end of the century. This is a major transformation and the Paris Agreement doesn’t get us where we need to be on its own.
IFC, which is part of the World Bank Group and a development bank focused solely on the private sector, is looking for solutions by “following the carbon.” Marcene identified a Climate Smart Transformation Framework founded on right-sized policy support, strategic public funding, and a sustainable private sector committed to sustainability. Policy must give clear, stable directions to the private sector and unleash the market by promoting transparency—a big opportunity here is the built environment because developing countries like India are set to double their existing building stock by 2050. New buildings will are involve extensive finance and represent long-term, locked-in decisions about emissions pathways.
Strategic public funding must catalyze private sector money to avoid permanent reliance on subsidies in order to accelerate renewables. Given the level of investment required, public finance cannot carry this load. A sustainable financial sector needs to close gaps in financing mechanisms and create new financial tools to address the unique nature of clean energy assets, such as high up-front costs combined with low operating costs.
To contextualize this work we turned to Professor Catherine Wolfram, Cora Jane Flood Professor of Business Administration and Faculty Director of The Energy Institute at Haas. Dr. Wolfram pointed out that the government regulates markets, finances research and development, and controls monopoly power while the private sector is best at innovating, and at times this includes failing and learning from those failures. IFC’s commitment to increase investments in innovation is encouraging because renewables costs still must be driven down and new technologies need to be commercialized. Based on her research in developing countries, Professor Wolfram cautioned against an over-emphasis on rural electrification as a strategy to moderate emissions growth in the developing world and highlighted concerns about measurability of residential energy efficiency efforts, while feeling more bullish on industrial energy efficiency opportunities.
Steve Herz, Senior Attorney in the Sierra Club’s International Climate Program, rounded out the panel by discussing his work on the Green Climate Fund (GCF). The GCF was a key demand of many countries as part of commitments from developed countries to support the adaptation and mitigation needs of countries still developing. What is unique about the GCF is that it prioritizes programs which demonstrate recipient country ownership and produce both climate and sustainable development benefits. The GCF has a mandate to favor projects that shift the paradigm both in terms of policy change and financing approaches. The projects it has selected so far have often been more business-as-usual in nature and have not included enough innovative policy components. However, it is important to note that the GCF has recently begun to encourage developing countries to collaboratively develop projects and programs linked directly to implementing the countries’ Paris targets.
This CEPP and BERC-sponsored forum is the first of several planned for this academic year that will probe the intersection of policy formulation and financial engineering that will be required to make the Paris Climate Agreement a reality.