Meeting global climate and environmental goals will require the greening of growth, while converting existing carbon-intensive assets.
The Organisation for Economic Co-operation and Development (OECD) estimates that our current path will add a further 3 billion people in developing countries into the middle classes within 20 years.7 This will create an unprecedented rise in demand for energy, water, transport, urban development and agricultural infrastructure. Meeting this demand while respecting planetary boundaries will be challenging; under current policies, water use is predicted to increase by 55% between now and 2050.8 Agricultural production will need to double in the same time span, leading to large-scale deforestation unless cultivation practices change. Energy demand, if left unimpeded, will rise by 85% by 2050,9 leading to a 4–6°C increase in global average surface temperatures. This will bring further extreme heat-waves, hurricanes and life-threatening rises in sea levels. Damage from Hurricane Sandy alone, which devastated portions of the Caribbean, mid-Atlantic and north-eastern United States in October 2012, is estimated to have cost more than US$ 60 billion, while more than 250 lives were lost .10
Greening growth can alleviate the risks from future climate change and environmental degradation, and progress is being made. In the transport sector, the fuel efficiency of road vehicles has more than doubled since the early 1970s.11 In 2011, global investment in the renewable energy sector hit another record; up 17% on 2010 to US$ 257 billion, a six-fold increase from 2004. Investment was 93% higher last year than in 2007, the year before the global financial crisis.12 This growth was driven in part by government policy support that led to rapid decreases in the costs of renewable energy. These policies have come under review due to the current fiscal crisis, however, creating volatility in the global clean-energy markets in the past year. Markets are beginning to consolidate and prices are stabilizing,13 with the industry showing signs of restructuring.
Further progress has been made in the water and forestry sectors. Since 1990, more than 2 billion people have gained access to improved drinking water sources – an important achievement for one of the Millennium Development Goals – to reduce by half the proportion of people without sustainable access to safe drinking water and basic sanitation.14 In the forestry sector, the United Nations Environment Programme (UNEP) estimates that more than US$ 64 billion is invested annually in forest protection and reforestation.15
Despite signs of progress, significant barriers still exist to securing the required scale and pace of investment in the transition to green growth. The continuing economic crisis in Europe and the United States, with its rippling global impacts, discourages business and governments from developing longer-term outlooks. Perverse incentives for carbon-intensive growth, such as fossil-fuel subsidies, prevent green technologies from gaining competitive advantage. The revolution in shale gas, while environmentally beneficial compared with coal, places downward pressure on carbon-intensive energy sources. This has the effect of making renewables comparatively more costly and less attractive investments. Furthermore, green technologies often cost more at the outset or are more risky investments than conventional alternatives, and this has limited the scope for their expansion into areas where they are needed most. Policy incentives provided by governments for clean-energy development have in some instances been removed, which has resulted in new policy risks for green-technology investment.
Rising costs from climate change are affecting economic forecasts. Recent storms demonstrate that conventional, business-as-usual investment trends may reduce economic resilience in the future by locking in a carbon-intensive path that leads to costly environmental damage and adaptation costs in the long term.16 Greening global growth requires a combination of strategically allocating limited public resources, public support to promote private-sector engagement, and increasing investor confidence. It also necessitates a change in future investment priorities and policies, as well as decarbonizing existing and planned infrastructure through carbon capture and storage (CCS) and energy efficiency. Current country emission reduction targets and climate finance pledges fall well short of the required level of action to secure green growth and limit temperature rise to manageable levels.17
Government leaders recognize these challenges and have incorporated green growth as an important theme for the G20 and other international processes. At the 2012 G20 Summit in Mexico, the Leaders’ Declaration referenced a number of green growth recommendations and welcomed the creation of the Green Growth Action Alliance to advance the green investment agenda (see Box 1).
Box 1: B20 Task Force on Green Growth: Recommendations from the 2012 B20 Summit in Los Cabos, Mexico
The B20 Task Force on Green Growth proposed five priority actions:
- Promote free trade in green goods and services: Initiate trade liberalization on sustainable energy products and services to eliminate tariffs, local-content requirements and other non-tariff barriers, and to coordinate industrial and technical standards. Such arrangements will create a tangible, positive incentive within the international trading system to develop and expand the use of green-energy goods and services, helping to accelerate progress on mitigating greenhouse gas emissions while promoting economic growth, access to energy and energy security.
- Achieve robust pricing of carbon: Ensure a carbon price that is high and sufficiently stable to change behaviours and investment decisions. This will strengthen incentives to invest in economically and environmentally sustainable technologies. G20 leaders should ensure that national targets and policies are ambitious enough to create consistent international demand for carbon units and provide an essential foundation for an international carbon market.
- End and redirect inefficient fossil-fuel subsidies: Develop national transition plans to phase out inefficient fossil fuel subsidies within the next four years and consider redirecting a portion of such subsidies to ensure access to energy for the poorest and to other public priorities, including green infrastructure investments. This will reduce fiscal imbalances, increase real incomes and reduce greenhouse gas emissions and the overall cost of mitigating climate change.
- Accelerate low-carbon innovation: Use revenues from carbon pricing measures to increase support for research, development, demonstration and pre-commercial deployment of low-carbon technologies by pooling international efforts. This will underpin innovative resource- and energy-efficient solutions, increase competitiveness and create business opportunities to drive long-term economic growth.
- Increase the leverage of private investments: Scale up risk mitigation and co-investment funding structures to help close the infrastructure financing gap. G20 leaders should call on sources of public finance to move from a project-by-project approach to a portfolio one to ensure there is support for initial project and programme development.
Aims of this report
This report is a first step by the Green Growth Action Alliance to deliver on the G20 Leaders’ request. It aims to provide a common point of reference to guide policy-makers, financial institutions and investors as they seek to better understand, and address, the global gap in green investment. This report documents and synthesizes the best available green investment data, research and case studies from a number of leading organizations, including Bloomberg New Energy Finance, the Climate Policy Initiative, the International Energy Agency, the Organization of Economic Cooperation and Development, the United Nations Environment Programme, the World Bank Group and the World Resources Institute, and provides important messages for different groups of stakeholders. New analysis is also presented on clean-energy asset finance flows, the findings of which can be used to guide investment decisions and priorities in other sectors.
Policy-makers and development financial institutions can use this report to:
- Develop a common view on global flows of green investment in key sectors
- Analyse the gap between business-as-usual investment levels and the amounts needed to address climate change and other environmental challenges
- Identify successful, replicable interventions that unlock private finance with targeted public policies and public finance
Investors can use this report to:
- Identify the leading green investment sectors and regions
- Demonstrate success in obtaining attractive returns from green investment
- Suggest mechanisms that target public finance and maximize private investment