Innovative Financial Mechanism for Cost Sharing of Green Growth between Developed and Developing Countries: Targeting at Clean Technology

Transcription

1 Innovative Financial Mechanism for Cost Sharing of Green Growth between Developed and Developing Countries: Targeting at Clean Technology Prof. ZOU Ji and Dr. FU Sha Program of Energy and Climate Economics (PECE) at Renmin University of China Wold Resources Institute OECD Global Forum on Trade, Chengdu, October 14-15,

2 2 Content What are the linkage between financing and green development? Why innovative financial mechanism is needed? Existing finance sources and vehicles: climatefriendly technology as an example; Incremental investment and costs for abating climate change; Leveraging: issues and scale; Innovative financial mechanism serving for development and transfer of clean technologies.

3 3 Source: IPCC, 2007

4 Gt CO2 CO 2 Emission Scenarios for China ,3 16, , ,6 6,8 7,6 11,4 8,2 8,8 9,2 7,9 9,5-66% 5,5-28% Source: UNDP China, 2010

5 Technology Road Map for Carbon Emission Reduction In China 不同技术领域减排潜力分布 GT CO 化石燃料替代 Fossil fuel switch CCS 核能 nuclear Reference 生物燃料 bio-fuel 可再生电力 renewable power 能效改进 energy efficiency EA Scenario Year 5

6 Incremental investment needs (1) Figure 1 World additional investment in the 450 Scenario relative to the Reference Scenario(Billion USD,2008) 6 Additional cumulative investment cost: almost $2 400 billion over and $8100 billion over ; Source: IEA, WEO 2009 Figure 2 China additional investment in the 450 Scenario relative to the Reference Scenario(Billion USD,2008) Additional cumulative investment cost: nearly $400 billion over and $1 700 billion over ,respectively as 17% and 21% of the global additional investment over the same time;

7 Incremental investment in China Annual incremental investment under EC,billion US$-2005 Annual incremental investment under EA,billion US$ Under EC scenario, the accumulative incremental investment from 2010 till 2050 would reach 9.5 trillion US$ Under EA scenario, the accumulative incremental investment from 2010 till 2050 would reach 14.2 trillion US$ Sources: UNDP China, 2010 and PECE,

8 Incremental investment needs (3) IEA s Estimation: about 240 Billion USD Annual increm ental invest ment, billion US$ PECE s Estimation: Billion USD Under emission abatement scenario, the accumulative incremental investment from 2010 till 2050 would reach 14.2 trillion US$ 减排情景下需要的增量投资 (10 亿美元,2005) 8 Huge Finance Gap!

9 Incremental cost in China Incremental cost under EC Incremental cost under EA 2020 scenario scenario Emission per capita t-co Emission intensity reduction (compared with 2005 level) Emission reduction Gt-CO (compared Incremental with cost BAU) (billion US$-2005) Reduction cost(us$-2005/t CO2) Percent of GDP (%) 1.2% 2.2% 2% 1.2% 2.2% 6% Cost of per household (US$-2005/ year) Source: UNDP China, 2010 and PECE,

10 Why innovative financial mechanism is needed? 10 The conventional financial flows based on market (via international investment and trade) are neither adequate nor correctly guided for addressing climate change and other environmental concerns; The existing international public financial mechanism, such as GEF and ODA, has not played a significant role in leveraging larger scale of private finance for green development; The central purpose of the reform of financial mechanism should target at innovation of clean technology and development of human resources and thus enhancing productivity; and New investment opportunities need to be created for implementing bailout plan in short term and shifting world economy into a sustainable pathway in long term.

11 Existing Finance Sources and Vehicles Stage of technology Sources Outside the Convention R&D and demonstration Deployment and diffusion Sources Under the Convention Deployment and diffusion Source of Financing Estimated avergage annual investment(billion USD) Pubic Funding 10 Private Funding 9.8 Private Investment 148 Expert Credit Agencies(ECAs) 1-2 Bilateral and Multilateral Sources 5-10 Philanthropic Private Sources(including NGOs, foundation and voluntary carbon 1 market finance) The Convention Financial Mechanism(GEF Trust Fund; SCCF; LDCF) Private sources leveraged by the Convention Financial Mechanism Kyoto Flexibility Mechanism(CDM,JI) Private sources leveraged by the Kyoto Flexibility Mechanism Total Source: Identifying, analyzing and assessing existing and potential new financing resources and relevant vehicles to support the development, deployment, diffusion and transfer of environmentally sound technologies. FCCC/SB/2008/INF.7

12 Leveraging: Issues and Scale Leveraging ratios vary significantly both inside and outside the Convention and by stage of technological maturity; For MDB, leveraging ratios average 1:4-5; GEF leverages much lower levels (1:0.67 in 2002) but leverages 1:6 public finance (host country and MDBs); CDM leverages 1:10; 12 If the leverage ratio is supposed as 1:8, according to IEA s estimation, the annual financial needs in 2030 for public funding is about 150 billion USD. Source: Identifying, analyzing and assessing existing and potential new financing resources and relevant vehicles to support the development, deployment, diffusion and transfer of environmentally sound technologies. FCCC/SB/2008/INF.7

13 Innovative Financial Mechanism serving for D&T&D of clean technologies Based on public private partnership (PPP); Public finance taking lead as seed fund, catalyst, and basis for providing for incentives to investors; Leverage private finance in market by providing incentives; Channeling and guiding three markets in environmentally friendly manner: carbon, capital, and technology. 13

14 14 Multilateral and Bilateral Technology Acquisition Fund (MBTAF) A PPP framework for financing D&D&T of ESTs may be feasible by linking public and private finance; Significant amount of public finance from developed countries should play a leading role in guiding and attracting private financial resources into D&D&T of ESTs; A special fund based on public finance from developed countries first need to be established and used to create incentives to private sectors through various policy instruments with desired impacts on capital, carbon, and technology markets; A range of financial instruments may be applied for financing D&D&T of ESTs by leveraging market-based finance; and Venture capital might be a typical form for private investment in ESTs.

15 1. X % of R&D budget 2. Y % of Revenue from energy and envir. taxes; and 3. Z% of Revenue from auction of carbon credits Proposed Financial Flow Chart Developed Countries Public Finance as the First Move According to UNFCCC principles MBTAF based on Public Finance from Developed Countries Guiding incentives tax exemption; subsidies; Guarantee; Insurance; carbon tax and cap & trade; Others 15 Leveraging Private Finance Capital market Carbon market Joint direct investment (e.g.,via venture capital) Technology Market for transfer and development of CSTs: R&D, Demo, Diffusion and Deployment

16 Potential Funding Sources Copenhagen Accord commits $30 bln for and $100 annually by 2020, understood as PPP based funds; The major sources of the seed fund would be derived from the public sector of developed countries; It can be an X% of developed countries fiscal budget; E.g.. Suppose the fund is derived from the fiscal budget and X% is 0.5%, take OECD countries as an example, the total amount of the fund in 2005 would reach $61.04 billion; It can also be X% of environment and energy taxes, revenue from the auction of carbon credits and the public R&D budget. Larger scale of private/business funds will be leveraged in markets in both developed and developing economies. 16

17 Main areas supported by the funds 17 Supporting joint design, research and development or large-scale demo of the ESTs; Offering incentives and compensating the incremental cost to developing countries incurred by actions towards addressing climate change; To launch a series of capacity building activities that mainly address the development of human resources, the construction of COEs, the removal of market barriers, and institutional and policy development.

18 Policy Instruments based on the public funds(1) Subsidies in R&D for invention and demonstration of identified ESTs in prioritized areas; Insurance to curb risks of investment in D&T&D of new ESTs; loan guarantee or subsidies for exporting and diffuse ESTs; Direct investment in D&T&D of ESTs as share holder in normal forms or via venture capital investment; Investment in financial products related to D&T&D of ESTs by holding stocks, bonds and other potential financial products. 18

19 Policy Instruments based on the public funds(2) Investment in such infrastructure as information, transaction platform, monitoring and enforcement system; Expenses in capacity building in developing countries with development of human resources as a priority; Government purchases of ESTs; permits, compulsory licensing for patented ESTs, etc; and Others. 19

20 Policy Instrument Corresponding to Stage of Technological Cycle Policy Instrument R&D Demonstration Diffusion Deployment Grants/Subsidy Grants/Subsidy Grants/Subsidy Stage of Technological Cycle Angel Investor Venture capital Equity Incubator Soft Loans Guarantees Credit lines Mezzanine Debt Insurance Carbon Carbon Financial Products 20

21 Governance of the Fund 21 The use of the fund should be decided by developing countries according to the countries-driven principle; Reform might be based on the manner in which the existing GEF fund is managed, simplifying the procedures of approval, improving the efficiency of fund use, and creating a relationship with private finance via capital and carbon market; Policies related to fund use and management should be decided by a body under UNFCCC and its affiliated strategic planning committee and technical panels; The main investment area, focus, direction, principle and strategy of the fund should be decided by the COP of UNFCCC, but the decision-making authority for a detailed program may be allocated according to the amount of capital that developed countries contributed; and A series of professional trustees might be endorsed to manage the operation and implementation of the funds.

22 Thank you for your attention! Prof. Zou Ji, World Resources Institute Renmin University of China OR 22