New climate economy begs for investments in developing countries

New climate economy begs for investments in developing countries

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Date: 6th May 2016
Type: Feature
Organisation: LEAD Pakistan
Tags: carbon, cities, adaptation, economic development, Nationally Determined Contributions, renewable energy, specific financing mechanisms

Ali Tauqeer Sheikh, CDKN's Regional Director for Asia, considers how the confronting the impacts of climate change and seizing the opportunities of a green economy pervade almost every aspect of development in the years ahead.

The Paris Agreement is a historic milestone. The world united for action as 174 countries signed the agreement on the Earth Day. Having signed the first major multilateral agreement of the 21st century, the world now needs to prioritise its implementation – and grasp the opportunities offered by low carbon, climate compatible development.

The new opportunities that this agreement offers can accelerate economic growth if actors pursue inclusive and pro-poor development. Investments in climate resilience, adaptation and mitigation at local levels will open new fronts for long-term sustainable growth. The transition to a climate resilient and low emissions economy in developing countries can send signals to entrepreneurs, businesses, and domestic and international investors. A focus on green sectors can create green jobs and generate better trading opportunities with the least developed as well as with low and high middle-income countries in Asia, Africa and Latin America.

Effective implementation of the Paris Agreement, or more specifically, the Nationally Determined Contributions (NDCs) begs for four areas of action by national and subnational governments, including cities and municipalities. I summarise these as follows:

1. Climate change is an economic growth issue. It cannot be left to the global climate modellers or international negotiators alone. The cost of economic development is accelerating because of the losses and damages that are triggered by climate change. A recent CDKN study showed that if global temperatures are not locked at 2 degrees, it will be hard for the countries in the regions to meet the Sustainable Development Goals. The policy-makers, therefore, need to now look at economic development through a climate change lens. Nothing is more central to climate compatible development than timely investments in the water-agriculture-energy nexus – i.e. in governance and wise management of the scarce land and natural resources that provide vital food, water and energy services for our societies. Relevant line ministries that are mainstreaming climate issues will encounter the increased pressure of trade-offs among natural resource uses that climate change implies.

National economic planners need to step up their game on climate mainstreaming and accessing international climate finance: the leadership for these economic actions needs to come from the ministries and departments of finance, economic, and the planning and development – and not just the ministries of environment or climate change. They need to work closely with the world community to access international climate finance in pursuance of climate compatible development. The architecture of international climate finance is complex, delicate and still evolving. The ministries of environment do not always have the capacity or capability to deal with this maze. The ministries of finance and planning in most developing countries perhaps still do not know that the finances potentially available from such windows as the Adaptation Fund, Climate Investment Funds and now the Green Climate Fund have remained under-accessed. What perhaps they also do not know is that the void created by their national failure to get accreditation is being increasingly filled by international agencies and multilateral institutions.

2. Climate change is a subnational level issue. It has been left to the central governments or their foreign ministries for way too long. Developing countries need to stop claiming that their participation in global climate negotiations constitutes their domestic action agenda – it must be so much more. Municipalities and other subnational entities, administrations and governments need to develop their own climate change action plans and strategies. Some may even design and operate their own climate and green growth funds, perhaps in collaboration with the private sector. They also need to set up intermediary institutions designed to access international climate finance and reach the informal human settlements in urban areas (estimated to be about a billion people globally), or other vulnerable and climate-exposed poor and marginalised communities. The subnational level peculiarities are too important to be overlooked in bridging the adaptation or emissions gaps.

Local communities have multiple, complex and sometimes unique climate challenges ranging from uncertain local weather patterns to extreme weather events such as heatwaves. South Asia, with the unenviable challenge of lifting a billion people above the poverty line, is now also faced with such daunting challenges as the changes in precipitation trends, glacial melt, recurring droughts, frequent flooding, depleted groundwater and increasing cyclone threats. Only local level mitigating actions or budgetary allocations for adaptation and climate actions can bring these challenges to the forefront and tackle them effectively. Local government budgets will need to have, sooner rather than later, the line items and allocations for climate-related spending at the municipal, city and district and sub-district levels.

3. Climate change is an energy access issue. Private sector companies, cities, and even countries are announcing their plans to become carbon neutral. The shift is visible and irreversible. The share of developing countries in global emissions is miniscule but as responsible citizens of the global community, these countries have exercised a remarkable moral leadership by being the first ones to support and sign the Paris Agreement. They will need to build more international pressure by taking even bolder steps. Most of these countries are struggling hard to meet their present energy demand, let alone providing reliable and clean energy to their growing populations and the needs of their economic growth rates to which they aspire. Luckily, credible alternative sources of energy have become viable. Homes, commercial units and industrial enterprises all are switching to off-grid renewable solutions. In addition, many countries are introducing reverse metering, whereby the energy generated by renewable sources privately is sold to the national grids, reducing the demand to generate more energy centrally. This would be a good way to attract individual and private investments in many countires and regions, provided incentive regimes are introduced in their annual budgets and plans.

In most developing countries, particularly in Asia, the provision of equitable access to energy is a far more serious challenge than seeking investments for energy generation and transmission lines. Countries can plan a transition towards renewables, instead of living at the mercy of fluctuating oil prices in the international market, or dirtying their hands with coal, or leaving large segments of their population in the dark ages without electricity. It is becoming increasingly evident that energy from renewable resources can be produced in abundance at competitive rates. As the subsidies to the fossil fuel industries are phased out, the energy from renewable resources can help meet -- substantially -- domestic energy demands but it can also pave the way for renewable energy trade and regional corridors. The low carbon development pathway can therefore accelerate domestic and regional energy trade and investment.

4. Climate change is a disaster risk reduction issue. Most developing countries are ill prepared to cope with climate induced disasters. They are vulnerable, and tend to be disaster prone. Clearly, they need to make investments to reduce the vulnerability of their population to climate-induced disasters, in coastal areas as well as in their deep hinterlands and mountain ranges.

The Paris Agreement offers an opportunity to rectify and move from simple disaster management to investing systematically in risk reduction. This will require revisiting the roles and responsibilities of existing institutions at all tiers of governance. There is a case for an annual allocation in their budgets for reducing disaster risks. Countries that invest a percentage of their national budgets on disaster risk reduction are more likely to be better equipped to tackle the climate challenge. Obviously, the countries that consider themselves more vulnerable will need to invest a higher percentage of their annual budgets. This can help start a process of undertaking climate resilience audits of their infrastructure.

Climate change is a very, very long-term threat. Luckily, about 70 percent of the infrastructure in the developing countries has yet to be constructed and therefore it is an opportunity to proactively undertake a climate resilient pathway. There is no better use of this allocation than for it to be directly invested in their neighbourhoods and communities to reduce climate vulnerability.

With expected ratification of the Paris Agreement before the G20 meeting in September in China, we have a historic opportunity to seize and invest in the new climate economies in developing countries, for an accelerated journey on the climate compatible development pathway.



Image: Pakistan, courtesy DFID.

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