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Low-income green economies woo private capital, more needed - experts

Source: Thomson Reuters Foundation - Fri, 4 Apr 2014 08:45 GMT
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A farmer naps in a barley field next to an electricity power plant at the Ashegoda wind farm near a village in Mekelle, Tigray, 780 km north of Addis Ababa, Oct. 25, 2013. REUTERS/Kumerra Gemechu
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ADDIS ABABA (Thomson Reuters Foundation) - Business should play a bigger role in financing renewable energy and green growth in low-income countries, to help build a buffer against climate change, experts told a recent conference in Ethiopia’s capital.

Nanki Kaur, a senior researcher with the climate change group at the London-based International Institute for Environment and Development (IIED), told Thomson Reuters Foundation the private sector isn’t yet doing enough, partly due to issues around the viability and costs of pursuing green economy strategies.

“The green economy is expensive and needs high upfront investment,” said Kaur on the sidelines of the conference. “When it comes to the role of the private sector in climate adaptation and resilience, most countries are asking serious questions about how they can have the private sector make a meaningful contribution.”

Schemes are needed that can benefit the majority of the population in developing countries, not just the better-off groups in society, she added.

The conference in Addis Ababa in late March shared the experiences of seven nations in moving towards low-carbon, climate-resilient development. It was attended by government and private-sector policy makers from Ethiopia, Nepal, Bangladesh, Gambia, Kenya, Rwanda and the island of Zanzibar (part of Tanzania).

Kaur said countries have varied approaches to building a more climate-resilient economy. In some cases, the private sector is seen as commercially oriented and hence not an attractive partner, while in others it is viewed as a welcome contributor to green growth, even if it might be lacking capacity.  

One example of a major public-private venture is the recent signing by the Ethiopian government and the US-Icelandic firm Reykjavik Geothermal of a $4 billion agreement to construct a 1,000 megawatt (MW) geothermal project over the next decade.

Ethiopia, which plans to become a carbon-neutral, middle-income country by 2025, estimates it has the potential to generate up to 5,000MW of electricity from geothermal sources, in addition to wind and hydropower projects now on-stream or under construction.

BANGLADESH BANKS

Sheikh Moinul Islam Moin, an official at the Bangladesh ministry of planning, told Thomson Reuters Foundation that his country – one of the least developed group of nations - is taking on the challenge of boosting private investment in green growth.

“We’ve devised a mechanism called ‘green banking’ from the central bank, which tells every commercial bank to give incentives to invest in green sectors like renewable energy, such as preferential loan agreements, ” Moin said at the conference.

In addition, the government of Bangladesh has embarked on building climate-resilient infrastructure, which is intended to last for at least 100 years, in the country’s coastal belt to counter rising sea levels and reduce climate impacts. It has invested $10 billion for this and similar projects to reduce climate-related disaster risk, and has also introduced plans to curb greenhouse gas emissions.

Despite the call by IIED’s Kaur and other conference participants for governments and the private sector to make green economy strategies a higher priority, they also acknowledged difficulties in trying to mesh development needs and environmental concerns.

Moin said Bangladesh’s reliance on the polluting textile and leather industries for realising its plan to become a middle-income country by 2021 run against following a green economy path.

But the conference also highlighted positive examples. Rwanda has created a special mechanism to mobilise international finance for climate change projects. And Nepal has developed a climate change budget code that helps integrate and track climate-sensitive spending in the national budget.

FINANCE GAP

IIED’s Kaur wrote in a blog post after the Addis Ababa meeting that policy makers there had identified three steps to boost investment in climate-resilient and green economy measures – crucial if they are to achieve their goals.

Rwanda, for instance, estimates it faces a financing gap of approximately $100 million per year over the next 20 years for clean development investments, Kaur noted.

First, these pioneering, low-income countries have started to recognise the roles of financial intermediaries, such as multilateral development banks and national financial institutions, in mobilising and disbursing climate finance.  

There is also a trend towards establishing national climate change funds like those set up in Bangladesh, Ethiopia and Rwanda, which can help manage money from a range of sources to better effect.

Secondly, countries are using economic and financial instruments to target different investors and investment needs, such as power purchase agreements and feed-in tariffs in Ethiopia and Kenya which aim to secure and enhance financial returns from high-risk investments in renewable energy.

Insurance and guarantees to reduce risk to investors are another option, alongside debt and equity finance which can unlock private capital.

Thirdly, policy makers are focusing on financial planning systems, using their existing expertise in finance ministries or agricultural development banks, for example.

“They are not just sitting waiting for money to flow. They are setting up the systems and institutions that will create new money from old,” Kaur wrote.

(Editing by Megan Rowling)

E.G. Woldegebriel is a journalist based in Addis Ababa with an interest in environmental issues.

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