Friday, December 26, 2014

Green Bonds May Help Limit Effects of Climate Change

A financing mechanism called a green bond is a new strategy for funding investments that may lessen impacts of climate change. (Credit: Curt Carnemark/World Bank)  Click to Enlarge.
A few years ago, the Mexican government pinpointed a promising method for reducing carbon dioxide emissions:  Encourage Mexicans to trade in their old refrigerators, air conditioners, light bulbs and the like for more up-to-date models.  After all, about 80 percent of the country’s energy comes from fossil fuels, and household appliances account for about a quarter of its electricity use.  But how to pay for the program, while making it affordable for poor households?

The answer:  a financing mechanism called a green bond.  After implementing this new strategy for funding environmentally friendly investments, the Mexican initiative is on track to reduce CO2 emissions by more than 1 million tons a year for the foreseeable future — the equivalent of cutting the carbon emissions of 217,000 cars annually, according to green bond pioneer World Bank, which issued the instrument.

In fact, the project is just one of scores of efforts around the world aimed at reducing carbon emissions or helping communities adapt to climate change — initiatives that are being paid for, at least partially, by this new type of financing.  By year end, experts expect the total amount invested in such bonds to hit $40 billion, up from just $2 billion in 2012.

“We’ve never seen this kind of exponential jump in market size,” says Mindy Lubber, president of Ceres, an environmental advocacy group based in Boston.

Needed: $1 Trillion per Year

Adopting environmentally friendly technologies and techniques, from wind and solar installation to watershed management, is costly — very costly.  According to the International Energy Agency, we need to invest at least an additional $1 trillion per year just into clean energy projects worldwide by 2050 to ensure that global warming is limited to 2 degrees Celsius, avoiding the most catastrophic effects of climate change.

“The focus is on allowing us to transition to a low-carbon economy — and to do it quickly,” says Sean Kidney, CEO and co-founder of the Climate Bonds Initiative, a London-based nonprofit.

Read more at Green Bonds May Help Limit Effects of Climate Change

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