The One Thing We Still Need in Order to Get to a Low-Carbon Economy - by Peyton Fleming

Significant gaps remain in our ability to grow clean energy at the levels necessary to meet the goal of ensuring the world stays within 2 °C (3.6 °F) of warming that scientists urge us to stay within to avoid the worst effects of climate change.  (Temperatures have already risen nearly 1 °C, and we just learned that 2015 was the hottest year on record.)  And one of the biggest gaps is the lack of institutional investor capital flowing to clean energy projects.  As I noted last summer, the gap is most striking in developing countries, which are vital to curbing global carbon pollution to avoid dangerous climate change.

Until we have adequate levels of capital, ambitions for a strong and robust clean energy economy will, like a stool missing its third leg, keep falling over.

The truth is, we need far more investment in the low-carbon economy — well over US$1 trillion every year, not the few hundred billion we’re seeing now.   National climate commitments at COP 21 alone will require some US$13.5 trillion in investments by 2030, according to the International Energy Agency.

I won’t be the first to equate all this to a three-legged stool:  policies that support clean energy, cost-competitive technologies and sufficient levels of finance.  The successful Paris climate agreement and lower renewable energy technology costs are providing two of the legs, but until we have adequate levels of capital, ambitions for a strong and robust clean energy economy will, like a stool missing its third leg, keep falling over.

To be sure, this “third leg” is getting a bit of timber from the United Nations’ Green Climate Fund, which aims to help mobilize US$100 billion of climate finance annually to developing countries by 2020.  But this and other types of public financing are not enough; far more capital will be needed from institutional investors.

Countries such as Morocco and Mexico, which are phasing out fossil fuel subsidies while offering incentives for renewable energy, are providing road maps for other developing countries to follow.

So what will it take to get pension funds, insurance companies, and other investors who manage trillions of dollars to open their wallets to this enormous clean energy opportunity?

Here are a few of the keys:

• Supportive national regulations:  The 187 countries that made specific carbon-reducing commitments in Paris must follow up by establishing supportive rules and regulations that will catalyze projects and attract capital. ... U.S. policy-makers must show resolve in keeping the Environmental Protection Agency’s Clean Power Plan on track, despite legal challenges.
• More investment products:  Investors are constrained in their ability to invest in clean energy because there are not enough low-carbon investment products for them to invest in.  The US$2 billion low-carbon index fund announced last month by the New York state comptroller and Goldman Sachs is an encouraging step. ...  Another promising product is the fast-growing green bond market, one of the most popular ways investors are backing clean energy projects in emerging markets. ...
• Stronger partnerships: Investors need to form closer alliances with progressive venture capitalists, countries, and banks to help de-risk investments in clean energy projects in emerging economies....

More than ever before, the world is ready to accelerate the transition to a low-carbon future.  But heeding the lesson of the three-legged stool will be critical for hastening this transition.  Simply put, we need sufficient financing for clean energy solutions in all corners of the world.

Read more at The One Thing We Still Need in Order to Get to a Low-Carbon Economy