New Green Growth Alliance Will Help Spur Private Investment in Developing Nations
This week’s Business 20, or “B20,” summit in Los Cabos, Mexico signals the launch of the Green Growth Action Alliance (G2A2), a partnership between the public and private sectors designed to dramatically scale-up private investment in “green” sectors like renewable energy, clean transportation, and sustainable agriculture.
The G2A2 includes representatives ranging from financial institutions like HSBC, to corporations like Walmart, to key public sector actors like the World Bank Group. WRI joins the effort alongside other environmentally focused organizations as an “analytical supporter,” providing research input and guidance to the G2A2’s upcoming activities.
Financing Climate Change Mitigation and Adaptation
The G2A2 comes at a critical time. Experts estimate that developing countries require new investments of up to $300 billion annually by 2020—growing up to $500 billion annually by 2030—to adequately limit1 greenhouse gas emissions. Developing countries, particularly small island nations, will also need several hundred billion dollars more in the coming years in order to protect themselves from the physical impacts of climate change, like rising sea levels and catastrophic weather events.
During recent United Nations climate change negotiations, developed country governments committed to mobilize $100 billion annually starting in 2020 in order to help developing countries mitigate and adapt to climate change. This funding commitment is a good start, but it will only go so far given the size of the challenge.
So what else can be done to help fill this funding gap? The G2A2 is one example of the increasing focus on using public dollars to leverage private capital flows to developing countries and scale-up finance. Essentially, governments are going to have to find new and efficient ways to make their public dollars go further and stimulate new markets, particularly in times of fiscal austerity. Smart use of the financial instruments at their disposal – such as customized loans or insurance products – can go part of the way to support green projects and attract additional private capital, but they will have to be matched with the right kind of policies and incentives.
The Role of G2A2
Promoting green growth and leveraging private investment will undoubtedly be challenging as it requires governments to carefully align private sector, environmental, and economic needs on the ground. That’s where the G2A2 comes in. By bringing together the knowledge of diverse public, private, and civil society representatives, the G2A2 will work with governments to help them adopt a systematic approach that, among other goals, appropriately rewards innovative green sectors through sound policies and also improves their access to finance.
In the coming years, WRI will support the G2A2 by providing the analytical arguments to guide the complex yet compelling task of increasing private sector participation in green growth through our Climate Finance and the Private Sector project. This project will identify and support effective financing structures and inform public financing mechanisms like the emerging Green Climate Fund. Stay tuned for WRI’s series of working papers and blog posts on the topic starting this summer.
Estimates are for stabilization of greenhouse gases at 450 ppm CO2e, which would provide a 22-74% percent chance of staying below 2⁰C warming by 2100 according to the IPCC. In developing countries, the International Institute for Applied Systems Analysis, the International Energy Agency, McKinsey, and Potsdam Institute for Climate Impact Research, estimate average annual investment for climate change mitigation needs ranging from $63 billion to $300 billion between 2010 and 2020, increasing to $264 billion to $565 billion by 2030. ↩