U.S. Reversal on Climate Funds Spurs Interest in Private Funding

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By Dean Scott

The Trump administration may be moving to end aid to an array of international climate funds—but more private funding sources may be on the way to help partially fill the gap.

One approach, which uses public finance to absorb some of the risk and leverage private investment in energy and other climate-friendly projects, got a boost with an April 21 announcement to extend the benefits of green bonds to developing nations. The International Finance Corp.—the World Bank’s private sector investment arm—pledged up to $325 million in partnership with Amundi Asset Management to help raise a total of $2 billion for green bonds in emerging markets.

Christiana Figueres, the former head of the UN climate secretariat, said such partnerships are needed to move some of the capital flows of green bonds where they are needed most—in rapidly developing nations. The $2 billion announcement was made on the sidelines of the spring meeting of the World Bank Group and the International Monetary Fund held April 21-23.

“Most of the green bond total is in the global north,” Figueres, now with the Mission 2020 initiative to curb global greenhouse gas emissions by 2020, told Bloomberg BNA April 21. The IFC contribution constitutes a “first-loss guarantee” that essentially covers some of the risk of the fund, Figueres said.

“What we really need to do is mobilize this capital in the global south,” she said, where vast needs remain for clean energy projects and climate-friendly infrastructure. “We’re always told investments in these projects is difficult, particularly in developing countries, because someone needs to be there to de-risk the investment,” Figueres said.

A Yawning Gap in Funding?

President Donald Trump’s budget plan calls for zeroing out billions in U.S. international climate aid, including cutting off further support for the UN Green Climate Fund. The prospect of such cuts is fueling more efforts to engage private investment and other non-government funding to reach the $1 trillion a-year level in global clean energy the International Energy Agency says is needed by 2050 to avert dangerous climate impacts.

Actual yearly investment in clean energy has never approached that level. After a record high of $348.5 billion in 2015, new clean energy investment fell to $287.5 billion in 2016, according to Bloomberg New Energy Finance.

The IFC-Amundi partnership is meant to spread some of the growth in green bonds—which last year totaled $118 billion, according to Amundi—to developing nations.

The Obama administration pledged $3 billion over four years in 2014 to the Green Climate Fund but was able to make good on just one-third of its pledge before leaving office. The green fund is only part of a much larger $100 billion a year developed nations have pledged to poorer nations beginning in 2020; that offer was meant to prod developing nations to agree to a global climate pact, which was reached in Paris in December 2015.

Trump vowed to withdraw the U.S. from the Paris climate accord during the presidential campaign but has yet to announce a decision. Those closely watching the administration for any signs that it might ultimately remain in the Paris accord include former Vice President Al Gore, who spoke on an April 21 panel on climate finance at the World Bank-IMF meeting.

“I’d say it’s far better than a 50-50 [chance] the United States will decide to stay in the Paris Agreement,” Gore said.

A Glum Assessment

World Bank President Jim Yong Kim offered a glum assessment of publicly funded climate aid, including the Green Climate Fund, to reporters during the opening day of the World Bank-IMF summit.

“The hundred billion of grants … that at one point was promised—I don’t see it coming,” Kim told reporters April 20. The World Bank president said funding for the UN’s Green Climate Fund, which is essentially part of that $100 billion pledge, “is still right around $7.5 billion after two or three years. And you know, the estimation was that there would be many more billions of dollars than that. “

The GCF itself puts pledges to date a bit higher than that—about $10.1 billion—but many finance experts share Kim’s skepticism over whether richer nations are on track to hit their combined $100 billion a year pledge. The $100 billion total is to come from combined private and public sources.

An October 2016 report by the Organization for Economic Cooperation (OECD) said industrialized donor nations were on track to hit the $100 billion mark in 2020, but said public sources would account for only $66.8 billion of that total. The report assumed the roughly $33 billion gap could be filled by private sources.

To contact the reporter on this story: Dean Scott in Washington at DScott@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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