SECURING CLIMATE FINANCE ANDCLIMATE FINANCE AND INVESTMENT TO
Transcript of SECURING CLIMATE FINANCE ANDCLIMATE FINANCE AND INVESTMENT TO
SECURING CLIMATE FINANCE ANDCLIMATE FINANCE AND
INVESTMENT TO SUPPORT LOW CARBON ANDTO SUPPORT LOW-CARBON AND
CLIMATE-RESILIENT GROWTH
H l M tf dHelen MountfordDeputy Director, OECD Environment Directorate4 June 20134 June 2013Paris
Closing the emission gapClosing the emission gap
GHG emissions projection – 2010-2050
120130GtCO2e
Outlook Baseline 450 ppm Core3-6°C by 2100
90100110
607080
20304050
2°C by 2100
01020
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
2 C by 2100
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
2Source: OECD (2012), OECD Environmental Outlook to 2050, Image model
Delaying action is costly! I l k i b i i i fIt locks-in carbon-intensive infrastructure
Real income in 2050 (% deviation from baseline)
0%450 ppm Core 450 ppm delayed action
-3%-2%-1%0%
-6%-5%-4%3%
-9%-8%-7%
Delaying action to 2020 (ie the CPH/ Cancun pledges) will increase costs of a 450ppm pathway by nearly 50% in 2050
-10%
3
increase costs of a 450ppm pathway by nearly 50% in 2050
Source: OECD (2012), OECD Environmental Outlook to 2050, Baseline projection using ENV-Linkages model
Closing the investment gap to 2030Closing the investment gap to 2030
Global infrastructure in estments c ent
Global infrastructure investments needs BAU
Global infrastructure in estments needs 2°C 1 2
4
$2 tn $3.2 tn $2.7 – $3.5 tn
investments - current investments needs - BAU investments needs - 2°C scenario
1 2
3
3.5
ear
+60%?
2
2.5
D tn
/ ye +60%
?
1
1.5US
D
0.5
1
0
4
Source: Compilation based on OECD, IEA, ITF, Mc Kinsey, WEF, Kennedy,C.,Corfee-Morlot,J.Energy Policy(2013)Note: Infrastructure sectors including roads, rail, ports, airports, power, water and telecoms
1: Annual average based on global investments over the period 1996-20122. Annual average needs for the period 2012-2030
What can governments do? A Green Investment Policy Framework
1. Strategic goal setting and policy alignment
2. Enabling policies and incentives for LCR investment
4. Harness resources and build capacity
f LCR
5. Promote green business and
consumer b h i LCR investment
3. Financial policies and instruments
for an LCR economy
behaviour
Source: Corfee-Morlot et al., 2012.
How to integrate climate & investment policies in a green investment policy frameworkin a green investment policy framework
• Clear long-term and predictable policiesS Clear, long term and predictable policies• Align goals at all levels of governance• Engage the private sector
1. Strategic goal setting and policy alignment
• Put a price on carbon• Remove fossil fuel subsidies• Energy efficiency and product regulations
2. Enabling policies for green investment
• Financial regulations to drive long–term investments• Targeted subsidies with predictable phase-out • Leverage public finance (loans, guarantees, bonds)
3. Financial policies, tools and instruments g p ( g )
• R&D for green technology • Capacity building to support LCR innovation • Monitoring and enforcement
4. Harnessing resources and capacity • Monitoring and enforcement
• Climate risk and vulnerability assessmentand capacity
• Information policies• Consumer awareness programmes public outreach
5. Promoting green business and
6Source: Corfee-Morlot et al., 2012.
• Consumer awareness programmes, public outreach• Corporate reporting
business and consumers behaviours
Barriers to private sector engagementINCENTIVES
FOR CLEANER GROWTH
INCENTIVES TO LOCK-IN CARBON-
INTENSIVE GROWTH
Sources: OECD (2013), Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels; IEA (2012), World Energy Outlook; IEA (2011) Clean Energy Progress Report; OECD (2013 forthcoming).
7
Preliminary analysis of effective carbon i i l t i it tiprices in electricity generation
400617 775800
300
350
bated
200
250
e of CO2ab
150
200
per ton
ne
50
100
2010
EUR
‐50
0
88Source: OECD (2013 forthcoming), Effective Carbon Prices
Institutional Investors as a source of di i l i fi inon-traditional private financing
70 000
80 000
$20.2 tn
$75.1 tnDirect investment in green infrastructure can deliver:- steady, inflation-linked, income
ith l l ti t th t
Pension funds50 000
60 000
lions
$20.2 tn- with low correlations to the returns of other investments
Insurance companies
30 000
40 000USD
bil
$24.3 tn
Investment funds20 000
30 000
$28.8 tn
0
10 000Other $1.8 tn
Source: OECD Global Pensions Statics and Institutional Investors databases 9
Challenges to scaling up institutional i t ti i ti li linvestor participation – policy lessons
Issues with ▪ Direct investing challenges infrastructure investments
1 ▪ Regulatory and policy issues- illiquidity and direct investment restrictions e.g. capital adequacy rules
(Solvency II, IORP II)- uncertain new policy application e.g. Solvency II for pension funds?p y pp g y p- accounting rules e.g. mark to market for illiquid assets
▪ Lack of project pipeline and quality historical data- Compounded by exit of banks (Basel III/deleveraging)
Issues particular to greeninvestments
2▪ Risk/return imbalance
- Market failures: insufficient carbon pricing and presence of fossil fuel subsidies
▪ Unpredictable, fragmented, complex and short duration policy supportp , g , p p y pp- Retroactive support cuts, switching incentives or start and stop (PTC)- Use of tax credits popular with insurers can discourage tax exempt
pension funds- Unrelated policy objective discouragement e.g. EU unbundling
▪ Special species of risk e g technology and volumetric require expertise and
Lack of suitable
▪ Special species of risk, e.g. technology and volumetric require expertise and resources
▪ Issues with fund and vehicle design▪ Nascent green bond markets no indices or funds no market for illiquid
10
Lack of suitable investment vehicles
3▪ Nascent green bond markets , no indices or funds, no market for illiquid
vehicles ▪ Challenges with securitisation▪ Credit and ratings issues
Green Bond Universe = USD $16 – 86 billionGreen Bond Universe USD $16 86 billion 4.0USD $ Billions
Moody's S&P Fitch
Long-term
Short-term
Long-term
Short-term
Long-term
Short-term
Aaa AAA AAA Prime
• Credit Rating Tiers
SovereignCorporate$30-70 Bn??
3.0
3.5
US Qualif ied EnergyConservation Bonds
USD $3.2 Billion
P-1
A-1+ F1+Aa1 AA+ AA+
High grade
Aa2 AA AA
Aa3 AA- AA-
A1 A+A-1
A+F1
Upper medium grade
A2 A A
A3P-2
A-A-2
A-F2
B 1 BBB+ BBB+ L
Supranational
2 0
2.5WorldBank
US Clean Renewable Energy Bonds $2.4
$2.3
Baa1 BBB+ BBB+ Lower medium grade
Baa2P-3
BBBA-3
BBBF3
Baa3 BBB- BBB-
Ba1 BB+
B
BB+
B
Non-investment gradespecul
Ba2 BB BB
Ba3 BB- BB-
1.5
2.0
EuropeanInvestment Bank
Asian
$1.6
B B ative
B1 B+ B+Highly speculative
B2 B B
B3 B- B-
Caa1 CCC+Substantial risks
ABS
0.5
1.0
CRC BreezeAlta Wind
s aDevelopmentBank
InternationalFinanceCorporation
AfricanDevelopmentBank
$0.7$0.6
$0 2
$0.7
$0.3
Not prime
C CCC C
Caa2 CCC
Extremely speculative
Caa3 CCC- In default with littleprospeCa
CC
0.01 2 3 4 5 6 7 8AAAAAABBBBBB BB-
S&P CreditRating.
Andromeda Solar Nordic
InvestmentBank
$0.2$0.2 prospe
ct for recovery
CaC
C
D /
DDD
/In default
/ DD
/ D
Source: Calculations derived through OECD analysis using the Climate Bonds Initiative database, Daiwa research, Bloomberg New Energy Finance and Energy Hedge Magazine
Next steps in OECD work
• Assessing experience with Green Investment Policies and
Next steps in OECD work
• Assessing experience with Green Investment Policies and Instruments for infrastructure – country case studies
• Assessing the scale & impact of policy restrictions on g p p yinternational investment in clean energy
• Further work on institutional investors: lessons learned from ifi di h “ ” d l (i i h i h specific case studies on how to structure “green” deals (i.e. with right
risk-return profile) and role of policies.
• Combining BNEF and OECD databases for empirical • Combining BNEF and OECD databases for empirical analysis of the impact of government policies on leveraging (“crowding in”) private finance to green infrastructure.
• Broadening the tracking of climate finance: non-concessional finance, export credits, loan guarantees; definitions of private finance flows; leveraging effect of bilateral ODAfinance flows; leveraging effect of bilateral ODA...
Th k !Thank you!
www oecd org/env/cc/financingwww.oecd.org/env/cc/financing