Corporations can help us fight climate change
More can be done to build a comprehensive robust environment to promote capital flows and ensure that climate considerations are integrated into other sector policies. Strategic measures to internalise climate change as a risk, build competition and measures to promote investment are crucialanalysis Updated: Dec 08, 2018 18:55 IST
The Paris Agreement of 2015 proved to be a game changer. It focused global efforts towards reducing greenhouse gas emissions as well as strengthening the ability of countries to deal with the unavoidable impacts of climate change. At CoP-24 in Katowice, Poland, world leaders have reconvened to strengthen the global movement for a climate resilient growth. Since the Paris agreement, developing countries like India have made a significant progress in meeting their Nationally Determined Contributions (NDCs). This year’s climate talks at Katowice focuses on establishing the “Paris Rulebook” that will set out to enable implementation of the Paris Agreement, as well as in mobilising capital needed to implement the agreement. This provides a window of opportunity for the private sector to step up and demonstrate its commitment towards positive climate action.
The private sector is increasingly taking heed of the strong signal sent by the Paris Agreement. According to an International Finance Corporation (IFC) report, 179 companies across all sectors have committed to set an emissions reduction target that supports the global effort to combat global warming. Companies are increasingly engaging in the sector, not just by means of investments, but also by building resilience into their own functions. To scale up the momentum, it’s important for the governments to mobilise private capital. For instance, enabling reliable policies and eliminating counterproductive policies will help strengthen the investment climate. One such example is the Clean Environment Cess on the use of coal in India that discourages the production and consumption of coal by increasing its cost, while part of the government revenue from the cess is reallocated to support renewable energy development. Another classic example of reforming a government policy from India is on amending the Electricity Act, 2003 that allowed up to 100% foreign direct investment (FDI) under the automatic route for renewable energy generation and distribution projects. Since the early 2000s, incentives offered by the federal government to attract FDI have allowed the country’s emerging wind and solar power industries to lower their per unit generation cost, thereby making them cost-competitive with other fossil fuels. These forward-looking reforms are undoubtedly benefiting mitigation actions. However, there is a dire need of replicating this practice to adaptation for improving the investment climate. More can be done to build a comprehensive robust environment to promote capital flows and ensure that climate considerations are integrated into sector policies. Strategic measures to internalise climate change as a risk, build competition and measures to promote investment are crucial.
With India tirelessly working towards achieving the goals of the Paris Agreement, there is still a gap in adequate and accessible finance that needs to be addressed. According to an IFC analysis, India’s estimated climate smart investment potential for selected sectors is $2.1 trillion from 2016-2030, which presents an enormous opportunity to fill the lacuna. To mobilise private sector investment in these sectors, it’s important to move beyond grant-based projects. Providing a space which enables the private sector to initiate social development and incur economic benefits simultaneously would be an optimal approach. For instance, sediment management is one such targeted approach that can enhance resilience and open avenues for business opportunities. A framework developed for river Kosi and endorsed by the government of Bihar details the technical, environmental and commercial viability of extraction and end use of silt. This framework is not only a strong value proposition for the solution to recurring floods in the state but also a revenue realisation for business that can make use of silt as a resource. The framework identifies the scope for developing revenue streams, projections on investments and a sustainability plan. The proposed plan is a for-profit model for investors (both government and private sector) that provides an integrated approach to effectively manage flooding, promote climate resilient agriculture and water management practices and create livelihood options. It is crucial to build such business plans on other interventions that provide a fair chance for the private sector to leverage business opportunities arising from priority climate resilient development actions.
The synergies between development progress and the opportunities to invest in resilience building will remain at the centre of the climate finance landscape for years to come. The recently released Intergovernmental Panel on Climate Changespecial report highlights the need for collective action to limit global warming to 1.5°C. Climate smart investments will thereby play a key role in providing support to governments in achieving their NDCs and enhancing resilience. CoP-24, which focuses on effectively operationalising the Paris Agreement, has provided an appropriate global platform to discuss and channelise the vast opportunities that the climate finance landscape presents.
The changing climate is disproportionately impacting the economically disadvantaged and slowing development; a disparity which is likely to increase as climate change accelerates. A study by the World Bank suggests that developing countries will need about $100 billion of new investments per year over the next 40 years to build resilience to the effects of climate change. This enormous burden cannot be carried out by national governments alone and needs the buy-in and participation of the private sector. Mainstreaming climate-smart investment from the private sector will be instrumental to enable a resilient, equitable, and sustainable society.
Vidya Soundarajan is India regional programme manager, Action on Climate Today and Cristina Rumbaitis del Rio is regional programme manager, Action on Climate Today
The views expressed are personal
First Published: Dec 08, 2018 18:54 IST