How to bridge the funding gap for clean energy

Green Investing 2010: Policy Mechanisms to Bridge the Financing Gap says that investment in clean energy has held up better than expected during the financial crisis and resulting recession, but a considerable gap still exists between current levels of investment and what is needed to begin reducing the world’s carbon emissions.

A second report, Green Investing: Towards a Low Carbon Energy Infrastructure, says moving to a low-carbon energy infrastructure will require global annual investment of around $500 billion per annum, if the increase in global average temperatures is to be restricted to 2°C.

Investment in 2009 stood at $145 billion, down only six per cent from $155 billion in 2008. The shortfall created by the financial crisis was largely filled by the launch of publicly-funded green stimulus initiatives around the world.

In addition, the Copenhagen Accord contained a commitment by developed countries to invest $100 billion in developing countries. But while the next few years are likely to see record investment activities, a significant financing gap of $350 billion still exists. To secure funds to bridge this gap, appropriate policy mechanisms are required.

The report suggests 35 policy mechanisms that can be used to promote various clean energy sectors. The mechanisms can be chosen based on stage of technological development - R&D/proof of concept, demonstration and scale-up, commercial roll-out, diffusion and maturity - and also on stage of economic development.

Policy mechanisms should be to be tailored in the national, state and local context, says the report. Mechanisms for a financially viable shift to a low-carbon economy range from the establishment of national laboratories or research centres; requiring public entities to procure clean energy or use emerging efficient technologies; programmes designed to reduce the cost of private lending and improve project economics; and microfinance.

“The world needs a substantial increase in private investment flows into clean energy and energy efficiency if we want to avoid severe impacts of climate change,” said Jack Ehnes, a member of the expert committee that drew up the report. “This report not only lays out key opportunity sectors for private investors but also identifies very concrete tools for governments to bridge the climate investment gap.”

The report provides an up-to-date description of 10 emerging, large-scale clean energy sectors that will form part of any low-carbon energy system of the future. It also describes the four key enablers that are required if these clean energy sources are to be integrated into the existing infrastructure: smart grids, power storage, advanced transportation and carbon, capture and storage.