Paris December 7:
“Will Paris get the cash rolling?” That’s the subject of my address at a seminar on climate finance organized by CICERO and Climate Policy Institute Wednesday here in Paris. Judging from the “Draft Agreement” circulated by the COP21 presidency this weekend, there is still a long way to go before we can say the Paris summit will be able to unleash the billions of private money needed to speed up the investments in renewables in developing countries. But the seeds of a new climate finance architecture are there.
The national action plans submitted to the Paris climate summit show there is now an unprecedented commitment from developing countries to increase the share of renewables in the total energy-mix. But availability of funding slows implementation, and haggling over how to finance the climate bill threatens to make COP21 yet a new setback.
In this article I will discuss how an ambitious use of so called “result-based finance” referred to in the draft treaty text actually could double the share of wind and solar in the developing countries’ energy-mix, and at the same time reduce the climate bill payable from 2030 onward.
700 GW of new solar and wind power plants by 2040. That is, according to the International Energy Agency, the sum of the national action plans from Asia (excl China), Latin America and Africa submitted to the COP21 summit in Paris. In other words, IEA estimates it will take 25 years – in 2040 – for wind and solar to reach 9% of the total electricity power consumption in developing countries. I believe this is far too modest, and a wasted opportunity.
In a paper that I and Daniel Rossetto of Climate Mundial last week published in Environmental Finance, we ask the question: What would be the effects of doubling the deployment rate for wind and solar energy, and how much would it cost? Under our accelerated deployment scenario, instead of waiting until 2040 to build the 700GW, the investments are brought forward by 15 years to 2025. The key enabler is here the willingness of industrialized countries to commit to a higher level of ambitions for greenhouse gas reductions up to 2030 – and to allow for the use of markets to achieve those new climate goals in the most cost-efficient manner.
The results of the analysis are surprising.
First, the share of solar and wind in developing countries’ electricity-mix increases from less than 1 % today to 11% by 2025, compared to rather just 9% in 2040
Second, accelerated deployment of wind and solar power in developing countries will save a huge amounts of oil, diesel and other fossil fuels. We estimate the accelerated scenario will save about eight Gigatons of greenhouse gas emissions up to 2030, buying almost two years extra time for future generations to bring emissions into line with the global carbon budget of 1,000 Gigaton. As a comparison, eight Gigatons equals 28% of the sum of all current reduction targets (28 Gt) to 2030 pledged by OECD countries in their national action plans.
Third, accelerated deployment will save money. The total cost of implementing these significant reductions is estimated to be $60-70 billion accumulated over 10 years based on an average carbon price of around $20 per ton. On the other hand, waiting until 2040 to complete these reductions will cost more than the double, around $150 billion, as deeper and more expensive cuts would be needed after 2030. Global investors in new fossil fuel plants could also avoid billions of dollars in asset write-downs after 2030.
Finally, the accelerated deployment of wind and solar proposed here would provide increased energy security and independence, and new employment opportunities. The carbon price would leverage additional investment into developing countries of about 400 BUSD in the next decade. Based on research and lessons from South Africa and India, construction and operation of 700 GW wind and solar can be expected to create more than 7 million new jobs in the developing countries.
More than half of all the developing countries say they wish to use carbon markets – tradable certificates for additional and verified mitigation outcomes – to help achieve their climate action plans. In order to implement these proposals, the carbon market system needs to be readily available. Therefore we call for countries to focus on reforming the existing United Nations Clean Development Mechanism (CDM), rather than attempt to develop a completely new system as is being contemplated by some countries.
Such reforms would allow solar and wind energy, whose costs are decreasing rapidly, to outcompete fossil based alternatives on the basis of price in developing countries. The carbon price would also support needed investments in the electricity networks required to accommodate the accelerated deployment scenario.
It is important to highlight that this is not a theoretical exercise, but that there are numerous wind and solar projects out there waiting to be financed.All over Sub-Saharan Africa as well in large countries like as India, Brazil, Egypt, Pakistan, Bangladesh, Philippines and others, developers, authorities and banks are struggling to secure the needed level of revenues or guarantees to make large-scale renewable energy programs bankable. As an another example, one of India’s chief negotiators was quoted in Paris last week saying the country will cut back on its investments in coal if the new climate deal due to be struck next week delivers more money to help it shift to cleaner sources of energy such as solar power.(FT,3.12).
Hopefully by the end of this week, we will be able to strike a more optimistic tone one the question “Will the Paris agreement get the cash rolling”.
*Disclaimer: The author is employed by Scatec Solar ASA, a solar power developer and producer focusing on emerging markets.
Note: The article is based on the paper “The low-hanging fruit waiting in Paris: increasing climate ambition is cheaper than not” published with Daniel Rossetto, Climate Mundial in Environmental Finance and the web magazine Energi og Klima (Energy and Climate).