Public and private sectors must work together to develop clean energy markets

Back in Europe and (mostly) recovered from jet-lag, I’m getting round to a slightly belated post on the COP16 official side event hosted by REEEP and IETA. Entitled Finance to push forward clean technology: a forum for business and policy-makers, the event brought together a range of prominent figures from governments, multilateral organisations and the private sector for a panel discussion moderated by Henry Derwent, the CEO of the International Emissions Trading Association. Originally worried by the logistics of Cancun and the late hour of our alloted slot (could a discussion of finance really keep people from their evening margueritas?), we were delighted with the attendance, which seemed better than most side events at the Cancun Messe.

I see that the Cancun Accords include “a $30 billion-package for 2012 to aid nations taking immediate actions to halt effects of global warming, as well as financing for long-term projects to protect the environment through a Green Fund, which will provide $100 billion annually for adaptation and mitigation measures.” Apparently one topic of ‘debate’ was the extent to which countries should be providing the cash themselves or setting up a way to squeeze it out of the private sector. I await the chance to read the full texts before offering any views on what’s been agreed, but  the respective roles of the public and private sectors in mobilizing capital flows into clean energy technologies was one of the issues discussed at the side event.

Richard Baron, Head of Climate Change Unit, Energy Efficiency and Environment Division, Directorate of Sustainable Energy Policy and Technology, IEA, sounded a cautionary note on financing by reminding the audience of the need to develop energy efficiency programmes before ramping up expensive renewable energy developments.

Dr. Juan Manuel Carreras López, Director General, FIDE, felt that regulations can inhibit the movement of capital, and that taxes and prices can mislead the market.

Odin Knudsen, Managing Director, Environmental Markets, JP Morgan Chase, pointed out that although a lot of renewable energy investments are already profitable today, investment is not flowing to them. Why is this? He believes the problem is that lack of stability makes them too risky. Some countries are not stable politically, and conditions and subsidies can change rapidly. With reference to the mooted $100 bn Green Fund, he tried to put the seemingly vast sum into perspective: “that much money is moving into the iPad/tablet PC market at the moment.”

Adrian Rimmer, CEO, The Gold Standard Foundation picked up this point, saying that the goalposts are moved without notice and retro-actively. He felt the public sector needs ‘to not be afraid of the profit motive’ and that it should identify the risks that private capital won’t bear and use its finances to cover these gaps. As an example, he gave the residual value risk that hinders development of electric vehicles.

On the point of subsidies, Steve Sawyer, Secretary General of the Global Wind Energy Council, pointed out that wind energy is competitive or even cost advantageous when there’s a level playing field, and that one 150 year old energy industry – coal – still receives much greater subsidies. He also stated that the way we currently price water, food and power doesn’t work, “they are way too cheap for the long-term survival of the species!” He thinks the important thing to think about in financing is market or industry development: “Forget thinking about projects. The first couple always lose money. You have to take a longer view.”

REEEP’s International Director, Marianne Osterkorn, concluded by stating the importance of donors acting in a coordinated fashion when intervening in a particular country, and also the need for governments to use their ownership power over public utilities. These still account for the vast majority of energy production and electricity generation in many countries, including our host Mexico, yet most of the focus when discussing finance focuses on ways to get the private sector to invest in clean energy. Many governments have the power to lead the transition to a low carbon energy future themselves.

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