Training Report: Facilitating Private Sector Investment in Climate Change Projects in the Asia-Pacific
As population, urbanisation and income levels increase, the scope of the environment and climate challenges facing the Asia-Pacific region is daunting. Fast growth has led to unsustainable resource consumption and a rapid increase in greenhouse gas emissions in many countries. At the same time, climate change is already disproportionally affecting smaller economies such as the small island states in the Pacific which have hardy contributed to the cause but have a lower adaptive capacity compared to economically better-off countries in the region.
Climate change is at the forefront of the development agenda in the region and poses a huge challenge that cannot be tackled by governments alone. Workable solutions will depend on the functioning interplay of governments and other actors, such as communities, businesses and financial institutions.
Mobilisation of private capital is essential to the achievement of mitigation and adaptation goals. The financial sector controls trillions of dollars that could potentially be directed towards a green economy. In order to mobilise the financial and private sector, it will be crucial to overcome the barriers to investment by strengthening national regulatory and policy frameworks.
To encourage and facilitate low carbon and climate resilient investment in the Asia-Pacific region, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Asia Investor Group on Climate Change (AIGCC) jointly established the Alliance for Public-Private Climate Finance Asia-Pacific in late 2012.
At a previous workshop on “Scaling-up Climate Finance in the Asia-Pacific” organised by the Alliance for Public-Private Climate Finance Asia-Pacific in collaboration with the Singapore Cooperation Programme from April 22-24, 2013, in Singapore (supported by the German ASEAN Programme on Response to Climate Change and the Climate and Development Knowledge Network), government participants from the region noted the need for capacity building to create enabling environments for increased private climate investments. Participants particularly asked for practical guidance on how to align national and sub national policies with the requirements of the private sector.
To address this demand and to enhance cross-country learning in this area, the Singapore Cooperation Programme, the Alliance for Public-Private Climate Finance Asia-Pacific, the German ASEAN Programme on Response to Climate Change, and the Sustainable Energy Association of Singapore (SEAS) jointly conducted a follow-up training entitled “Facilitating Private Sector Investment in Climate Change Projects in the Asia-Pacific” in Singapore from March 20 - 21, 2014.
The training was well received by the ministry representatives of various governments in Asia and the Pacific who participated in interactive sessions in a number of key areas. Topics discussed during the training included the role of public sector interventions and regulation for enabling private climate investments in the Asia-Pacific region, national experiences with mobilising private investments for climate change projects, and investor perspectives on criteria for financial support and bankability of mitigation and adaptation projects. Trainers and speakers came from the private sector as well as international and regional organisations.
Key messages conveyed during the training
- The major challenge for clean energy today does not lie in technology costs but in the cost of financing proven technologies and in the access to long-term affordable financing. For some low carbon climate resilient technologies, both technology costs and costs of financing the technology are important.
- There is a key role for the public sector to play in removing a number of barriers for investment.
- Reducing investment risks needs to be a first-order priority, before applying more comprehensive public policy instruments such as subsidies or loan guarantees.
- Financial incentives will not be effective unless complemented by the right regulatory and institutional frameworks.
- Existing investment appraisal tools should be used to make smart decisions (among further political, financial and social considerations).
- Importance of creating a business case for actions by the private sector – no financing without a proper business plan.
- In order to draw the private sector into financing projects, there needs to be a stronger focus on evidence based learning and attribution of outcomes to the intervention.
- Policy stability and consistency (across different government departments) are paramount criteria for potential investors.
- Governments need to have a complete understanding of the markets beyond the project developer level, to enable them to play a catalytic role in helping more projects to get implemented successfully.
- Before investing public money in a project, government actors need to ensure that public resources achieve financial leverage (mobilise significantly larger amounts of private capital) and additionality (private investment that would not have happened anyway).