Innovation Can Unlock Trillions in Climate Finance

IFC Report Finds Policy Reforms, Innovation Can Unlock Trillions in Climate Finance

Sydney, Australia, November 2, 2017—The East Asian region is a major driver in global growth of demand for climate smart technologies, according to a new report by IFC, a member of the World Bank Group.

It says developing countries can meet climate targets promised in the landmark Paris Agreement by catalyzing trillions of dollars in private investments through a combination of smart policy reforms and innovative business models.

The report points to China as a green energy leader with now more than a third of the world’s wind power capacity, a quarter of its solar and leading a revolution in battery technologies. It also points to an expected increase in green infrastructure in the region. Generally in East Asia, the total regional investment opportunity is over US$3 trillion through to 2025 – just in green buildings alone. It also highlights expected trillions of dollars of investments in transport infrastructure. Other major markets include Indonesia and Vietnam.

IFC’s Creating Markets for Climate Business report also says the Pacific Islands are becoming attractive markets for off grid solar and mini grid systems. Ta’u Island in American Samoa displaced diesel by installing solar and battery storage micro-grid and in Papua New Guinea, about 20% of people now have access to off-grid renewable energy for the first time.

The IFC project in Papua New Guinea, a country where 80% of the population has no access to on-grid electricity, was funded by the Australian and New Zealand Governments. It has seen a $3.3 million investment leading to about 20% of the nation’s population now having access to off-grid renewable energy – solar lighting, phone charging and other solar appliances - for the first time.

IFC’s Lighting PNG program helped global solar manufacturers enter the local market — by providing business connections, market intelligence and education for consumers. Lighting PNG is also piloting new technologies and business models such as Pay-As-You-Go (PAYG) and other smart solar products. Most of the people who will gain access to the PAYG products and credit from energy companies never had access to any type of banking services or credit before.

The report identifies seven industry sectors that can make a crucial difference in catalyzing private investment: renewable energy, off-grid solar and energy storage, agribusiness, green buildings, urban transportation, water, and urban waste management. Already, more than $1 trillion in investments are flowing into climate-related projects in these areas. But trillions more could be triggered by creating the right business conditions in emerging markets, the report found.

“The private sector holds the key to fighting climate change,” said IFC CEO Philippe Le Houérou. “The private sector has the innovation, the financing, and the tools. We can help unlock more private sector investment, but this also requires government reforms as well as innovative business models—which together will create new markets and attract the necessary investment. This can fulfill the promise of Paris.”

The report’s findings point to specific investment opportunities including:

• Renewable energy investments could climb to $11 trillion cumulative by 2040—reforms such as renewable energy auctions, land title reforms, and supportive energy storage policy frameworks are implemented would make this possible.
• Investments in off-grid solar and energy storage can reach $23 billion a year by 2025 —if countries use differentiated tariffs, clear technical and safety standards, and targeted financial incentives while supporting new business models for community based solar such as Pay-as-You-Go and innovative finance solutions such as securitization assets.
• Trillions of dollars of agribusiness investment can become more "climate-smart"—if governments ensure property rights, good transportation infrastructure, and regulations and fiscal policies that encourage climate-smart investment while promoting improved farmer-training practices and using financial innovation to provide working capital for farmers.
• Investments in green buildings could reach $3.4 trillion cumulative by 2025 as key emerging markets—if countries adopt better building codes and standards and create targeted financial incentives such as green-building certification and mandatory benchmarking of energy use. Other important reforms should encourage new utility business models, such as green mortgages and energy service companies.
• Trillions of dollars in investments in sustainable urban transportation can be mobilized in the coming decade—if governments issue mandates to enable infrastructure investments and adopt municipal transit plans that can spur innovations, such as light rail.
• Investments in water supply and sanitation could exceed $13 trillion cumulative by 2030—for this governments would need to establish water pricing at predictable and sustainable levels to increase the creditworthiness of utilities while entering into public-private partnerships and adopting performance-based contracts.
• Investments in climate-smart urban waste management could reach $2 trillion—if cities work to attract private sector participation through improved regulatory and enforcement frameworks, using economic incentives and cost-recovery mechanisms such as feed-in tariffs, and driving waste-conscious consumer behavior.
Addressing climate change is a strategic priority for IFC. Since 2005, IFC has invested $18.3 billion of its own funds in long-term financing for climate-smart projects and mobilized an additional $11 billion from other investors. The latest report is a follow-up to the Climate Investment Opportunities report issued by IFC last year, which found that the Paris Agreement could create $23 trillion in investment opportunities for 21 emerging-market countries.

About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with more than 2,000 businesses worldwide, we use our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In FY17, we delivered a record $19.3 billion in long-term financing for developing countries, leveraging the power of the private sector to help end poverty and boost shared prosperity. For more information, visit www.ifc.org

Note: IFC’s work in the Pacific is guided by the Pacific Partnership. Australia, New Zealand and IFC are working together through the Pacific Partnership to stimulate private sector investment and reduce poverty in the Pacific.

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