Invest to beat US$1.2 trillion cost of climate change says Davos report
The World Economic Forum have published a report showing that increasing public sector investment could provide the capital needed to avoid a grave economic impact caused by climate change.
Scaling up public sector funding by as little as US $36 billion in annual spending could unlock the private capital needed to close the green investment gap worldwide, leading to sustainable economic growth that attains global climate change goals.
At a time when extreme weather events are increasingly frequent – and costly – cash-strapped governments are seeking new solutions to address climate change. This investment could help stabilize global temperatures and would cost less than the US$ 50 billion recently approved by the United States Congress for rebuilding after Hurricane Sandy.
According to a new report launched today in Davos – The Green Investment Report: The Ways and Means to Unlock Private Finance for Green Growth – if the public sector increased its annual investment in addressing climate change by only $36 billion, up from a current spending level of US$ 96 billion, it could mobilize up to US$ 570 billion in private capital. This would address the US$ 700 billion in investment that the report estimates is needed to tackle what is arguably the most pressing threat to the global economy.
“Greening the economy is the only way to accommodate 9 billion people by 2050,” said Thomas Kerr, Director of Climate Change Initiatives at the World Economic Forum. “There are many successful cases where governments have strategically targeted their public funds to mobilize significant sums of private investment for green infrastructure. It’s now time to scale up these proven solutions.”
Climate change is already causing 5 million deaths a year and is costing the global economy more than US$ 1.2 trillion (or 1.6% in annual global GDP), according to the Climate Vulnerable Forum. The price tag in the United States alone in 2012 for weather-related disasters was over US$ 110 billion.
By 2030, the cost of climate change and air pollution combined is estimated to rise to 3.2% of global GDP, with the world’s least-developed countries expected to bear the brunt, suffering losses of up to 11% of their GDP, the report notes.
The report highlights the example of the World Bank’s US$ 6 billion in climate technology funds, which for every public dollar invested have attracted US$ 8 in co-financing. Increased investments in green energy and infrastructure can drive sustainable development, reduce greenhouse gas emissions and lead to global economic growth. Governments need to target public finance to attract private capital to green investment through measures such as guarantees, insurance products and incentives, combined with the right policy support.
Such investments are urgently needed to avoid the potentially devastating impacts of climate change and extreme weather events as witnessed in many parts of the world in 2012. Scientists agree that extreme weather has become the “new norm” and comes at a huge, and rising, cost to the global economic system.
Without further action, the world could see a rise in average global temperatures by 4ºC by the end of the century. According to scientists, this could lead to further devastating impacts, including extreme heat waves, more intense tropical storms, declining global food stocks and a sea-level rise affecting hundreds of millions of people.
The climate crisis is an investment opportunity that can provide much needed employment and community benefits, says the report. The past two decades have seen considerable progress in creating profitable markets for green technologies, with global investment in renewable energy in 2011 up 17% on 2010 to US$ 257 billion. The report also finds that developing countries are playing a much larger role in powering the transition, providing evidence that countries do not need to give up their growth aspirations to advance strong domestic markets in climate-friendly technologies.
“It is clear that we are facing a climate crisis with potentially devastating impacts on the global economy. By unlocking private investment in water, agriculture and clean energy, we can together make the global economy and the environment more resilient,” said Felipe Calderón, former President of Mexico and Chair of the Green Growth Action Alliance, a coalition of leading companies, banks and public finance agencies created at the G20 meeting in Mexico in 2012.
The report includes four recommendations to unlock private finance to meet the climate challenge:
+ G20 leaders should renew their commitment that green growth is the only route to sustained growth and development, and report on progress in leveraging private investment.
+ Governments must accelerate efforts to phase out fossil-fuel subsidies, enact long-term carbon price signals, enable greater free trade in green technologies, and expand investment in climate adaptation.
+ Public finance agencies must redouble efforts to mobilize private capital for green infrastructure, using proven tools and practices.
+ Private investors can benefit from green investment but need to take a more proactive approach, using investor forums and expanded partnerships with public agencies to advance new financing solutions.
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