Combating Climate Change and Realizing Low Carbon Growth in Developing Economies

UNEP and Finance Groups Spotlight Transformative Policies to Beat Down the Barriers

Cape Town, 26 October 2009 - Ways of triggering multi-billion dollar, low carbon technology investments in developing economies are outlined in a new report today.

Experts indicate that investments of around US$500 billion a year will be needed to assist developing countries adapt to climate change while powering low carbon growth. (See background)

Much of the money will come from the private sector but will only flow if creative public policies that reflect the differing circumstances of developing economies are swiftly adopted, says the report issued by the UN Environment Programme (UNEP) and a global partnership of investors and insurance companies.

The report, Catalysing Low Carbon Growth in Developing Economies: public finance mechanisms to scale up private sector investment in climate solutions, was prepared by Vivid Economics based on case studies. The report makes several broad recommendations to overcome current hurdles.

1. Country risk cover - Insurance against country risk - i.e. risk of expropriation, breach of contract, war and civil disturbance - should be expanded and explicitly provided to support low carbon funds.

2. Low-carbon policy risk cover - Insurance should be provided where countries renege on policy frameworks / incentive schemes that are underpinning low-carbon investments, e.g. emissions trading, renewable energy support mechanisms.

3. Funds to hedge currency risk - Public finance could provide currency funds which offer cost-effective hedges for local currencies which would otherwise not be available in the commercial foreign exchange markets.

4. Improving deal flow - In order to provide a series of easily executable, commercially attractive projects, vehicles specializing in early-stage low carbon projects could be developed, and technical assistance could be provided to increase demand.

5. Public sector taking subordinated equity positions in funds - the public sector could invest directly in low carbon funds via "first loss equity", thereby improving the overall risk-return profile of such vehicles.

The findings were presented today in Cape Town at the 2009 Global Roundtable of the UNEP Finance Initiative which brings together investors, financial institutions, policymakers and civil society from around the world.

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