core sector communique

Forum Report Identifies Policy Mechanisms to Bridge Funding Gap for Clean Economy

• New Forum report sets out 35 policy tools to finance global shift to a low-carbon economy
• Finance and industry chiefs are discussing the report’s proposals at the Annual Meeting in Davos
• Investment in clean energy is remarkably resilient but investors lack the mechanisms to bridge the financing gap  

Davos-Klosters, Switzerland, 28 January 2010 − In a report released today, entitled Green Investing 2010: Policy Mechanisms to Bridge the Financing Gap, the World Economic Forum reveals that investment in clean energy has held up better than expected during the financial crisis and resulting recession, but a considerable gap still exists between current levels of investment and what is needed to begin reducing the world’s carbon emissions.

In another report, Green Investing: Towards a Low Carbon Energy Infrastructure, the World Economic Forum stated that moving to a low-carbon energy infrastructure will require global annual investment of around US$ 500 billion per annum, if the increase in global average temperatures is to be restricted to 2°C.

Investment in 2009 was remarkably resilient at US$ 145 billion, down only 6% from US$ 155 billion in 2008, as the shortfall created by the financial crisis was largely filled by the launch of green stimulus initiatives around the world. In addition, the Copenhagen Accord, which was noted by the participants at the COP meeting in December 2009, contained a commitment by developed countries to invest US$ 100 billion in developing countries. While the next few years are likely to see record investment activities, a significant financing gap of US$ 350 billion still exists. To unleash adequate funds to bridge this gap, appropriate policy mechanisms are required.

The report’s authors, Anuradha Gurung and Max von Bismarck from the World Economic Forum, and Chris Greenwood and Michael Liebreich from Bloomberg New Energy Finance, state that “as a result of the continued financing gap, there is an urgent need for policy-makers around the world to implement measures at the regional, national and sub-national level, which will encourage investment in clean energy technology and projects. With this in mind, the report provides policy-makers with a toolkit consisting of 35 different policy mechanisms, which can be used to promote various clean energy sectors. The mechanisms can be chosen based on stage of technological development – R&D/proof of concept, demonstration and scale-up, commercial roll-out, diffusion and maturity – and also on stage of economic development.”

Policy mechanisms have to be tailored in the national, state and local context. Mechanisms for a financially viable shift to a low-carbon economy range from the establishment of national laboratories or research centres; requiring public entities to  procure clean energy or use emerging efficient technologies; programmes designed to reduce the cost of private lending and improve project economics; and microfinance.

A new set of ratings are used to evaluate the policy mechanisms and is based on how well they are likely to perform on three key criteria: whether they scale; whether they are economically efficient; and the extent to which each dollar of cost to the public purse catalyses private investment.

“The world needs a substantial increase in private investment flows into clean energy and energy efficiency if we want to avoid severe impacts of climate change,” said Jack Ehnes, Chief Executive Officer, CalSTRS, and Member of the Expert Committee. “This report not only lays out key opportunity sectors for private investors but also identifies very concrete tools for governments to bridge the climate investment gap.”

This year’s report provides an up-to-date description of 10 emerging, large-scale clean energy sectors that will form part of any low-carbon energy system of the future. It also describes the four key enablers that are required if these clean energy sources are to be integrated into the existing infrastructure: smart grids, power storage, advanced transportation and carbon, capture and storage. Given the importance of energy efficiency in moving to a more sustainable energy mix, the report also includes a separate chapter on energy efficiency.

The report is the result of a year-long collaboration between the World Economic Forum and Bloomberg New Energy Finance. Guidance was provided by an expert committee of 16 leading industry practitioners, thought leaders and academics:

Morgan Bazilian, Special Advisor on Energy and Climate Change to the Director-General, United Nations Industrial Development Organization, Vienna
Marcel Brenninkmeijer, Founding Chairman, Good Energies, Switzerland
Wes Edens, Chairman and Chief Executive Officer, Fortress Investment, USA
Jack Ehnes, Chief Executive Officer, California State Teachers Retirement System (CalSTRS), USA
Diana Farrell, Deputy Director of US National Economic Council; Formerly, Director, McKinsey Global
Institute, McKinsey & Co., USA
Peter Gutman, Global Head, Renewable Energy and Environmental Finance, Standard Chartered Bank, United Kingdom
Kirsty Hamilton, Associate Fellow, Energy, Renewable Energy Finance Project, Chatham House, United Kingdom
Wen Hsieh, Partner, Kleiner Perkins Caufield & Byers (KPCB), USA
Bruce Huber, Head of Cleantech Investment Banking; Chairman, Technology Investment Banking and Managing Director, Jefferies International, United Kingdom
Jeremy Kranz, Vice-President, GIC Special Investments, GIC Real Estate, USA
Marc S. Lipschultz, Member and Global Head of Energy and Infrastructure, Kohlberg, Kravis and Roberts and Co., USA
William E. McGlashan Jr, Managing Partner, TPG Growth, USA
Eric Martinot, Senior Research Director, Institute for Sustainable Energy Policies, Japan
Chris Mottershead, Vice-Principal, Research and Innovation, King’s College London, United Kingdom
Alan Salzman, Chief Executive Officer and Managing Partner, VantagePoint Venture Partners, USA
Eric Usher, Head, Renewable Energy and Finance Unit, United Nations Environment Programme, Paris

Close to 30 public and private sessions explore climate change and low-carbon economic growth issues at this year’s World Economic Forum Annual Meeting in Davos-Klosters. Topics range from industry-focused discussions on scaling up green investing, energy efficiency, smart grids, and carbon capture and sequestration demonstrations, among others, through to business conversations with governments and expert organizations on the broader policy environment that is most useful to focus the private sector on green growth following the outcomes of the Copenhagen Climate meeting in December.

One particular area of discussion at this year’s Annual Meeting involves the design of a high-profile platform involving international organizations, multilateral financial institutions and investor networks, with an aim to launch innovative mechanisms for financing low-carbon energy infrastructure in developing countries in 2010.