Finance sector makes voice heard at UN climate talks

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Executives from Merrill Lynch and Goldman Sachs spoke alongside former world leaders in Copenhagen yesterday (16 December) to promote private finance as a way of helping poor nations switch to low-carbon energy sources. EURACTIV reports from the Danish capital.

Without urgent and concerted action, climate change will impact upon human welfare, damage ecosystems and threaten global security, warned Ricardo Lagos, former president of Chile and president of the Club of Madrid, the world’s largest forum of former presidents and prime ministers.

Lagos said concerted action implies not only public money to help developing countries to invest in low-carbon technologies, but also to scale up private investments.

“The Copenhagen focus is on public money. There is almost no reference to the private sector. We need to mix the two,” said Timothy Wirth, a former US senator.

A group of former investment bankers from Goldman Sachs and Merrill Lynch said the private sector was ready take on the majority of investments in low-carbon energy technologies. 

Yet negotiations for a post-Kyoto climate deal have not yet adequately engaged the private sector, they said.

No shortage of capital

Mohamed El Ashry, president of the United Nations Foundation, explained that trillions of dollars will need to be made available over the coming years to finance the switch to clean energy production. 

With such large numbers, “private investment must be at the front,” El Ashry said. He feels that there is “no shortage of capital” but the real challenge is to find ways to mobilise that capital to scale up low-carbon energy investments, especially in developing countries.

Proactive policies that put a price on carbon, eliminate subsidies for fossil fuels and encourage the use of low-carbon products will provide assurances that a long-term market for clean technologies can be maintained, the group argued.

“We have a long-term adventure ahead of us,” said Tracy Wolstencroft, managing director at Goldman Sachs, explaining that governments should guide and leverage private investments by fostering an enabling environment with stable regulatory framework and incentives.

Steering markets into the right direction

For Wolstencroft, markets need to be moved in the right direction, with support from governments. “It is like a three-legged stool: you need coordination between policy, technology and capital. If they are not moving at the same speed the stool will be wobbly,” he said.

The carbon market is seen as a key element to pull clean technologies through the different stages of development and bring them into the mainstream.

According to Abyd Karmali, managing director and head of carbon markets at Merrill Lynch, placing a global cap on emissions in the context of a global cap-and-trade system will create a strong incentive to reduce emissions and deploy the best and cheapest technologies available.  

“CDM [Clean Development Mechanism] markets have helped to promote renewable energy in developing countries,” he said.

But the Merrill Lynch executive underlined that a more solid framework was needed to ensure a credible price for carbon.

Developing countries will have to dramatically scale up their use of low-carbon energy if they are to reduce their fast-growing levels of greenhouse gas emissions while meeting growing energy demand.

The International Energy Agency (IEA) estimates that emissions could be brought back to current levels by 2050 using existing technologies. However, most of these technologies were developed in industrialised countries and are not readily available in the developing world.

According to the IEA, $45 trillion of cumulative investment is needed until 2050 in order to reduce emissions by at least 50% by that year, as agreed by the G8 in Japan.

In 2008, venture capital and private equity accounted for $19.3 trillion of total investment on a global scale. Financing for sustainable energy assets in 2008 grew 13% to about $117 billion, the bulk of which went to new power generation projects, according to the IEA.

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