Green is all about scale

Stephan Ouaknine follows a roadmap towards green economy

Globally, US$ 70 trillion will be spent on infrastructure by 2020. With these investments come choices. We could “green” our power, water, transport, buildings and other systems, and work towards a sustainable and prosperous future. Or, failing to do that, we could face the disastrous consequences of a 4 degrees Celsius average global rise in temperature.

These decisions are outlined in the Green Investment Report released by the Green Growth Action Alliance and the World Economic Forum on 25 January, as the Forum’s Annual Meeting kicks off in Davos-Klosters.

The report provides recommendations on how the public and private sectors can work together towards a green economy. While the majority of the investments over the longer term will ultimately come from the private sector, the public sector has a critical leadership role to play at this moment, especially in the field of clean energy.

The Green Investment Report notes that the private sector will only scale up financing for green investments if the risks and rewards are consistent with those of conventional investments.

In 2012, global new investments in clean energy reached over US$ 269 billion, according to Bloomberg New Energy Finance – not a paltry sum, though not sufficient to reach the goal of limiting global temperature rise to 2 degrees. Most of this investment was for low-risk project finance, usually wind and solar projects, deployed using mature technology and often supported by government subsidies.

A necessary component of achieving clean energy at scale is ushering in more efficient technology that can be weaned off subsidies and can also attract institutional investors. There are hundreds of technology companies that have met their demonstration milestones and have products ready for commercial adoption. However, these companies lack deployment capital – the means to reach the capital available today from pension funds and other institutional investors.

New financial instruments, insurance schemes and funding models can help address this gap. We will explore this theme further, including the Inerjys funding model for clean energy, in sessions at Davos-Klosters later this week.

Further, in a world where public dollars are increasingly scarce, these funds should be targeted towards the best “bang for the buck.” For example, the report notes that the highest leveraging factor is achieved where public dollars are used to attract larger private investments via clean energy funds.

Investors in the clean energy sector understand the obstacles and how new financial solutions can overcome them. In investor boardrooms around the world, the message I have heard is clear – if the public sector acts as a spark, private dollars will follow.

The Green Investment Report has laid out a roadmap for the green economy, and the infrastructure choices for the coming decades. It is up to the actors in the public and private arenas, many at Davos this week, to make these difficult decisions.

Author: Stephan Ouaknine is Managing Partner of Inerjys

Image: An employee works at a wind farm REUTERS/Stringer