Can markets be better equipped to boost low carbon technologies?

8 May 2015

The New Climate Economy report released last September by leading economic thinkers argues that the next 15 years will mark a critical phase in world development. Fundamental systemic shifts could see up to US$90 trillion invested in urban, land use, and energy systems infrastructure during the period. The direction of these investments will likely determine the long term health of the global economy. The UN Framework Convention on Climate Change (UNFCCC) has recognised the need to close a “financing gap” for low carbon technologies across all nations. Developing countries in particular, however, are projected to require in the order of an additional US$105-402 billion per year until 2030 for climate mitigation technologies alone. In mid-April BioRes spoke with Maria Mendiluce, Director of the World Business Council for Sustainable Development (WBCSD)’s climate and energy programme, on public private partnerships to boost low carbon technologies, the role of trade and investment, as well as key market enablers and barriers to the scale up of existing technologies.

Can you tell me a bit more about the Low Carbon Technology Partnerships Initiative [LCTPi] and what its key deliverables will be? What are some of the technologies included in this initiative?
[Maria Mendiluce]
Through the LCTPi we are aiming to deliver powerful low carbon business solutions that support the global climate action agenda and the UN climate talks. The market is changing and many clean technologies are becoming increasingly competitive. But we believe that a lot more can be done.

This is why we are calling for companies to actively participate in large scale partnerships that can accelerate the implementation of transformational technology solutions. At the Twenty-First Conference of the Parties [COP21] to the UNFCCC in December in Paris, France the LCTPi will announce the launch of several technology public private partnerships.

The LTCPi is unique, however, in adopting a beyond business as usual approach. On the one hand, the initiative aims to scale up the development and diffusion of low carbon technologies. On the other hand, it also aims to encourage further research, development, and administration of potentially game-changing low carbon technologies.

The LCTPi is currently targeting partnerships in areas such as renewables, carbon capture and storage [CCS], advanced biofuels, chemicals, energy efficiency in buildings, cement, forests, and agriculture. We are also scoping new areas of work, including freight transport, smart grids, chemicals, and digitisation.

How do you plan to take this work forward after the UN Framework Convention on Climate Change [UNFCCC] meeting in Paris, France at the end of this year?
We see the LCTPi as being part of WBCSD’s Action2020 business agenda that extends beyond Paris. COP21 is an important milestone around which a lot of momentum is being generated to showcase action and leadership. Our activities will benefit from this but also extend beyond Paris. Some of the partnerships generated in the run up to the COP will live within WBCSD and others will find a home in other institutions.

What do you see as the key market barriers to the diffusion of existing low carbon technologies?
I think the most significant barrier is the higher cost of low carbon technologies vis-à-vis fossil fuel alternatives. This is particularly the case in the absence of a robust and meaningful carbon price.

Another important barrier is the lack of long term financing options for transformation towards a low carbon future. Social acceptance on both production and consumption sides is important. Often, despite the available technologies, consumers are unwilling to change their habits.

Technological and regulatory skills shortages also constitute a barrier in both developing and developed countries. Regulations often have been created for incumbent technologies but require adaptation to accommodate new technologies. This is relevant in the case of renewables given their remarkable differences compared to other types of electricity production. Markets need to adjust with a view to incorporating these new technologies that have different characteristics from traditional energy sources.  

What role could an Environmental Goods Agreement between the current 17 WTO members play in boosting clean energy technology diffusion?
By reducing tariffs on low carbon goods, such an agreement would allow these technologies to become more competitive in global markets. The demand for the technology will increase thus helping to build economies of scale that will lead to further cost reductions. In other words, lower tariffs would facilitate the process of a positive feedback loop.

By comparison, support provided in the renewable energy sector decreases costs, resulting in increased demand, which in turn has brought additional cost reductions. The same pattern could apply with the reduction of tariffs on relevant clean energy products.

What are the key overall enablers for investment in and sales of low-carbon technologies in developing countries?
Population growth and increased prosperity are generating massive demand for energy, food, water, and materials in developing countries. These countries will eventually need to take advantage of technology advances and lessons learned in order to reduce their carbon footprint.

While technology “leapfrogging” can help, there are still a number of other important changes that need to happen. Developing countries will have to put in place mechanisms that integrate higher shares of renewables in the grid. They should work towards the decarbonisation of transport through the use of advanced biofuels and electric mobility. CCS should be integrated into all fossil fuel plans in power plants and industry.

Such efforts would allow for the creation of new cities and systems that incorporate state-of-the-art technologies. However, in order to do so, developing countries need to put in place stable and predictable policy frameworks for a low carbon economy. Other measures could be the inclusion of carbon pricing mechanisms to redirect investments towards low carbon options, penalising greenhouse gas emissions intensive products, and the elimination of fossil fuel subsidies.

What is the business case for investing on low carbon technologies in developing economies?
The business case for investing in low carbon technologies in developing economies is largely a matter of scale. Compared to a stagnant European economy, developing countries offer great potential for investment. There is the possibility of introducing new consumption patterns. Many developing countries also have a wide range of energy resources to tap into ranging from solar to hydro.

What sort of public private opportunities do you envisage under the LCTPi? Can you tell me a bit more about what might be launched in Paris?   
For the time being we are working on defining the partnerships to be announced in December. A key objective of the LCTPi is to develop shared action plans between different public and private stakeholders.

We expect the private sector to support policymakers in creating and adapting the required regulatory framework for the deployment of low carbon solutions. This could include, for example, new mechanisms that facilitate the integration of high volumes of intermittent renewable energy in the grid.

We also envisage the public sector taking specific actions directed at improving the financing of low carbon projects, though new market mechanisms, standardisation of projects, and de-risking instruments.   

Do you have any comments on how to bridge the financing gap for mitigation and adaptation technologies in developing countries?
I often hear that the capital is available but there is a lack of bankable projects. Incertitude around regulatory frameworks can render investments too risky. Consequently, in the area of renewables, we are going to provide specific recommendations to reduce the risk of investments in developing countries. We will explain how technological advances and new business models are changing the market. These technologies are becoming increasingly competitive and reliable thus minimising risks for investments.

We will also connect with some of the national climate pledges made in order to support government efforts. For example, India is aiming to have 100 gigawatts [GW] of renewable energy by 2022.

We will support these efforts by reassuring countries and governments that the technologies exist, that we are behind them, and that we can deploy these, but that there are certain regulations that will need to be put in place.

Technology transfer could be described as a hot button issue in both the UNFCCC process as well as in other intergovernmental forums. Will the LCTPi engage with the work of the Technology Mechanism as the lead UNFCCC body that works on this topic?
WBCSD has been involved in the UNFCCC Technology Mechanism for many years. We will continue to provide support and insight.

We are also participating in the UNFCCC Technology Expert Meetings (TEMs). We will contribute to these meetings with the expertise of the LCTPi. Furthermore, in the last two months, we have focused our efforts in acquiring buy in from the private sector for the LCTPi in the context of UNFCCC arena.  

We are also currently focusing our efforts on defining ambition among the various partnership proposals and drafting action plans.  Once these action plans have been developed, which is expected to happen by September, it will be a good time to connect with other international institutions dealing with technology and investment to talk about concrete steps.

Supportive of this partnership, the French presidency of COP21 is very keen to see us contribute to other regional technology debates. For example, we are looking into ways of collaborating, participating, or providing feedback on the Clean Energy Ministerial in Mexico at the end of May. We are also working closely with the Japanese government that is organising an important technology event in October.  

How does the work of the LCTPi relate to the other major international talks ongoing this year, namely, the post-2015 development agenda and its proposed sustainable development goals [SDGs]?
As you know, tackling climate change is a prerequisite for achieving sustainable development and poverty eradication. WBCSD is designing a toolkit for business to help demonstrate how they can contribute to the realisation of the SDGs while showing business that there is a solid case for aligning with these new goals and targets. Businesses cannot succeed in societies that fail.  

Through the LCTPi businesses are presented with an opportunity to act as a solution-provider to help achieve the SDGs. The initiative could also provide inspiration and direction for more effective partnerships.

We are seeking to achieve two objectives through the LCTPi in the context of the post-2015 development agenda; to accelerate the diffusion of low carbon technologies, and develop public private partnerships that are instrumental to the achievement of SDGs numbers seven and 17 on energy and partnerships respectively.

How does the LCTPi relate to WBCSD’s other engagement in the UN climate talks, for example, the Business and Climate Summit in Paris in May and the President of the UN General Assembly’s high level event in June?
We are a partner of the Business and Climate Summit [BCS] and we are bringing lessons learned from the LCTPi to that forum. We are organising an LCTPi meeting back-to-back with the BCS.

We are also developing a series of regional engagements. We are a planning to go to South Africa, India, and Brazil in September; Japan, China, and the US in October. We will be at COP21 in Paris.

Through these regional engagements we are trying to prompt discussion in several areas. In the first instance, what is the climate reality of each country? What is the business perspective on each nation’s intended nationally determined contribution?

We will also discuss relevant aspects of the LCTPi in order to incorporate country specific circumstances into the global programme. The regional dialogues will feed back into the overall LCTPi agenda and action plans. Local dialogue will strengthen each action plan.

How do you see business engagement in the lead up to Paris and in the country-led multilateral talks?
Business is already doing a lot of things. Many companies are committed to zero deforestation, renewable energy procurement, and are trying to manage their emissions. But we believe that the private sector can do more.

The LCTPi is an instrument for channelling this urgency for additional effort and providing concrete action plans.

And to link it to governmental processes?
In some ways business is here to reassure governments that they can commit to an ambitious climate agreement in Paris. It is inevitable, there is a sense of urgency, and all businesses know that something needs to be done. We must do something. The earlier the better.

I think private sector engagement in the climate talks has become more positive and constructive. The conversation is now around opportunities, it is about showing what business can do.

Things have changed a lot since the climate talks back in 2009 in Copenhagen, Denmark. We used to talk about enabling frameworks for technology diffusion in general, but now we are talking about concrete solutions and actions, and this is an important change.

Maria Mendiluce, Director of the World Business Council for Sustainable Development (WBCSD)’s climate and energy programme. WBCSD is a CEO-led organisation of companies geared towards galvanising the global business community to create a sustainable future for business, society, and the environment. 

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