CCAP recently hosted a thought-provoking dialogue in Halong Bay, Vietnam for teams of policymakers from seven Asian countries in our Mitigation Action Implementation Network (MAIN) from July 24-26, 2012. MAIN is designed to help developing countries in Latin America and Asia to develop policy actions – known in UNFCCC parlance as nationally appropriate mitigation actions (NAMAs) – that can be jointly financed by developed nations and host countries to produce reductions in greenhouse gases (GHGs) as well as significant sustainable development benefits in those countries. Developing country participants raised some key questions about how NAMA finance differs from and relates to official development assistance (ODA) (i.e. flows of official financing administered to advance the welfare and economic development of developing countries) and about the emphasis on leveraging private sector investment as a key element for developed nations’ decisions on what policy actions to fund.
The following points were made during an Interview with CCAP President Ned Helme in response to CCAP’s recent MAIN Asia Dialogue in Vietnam.
Ned Helme is the founder and president of the Center for Clean Air Policy (CCAP).
Q: CCAP is emphasizing the health, mobility and other sustainable development-related benefits of NAMA policy actions in addition to GHG benefits. How are investments by developed nations in NAMA policy actions any different than traditional ODA?
A: There are two key differences between NAMAs and traditional ODA. First, both the host country and the partner developed country will be looking at this investment through a climate policy lens. The policy action has to make sense for both purposes – GHG reduction and sustainable development benefits. Second, the investment needs to leverage additional private sector investment. It needs to serve a catalytic purpose to make the investment in a wind farm economic when it was not before, or to remove a policy barrier that has discouraged such investments. A good example of the latter is Chile’s proposal to create a Price Stabilization Fund – with joint finance from Chile and a partner developed nation – that will provide a guaranteed price to wind and solar developers to protect them from the extreme price volatility that exists in the deregulated electric generation market in Chile. With certainty about the price they will receive from power sales, renewable developers can negotiate successfully with Chilean banks to finance their wind and solar projects, and Chile can avoid turning to imported coal to meet its rapidly growing electricity needs.
Q: This emphasis in NAMA design on leveraging private sector investment just seems like a way for multinational investors to make money. Why shouldn’t such contributions be in the form of unconditional grants instead of requiring the leveraging of private sector investment?
A: Grants with no strings attached clearly have immediate appeal to developing countries, but I would argue they don’t really serve the long-term global interest of developing or developed countries. In today’s tight global economic situation, assistance from developed nations is constricted. Governments around the world face pressure politically to focus their resources on domestic economic priorities. Hence, selling continued international assistance is a tough challenge. Demonstrating that assistance and investments in policy actions in developing countries have global as well as domestic benefits is critical. Likewise, showing that assistance leverages additional private investment and technological innovation is also a necessity. Politicians want to know they are making the most “bang for their buck,” and that those investments are encouraging their domestic companies to participate in the new green markets and in the technological innovation abroad.
From a developing country perspective, showing that international assistance and investment is leveraging broader development and health benefits as well as GHG reductions is equally important. Leaders in developing countries need to be able to demonstrate that such investments are producing tangible health benefits like decreased cases of cancer and respiratory infections due to reduced air pollution after replacing proposed coal plants with renewable alternatives or improving quality of life by offering a bus rapid transit and positive mixed-use urban development instead of sprawl and expanded car use. Expanding private sector investment in wind farms or positive transit and urban development also means jobs, expanded tax revenues, and green growth.
Q: CCAP emphasizes the importance of including financial tools in policy actions as country teams develop proposals. Should this be left to the finance experts, leaving energy and environmental policymakers to concentrate on their areas of policy expertise?
A: Policymakers in many developing countries have a good sense for what policy changes they would like to see to optimize GHG reductions and sustainable development benefits. However, what is often missing from their evolving policy actions is the financial engineering that would maximize the catalytic effect of partner-country support for these policy actions. Our goal is to create a set of “educated consumers” among the participating policy teams in the MAIN network so they understand and look to include the appropriate financial tools to maximize the impact of partner-country investments. CCAP and our consultants are teaching how to leverage the financial and economic impact of partner country assistance so that replication of policy successes is easier, and we see more wind farms, more bus rapid transit, more urban development investments, and more composting, recycling and energy recovery from waste. Most support from developed partner countries will likely not be in the form of straight grants. By creating revolving funds and special purpose entities to reduce the cost and increase the penetration of such facilities, offering performance guarantee mechanisms to ease financing barriers, and blending finance to extend the payment periods for investments, developing countries will be able to maximize developed country support as well as the benefits from policy actions.
As CCAP moves forward with NAMA development in both Latin America and Asia, information concerning financial mechanisms will be updated regularly. Check out our recent publication, Overview of NAMA Financial Mechanisms for more information.