"ADB as the Regional Leader in Asia and the Pacific on Climate Change"
Speech By
Haruhiko Kuroda
President
Asian Development Bank
At the Opening Session of the Clean Energy Forum: Policy and Finance Solutions for Energy Security and Climate Change
26 June 2007
ADB Headquarters, Mandaluyong City
I. Introduction
Distinguished guests, ladies and gentlemen:
It is a great pleasure for me to welcome all of you to ADB for this special forum on clean energy, energy security and climate change. I am delighted to see such a good turnout of participants from government, the private sector, academe, civil society and others from around the world who have helped bring these issues to the top of the global agenda.
As the world's fastest growing region, but one which is still home to the largest population of poor people, Asia faces a particularly daunting challenge in securing the energy it needs to support growth and poverty reduction in a responsible, sustainable manner. Obviously, sustainable economic growth calls for cleaner and more energy-efficient technologies and alternative energy sources. It will take a firm commitment by national leaders, and active support of the international community, for the region to achieve these goals.
II. Asia's Energy Challenge
The growth trajectory that Asia has been on for the last several decades is truly remarkable. More importantly, this growth has brought tremendous benefits to people in the region, not the least of which is a significant reduction in poverty.
Along with growth, Asia's energy consumption has been rising steadily, and the need to further reduce poverty and meet the Millennium Development Goals means that it will continue to rise. With more than 600 million people in the region still living on a dollar a day or less, and about 1 billion without access to modern forms of energy, you can see that this remains a major development challenge.
About 70% of Asia's energy needs are dependent on fossil fuels - a primary source of greenhouse gases. Asia now accounts for nearly one-quarter of the world's greenhouse gas emissions. Without a change in course, it will get worse. The International Energy Agency has estimated that the region will require between $4 trillion and $5 trillion from now to 2030 for new energy infrastructure. Most of these investments will be directed toward electricity, primarily coal-fired power plants. On this basis, it is reported that the global energy-related carbon dioxide emissions will surpass 40 billion tonnes in 2030, with Asia contributing about 40% of total emissions.
The recently released Fourth Assessment Report of the Intergovernmental Panel on Climate Change suggests that the current trajectory could result in an increase in global mean temperatures of 1.1 to 6.4 degrees Celsius by the end of this century - an increase that would have a devastating impact on natural environments and populations in Asia and around the world. Given this potential impact, issues surrounding energy security and sustainable development are central to Asia's future, and to the world's. Asia is also affected by emissions from high energy consumption in industrialized countries. So, while actions at the national level are important, the case for collective global action is clear. There will be no winners on the planet if the current pattern of energy consumption continues to rise and greenhouse gas emissions remain unabated.
The solutions to this complex challenge are neither simple nor easy, but some of them are clear. First, clean energy, including energy efficiency and renewable energy, needs to be actively promoted throughout the region on both the supply side and the demand side. On the supply side, developing countries should be encouraged to explore possibilities for renewable energy sources, such as wind, solar, and bio fuels. On the demand side, we know that efficient lighting, space heating and cooling equipment and other efficient appliances can reduce energy consumption by 70%. With residential and commercial buildings accounting for more than 60% of electricity demand in Asia, the potential savings can be significant.
Second, Asia needs to integrate adaptation into future planning and investment. As greenhouse gases remain in the atmosphere for many decades, we must prepare for the inevitable worsening of climate change. Adaptation is essential to reduce vulnerability, particularly in the more densely populated and less developed countries. National and international development organizations, including ADB, are already working with developing countries to build their adaptive capacity.
Third, cap and trade schemes or emission taxes for greenhouse gases are important to channel funds toward cleaner energy investments. The Kyoto Protocol has proven to be effective in transferring capital to developing countries for projects that reduce carbon emissions. Under the Protocol, the Clean Development Mechanism (CDM) is presently giving incentives to such projects. The Asia-Pacific Partnership on Clean Development and Climate is also working toward energy security, air pollution reduction, and climate change goals while promoting sustainable economic growth and poverty reduction. Furthermore, global commitment to tackle climate change was just reconfirmed this month in Heilingendamm by G-8 leaders as they agreed to seriously consider at least halving global emissions by 2050.
III. ADB's Role
We at ADB are fully on board with this global commitment. Given the enormity of the challenge, we have strengthened our institutional commitment and launched a strategic approach with our Clean Energy and Environment Program. The Program includes a number of initiatives to help our developing member countries increase their utilization of renewable energy and energy efficiency technologies. You will hear more about these in just a few minutes.
Firstly, though, I want to mention that we are in the process of reviewing our 1995 energy policy and developing a new energy strategy, one that will embody today's challenges and highlight our commitment to finding clean energy solutions for energy security and climate change. We will be holding consultations this Friday after the Forum and you are all invited to attend.
As the region's partner in development, we believe that ADB can play a catalytic role in further moving forward the clean energy agenda in the region. Last year, I announced our intention to increase our clean energy program to $1 billion a year. While this is only a small fraction of the region's needs, I am confident we can use this contribution to catalyze significant additional resources.
We believe that in order to increase the utilization of clean energy in our developing member countries, we need to facilitate wider deployment of clean energy technologies. This means raising awareness of new technologies, putting in place right policy and regulatory incentives to encourage their use, and putting together the right financing package to share the risks and to bring down the costs.
Conventional wisdom dictates that new technologies first go through the research and development stage, then are pilot tested and, when proven successful, commercialized. However, this is not always the case. Supercritical boilers for thermal power plants, for example, have been around for the last 15-20 years. Why isn't every new thermal power plant using super critical boilers? Why isn't every government or office building, shopping mall or street light using compact fluorescent lamps that use about 80 percent less energy than incandescent light bulbs? Why are windmills still sold at a premium when the technology has been around for such a long time?
The technology providers say that it is about economies of scale and that if they get more orders, the prices will go down. The buyers say that they will buy the cleaner technologies if the prices are lowered. Over decades, there has been slow but steady progress in decreasing the cost of clean energy along with increasing its utilization, as seen in the case of solar power. Now, momentum must be given to accelerate the progress, which requires the efforts of governments, the private sector, civil society organizations, and bilateral and multilateral development partners.
I believe ADB is uniquely positioned to address this. Just two months ago, our Board of Directors approved the establishment of the Clean Energy Financing Partnership Facility. It is made up of a multilateral clean energy fund and a series of bilateral clean energy trust funds. It also includes framework agreements for co-financing, knowledge sharing and risk sharing. Japan and Australia have already committed significant resources to the Facility, bringing it close to half of its 250 million dollar target. Several other countries have signaled their intent to put more resources into the facility. The Facility will allow us to design and implement innovative new financing mechanisms to deploy clean energy technologies in the region.
For instance, we are currently in the process of developing credit enhancement products that will allow local financial institutions (LFIs) to finance clean energy projects that they have been unwilling to finance in the past due to perceived risks or high financing costs. Similarly, we are exploring ways to introduce a performance guarantee to enable energy service companies to obtain financing from LFI for clean energy investments.
Often, clean energy technologies are more expensive than conventional technologies. These technologies should also have higher returns as they are more efficient. However, investors are unwilling to use these clean energy technologies because they are not sure of their performance and are unwilling to take the risk. Using the clean energy Facility, we are exploring the possibility of a contingent loan on the difference between the price of the new technology and the conventional technology. If the higher returns from the use of the cleaner energy technologies are not realized, then, the loan or part of the loan gets converted into a grant. Through this mechanism, ADB proposes to share the risk for the use of new technologies to encourage greater deployment.
We are also taking a more proactive role in clean energy through our private sector operations. Whereas in the past, ADB has only responded to incoming proposals, we are now actively seeking out and targeting clean energy projects for financing. For example, we recently floated a request for proposals to financial institutions that are looking to establish equity funds for clean energy projects. We also propose to use the clean energy Facility to undertake resource assessments for wind, small hydro and similar projects - an area that often proves a barrier to both the public and the private sector.
Another innovation is our Carbon Market Initiative, which provides up-front financing and continuous technical support to developers and sponsors of projects with greenhouse gas mitigation benefits that can qualify as eligible CDM projects under the Kyoto Protocol.
One issue that must not be forgotten is access to energy. As I said earlier, about one billion people still do not have access to modern, more efficient, and less polluting forms of energy. To promote wider access to cleaner energy as well as to be consistent with our "Energy for All" initiative, the ADB has already financed several projects with renewable energy technologies, examples of which include Tata Power Wind Energy Financing Facility in India to develop wind power generation facilities in the state of Maharashtra and Shanxi Coal Mine Methane Development Project in China to utilize coal bed methane and coal mine methane for power generation. More such projects will come on stream as we propose to identify international best practices that are replicable and scalable and deploy them in our developing member countries.
Finally, as part of our Clean Energy and Environment Program, we are promoting wider knowledge production and sharing through regional Knowledge Hubs. To date, we have established three knowledge hubs: The Energy and Resources Institute in India for renewable energy, Tsinghua University in the People's Republic of China (PRC) for climate change, and the Asian Institute of Technology in Thailand for the 3Rs (reduce, reuse, and recycle). We hope that these hubs will become a strong support to strengthen Asia Pacific's regional capacity to generate innovative concepts, science, technology, and management development related to clean energy.
You will hear more about each of these efforts over the next two days.
IV. Concluding Remarks
Let me close by thanking our co-sponsors, the United States Agency for International Development and the Department of State, and also the Asia Pacific Economic Cooperation or APEC for making this even possible.
I would also like to thank all of you for participating in this Forum, especially those who have traveled some distance to be here. With over 300 participants who are sector experts and senior representatives from governments, financial institutions, equity funds, technology providers, consulting companies, project developers, civil society organizations, academia, and bilateral as well as multilateral development organizations, we certainly have the right mix of skills and expertise. So let me propose a challenge to all of you. By the end of the forum, I would like you to come up with real solutions, on the policy and financing fronts, to deploy cleaner, more efficient, and less polluting technologies. I am confident that, if we all work together, we can put Asia's energy production and use on a more sustainable and more secure path.
Thank you, and best wishes for a robust and fruitful discussion.
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