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Financing Partnerships to Advance Climate Change Action

Speech by
Haruhiko Kuroda
President
Asian Development Bank

At the High-Level Event of Finance Ministers Meeting on Climate Change

11 December 2007
Bali, Indonesia

Your Excellencies, distinguished guests, ladies and gentlemen: I would like to thank Minister Sri Mulyani Indrawati for giving me the opportunity to present my views on the challenges of climate change and common objectives on finance issues.

I.  Introduction

The Intergovernmental Panel on Climate Change (IPCC) warns that the current trajectory of greenhouse gas emissions could have a devastating impact on the people of Asia and around the world. An increase in the frequency and intensity of storms, droughts and heat waves, for example, would adversely affect health and livelihoods, threatening the sustainability of growth and development in the developing nations. Unless actions are taken now, progress achieved in meeting the Millennium Development Goals could be reversed in just the next two generations - during the lives of our children…and their children.

Climate change presents a daunting challenge. But it also provides an opportunity to transition toward a sustainable growth pathway. There are now financing mechanisms that encourage the adoption of clean energy technologies. There are also growing interests in seeking cross-agency and cross-border cooperation. Fundamentally, the opportunity lies in shifting our development paradigm - toward one that adopts technological and institutional innovations to attain energy and resource sustainability.

In the next few minutes, I would like to highlight some key ways to mainstream both climate change mitigation and adaptation into development strategies. I would like in particular to call for regional financing partnerships that can turn these strategies into action.

II.  Mainstream Mitigation

Promote Energy Efficiency and Clean Energy

Energy-efficient economies using diverse and indigenous energy supply are remarkably resilient to external shocks. This strengthens the region's competitiveness and sustains high levels of growth.

If the majority of new systems being installed used clean energy options, few alarms would ring. But fossil fuel is driving the expansion of emerging economies because it is the most affordable today. In developing Asia, fossil fuels will remain a dominant source of energy - accounting for over 84% of the overall increase in global demand between 2005 and 2030.¹ Therefore, the foundation of a sustainable development pathway is to make economies as energy-efficient as possible. Efficiency improvements on the demand-side can be implemented across a broad spectrum, including industrial, commercial, residential, and transport sectors, in cost-effective ways.

In parallel, we must make efforts to meet essential energy needs through low-carbon and zero-carbon options. Incremental costs for biomass cogeneration, wind, geothermal, hydropower and solar water heating are fast declining, and in many areas with rich renewable resources, these options are becoming competitive against costs of using fossil fuels. In short, demand- and supply-side interventions must go hand in hand to address carbon emissions from energy consumption.

Fugitive Emissions and Land Use

When hearing climate change mitigation, most people think "energy". However, fugitive GHG emissions and emissions from land use changes are also significant sources.

There is great potential for methane recovery and use, particularly in Asia, in the landfill, oil, natural gas, agricultural wastes, and coal mining sectors. ADB actively supports the global Methane to Markets Partnership which promotes the capture and use of fugitive methane emissions as a valuable source of energy.

Deforestation also contributes to GHG emissions, especially in developing Asia. For instance, it is estimated that land use change in Indonesia accounts for over 80% of the country's total GHG emissions.² Globally, deforestation accounts for 18% of global carbon emissions.

As many of the world's poorest people depend on forests and forest products, we have to consider the economic implications of any forest management policy and program. We need to create incentives to prevent deforestation and establish sustainable forest management practices.

III.  Integrate Adaptation into Development Planning

Even with ambitious mitigation measures, the world is already locked into significant levels of climate change. The Stern Review estimates that even with international action to keep GHG concentrations low, adaptation measures will still cost developing countries $10 billion annually just for the necessary infrastructure adjustments in response to floods, storm surge, water shortages, cyclones and other increased risks.

Developing countries underscored the importance of adaptation at last year's UN Climate Change Conference in Nairobi and argued that higher priority should be given to adaptation in the allocation of funds. National and international development organizations, including ADB, are responding to this call.

ADB is already implementing assistance for climate change adaptation in Central Asia, the Greater Mekong Subregion, and the Pacific. In Indonesia, ADB is providing assistance in addressing water resource management in the Citarum River Basin. It is the most critical river basin in the country in which over 20 million inhabitants of West Java and Jakarta metropolitan area depend on for water supply and electricity. More than $3 billion is expected to be invested in upgrading water resources management infrastructure and institutions over the next 15 years.

In Southeast Asia we would like to adopt the Stern Review methodology and study more closely the economic impacts of climate change in the region and countries including Indonesia, and the cost-effectiveness of adaptation investments. The study will also evaluate the economics of various mitigation opportunities in the region and how they could contribute to global efforts. Findings will be reported at next year's Conference of the Parties.

IV.  Mobilize Financing through Partnerships

Introducing and mainstreaming mitigation and adaptation measures requires finance. Concessional funds will still need to be at the core, particularly for many low-income developing Asian countries. At the same time, we must act to "unleash" private sector capital. The key is carbon pricing and other market mechanisms that would induce companies to invest differently.

ADB is committed and ready to play a key role in mobilizing capital in the region. The ongoing review of ADB's long-term strategic framework provides a forward-looking platform for us to focus on climate change responses as an integral element for sustainable growth and poverty reduction.

Part of our strategic response to catalyze finance for climate change is the Clean Energy Financing Partnership Facility which aims to provide concessional loans for the incremental cost of efficient technologies as well as guarantee services to cover the potential "first loss" from clean energy investments. These schemes can help leverage more capital to flow into the region. We have received strong support from several donors so far, and are discussing with many of our member countries to scale up the facility.

The Carbon Market Initiative, or "CMI," provides up-front financing and ongoing technical support for GHG mitigation projects and "make new projects happen" by filling the initial capital and capacity constraint of many clean energy projects. We plan to extend the scheme much beyond 2012 and have proposed the Future Carbon Fund that can pay upfront as a source of project cofinancing against post-2012 carbon credits. We look forward to discussing this with many of our member countries. We hope to make the proposed scheme operational as soon as possible to help address the financing gap faced by many clean energy projects.

We are also collaborating with other international development and financing institutions on mutually leveraging various financing and technical support schemes in developing countries. The multilateral development banks have fleshed out their financing efforts related to climate change into a single report to aid policy-makers and project developers.

V.  Call for Regional Cooperation

While national responses are vital, we need to consider broader issues that transcend national boundaries. During the 3rd East Asia Summit last month, I brought up a few topics for discussion by the national leaders. Let me reiterate some of the key points on financing issues.

1. First, we need concerted efforts to establish incentives for projects that address regional and global energy security, in particular oil security. For example, world leaders were able to create a market to value GHG reductions - a public good. Is there a way to create a similar market, and thus send positive price signals, for projects that contribute to energy security? This could boost investment in public transport projects, for example, that can earn both carbon credits as well as "energy security" credits.



2. Second, we need to add new project categories that can benefit from carbon credit revenues. Deforestation is one area in which we must see a breakthrough in the ongoing Conference of the Parties. We support the World Bank's proposal for a Forest Carbon Partnership Facility, and call for more partnerships to scale up efforts in this area.



3. And third, can we slowly build up a pool of funds to help dampen the financial impact to countries that may be called to accommodate large populations displaced by climate change? No single country should have to bear the burden of climate-driven refugees on its own. Simultaneously, we must start forming a legal framework so those people can receive the most basic protection if and when the time comes.

There are important financial implications in moving forward with this agenda. But through our creativity, persistence, commitment and enhanced public-private partnerships, I am confident we can find practical and realistic solutions.

VI.  Concluding Remarks

Climate change is daunting. However, it is also an opportunity for our region to adapt to sustainable patterns of development. Through partnership, we can promote policies, technologies, and financing schemes that promote energy efficiency, increase the use of renewable energy, and help the Asia and Pacific region adapt. In doing so, we can make the region's and the world's future brighter, and more resilient.

I look forward to working with you to take on this new development challenge. Thank you.