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Mobilizing Finance to Address Climate Change

Statement by
Ursula Schäfer-Preuss
Vice President
Knowledge Management and Sustainable Development
Asian Development Bank

At the 4th Ministerial Meeting of the Gleneagles Dialogue on Climate Change, Clean Energy and Sustainable Development

15 March 2008
Chiba, Japan

Introduction

Your Excellencies, distinguished guests, ladies and gentlemen:

I would like to thank the Chairman of Japan for the opportunity to present ADB's views on ways to mobilize financing to address climate change.

Asia and Climate Change: A Major Development Challenge

There is a growing and clear consensus that climate change is a fact of life, and that its adverse impacts are increasing. Rising global temperatures create a compounding effect on forests, water and other natural resources, which is likely to exacerbate the damages to human lives.

The case for action on climate change is particularly strong in Asia and the Pacific, as the region is expected to suffer many of its most detrimental impacts. About 1.2 billion people could face freshwater shortages by 2020; crop yields in Central and South Asia could drop by 50% by 2050; Asia's coastal megacities including Bangkok, Jakarta, Karachi, Manila, Mumbai, and Shanghai are vulnerable to flooding and damage from unpredictable weather patterns; and within this century, the citizens of Tuvalu, the Maldives and coastal Bangladesh may be forced to become "climate refugees." The poorest people in the region will suffer first and most. We must act now to maintain our progress toward the Millennium Development Goals for income poverty, health, and the environment itself.

In addition to being hit hard by the adverse consequences, Asia is fast becoming a major source of greenhouse gas emissions - a consequence of rapid and carbon-intensive economic growth. Thus, the region has a special role to play in the area of mitigation. Today, developing Asia accounts for 29% of global energy-related carbon dioxide emissions, three times bigger than its share 30 years ago. With an estimated $6 trillion needed for energy investments by 2030, it is projected that Asia's share of energy-related carbon emissions could rise to 42%. Total emissions from Asia are much higher, when one adds those from deforestation and land degradation. Unless specific policies and actions are taken, the region will quickly become the main driver of climate change.

ADB's Actions: Three Issues on Improving the Financing Mechanisms

Climate change poses a critical development challenge, but it also provides an opportunity to promote a transition toward a sustainable growth pathway.

Specifically for today's session, I would like to highlight three key actions to complement and enhance the existing financing and investment mechanisms:

First, we need to improve existing schemes, such as the Clean Development Mechanism (CDM). When the CDM was introduced 10 years ago, there was much expectation from the developing countries that it would provide the necessary upfront financial and technical support for new sustainable development projects that would reduce greenhouse gas emissions. Today, due to the lack of buyers willing to share project development and operational risk, it is mostly functioning to provide additional cash flow to projects that are already able to move forward with its own financing.

Through ADB's Carbon Market Initiative, our developing member countries receive technical assistance and financing during the project development stage; afterwards, they deliver carbon credits once the projects are operational. In addition to the existing $150 million Asia Pacific Carbon Fund, we are proposing a Future Carbon Fund, which will pay upfront for post-2012 carbon credits to be generated by ADB-assisted projects. We are also striving to make several critical sectors benefit from carbon trading schemes - for example public transportation projects (e.g., bus rapid transit) and small energy efficiency projects (e.g., compact fluorescent lights).

Second, we need more partnerships that can pool technical and financial resources to address both mitigation and adaptation. I would like to congratulate Japan, US, and UK authorities for leading the establishment of the Climate Investment Facility. It is an important step towards improving financing on climate change. ADB will be an active supporter and implementing agency. In addition ADB's Clean Energy Financing Partnership Facility provides loans and guarantee products that can help companies take more risk when considering clean energy investments in emerging economies.

Particularly on the adaptation side, there is a need to build up a pool of funds to help reduce the financial burdens 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. The UN family, ASEAN, APEC, and other agencies and groups are called to move forward on the policy dialogue and to prepare the legal framework to support and protect climate refugees. ADB is prepared to play a role in the financial framework according to our mandate as a regional development bank. All of us in the international community are called upon to jointly develop policy guidelines and legal concepts on how to deal with this anticipated burden for societies in different parts of the world, in particular in Asia and the Pacific.

Finally, we must consider additional market incentives other than greenhouse gas reductions. For example, some of the incentives in the U.S. that will lead to improving local air quality are now considered in the PRC - to reduce urban pollution, as well as CO₂ emissions. We should also look at the benefits of public transport and high-efficiency vehicles that contribute to regional and global energy security, and consider ways to turn those into market incentives. ADB is scaling up its Sustainable Transport Initiative to support such activities, and will also ensure that private sector investment - supported by the proper incentives - will be one of the main pillars for addressing the financing challenges.

Conclusions

Ladies and gentlemen, honored guests, I want to thank you again for inviting me to this important event. In the context of global collaboration, ADB will continue efforts to achieve our common goals for the Asia-Pacific region, in particular through strong partnerships, to jointly spur local actions for global solutions - within the timeframe necessary to avoid the dangerous levels of climate change that will spell calamity for all people, and particularly the poor. Thank you.