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Financing Partnerships to Address Climate Change

Speech by
Haruhiko Kuroda
President, Asian Development Bank

At the High Level Session on Climate Change and Finance GLOBE Tokyo G8+5 Legislators Forum

29 June 2008
Tokyo, Japan

I.  Introduction

Your Excellencies, distinguished guests, ladies and gentlemen:

I would like to thank the Chair (Right Honorable Stephen Byers), GLOBE, and the Japanese Hosts for giving me the opportunity to speak to the importance of finance in addressing climate change.

Asia is now the most economically dynamic and vibrant region in the world. Sustained and accelerated economic growth, especially in the People's Republic of China (PRC), India, and parts of Southeast Asia, has been truly impressive over the past three decades. But while the benefits are obvious, economic growth and rapid urbanization have not come without environmental costs.

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. And Asia's share of GHG emissions is rising rapidly. Undoubtedly, the hardest hit will be the poor, who are often directly exposed to nature and its extremes and who also depend heavily on natural resources for their livelihoods. Unless bold and concerted actions are taken now, any momentum towards meeting the Millennium Development Goals and keeping millions of people out of poverty could be jeopardized.

Climate change presents a daunting challenge - perhaps the biggest ever faced by humanity. But it also provides an opportunity to transition towards a more sustainable growth path. Developing countries cannot be denied the chance to share in the planet's wealth. They can, however, choose to approach economic development differently by leapfrogging directly to more energy-efficient and sustainable solutions. Since infrastructure investments can establish a country's pattern of resource use for decades to come, the time to act is now - before this infrastructure is set in stone.

II.  Finance

Doing so, however, will require significant financial resources, and multilateral development banks like ADB can play a proactive role in mobilizing the necessary capital. Through our new long-term strategic framework, we are focusing on climate change responses as an integral element for sustainable growth and poverty reduction. We are also working to further mainstream climate change considerations into our core operations, and to scale-up investments in new cleaner technologies. Concerns for climate change adaptation will also be reflected in our country partnership and sector strategies, and we will mobilize financing for adaptation measures such as water management systems.

Concessional funds are critical to these efforts, particularly for many low-income developing countries. Our Clean Energy Financing Partnership Facility (CEFPF), established last year in collaboration with donor countries, will help shift ADB's project portfolio toward low-carbon technologies and support related capacity development activities. We recently established a Climate Change Fund, with an initial contribution of $40 million from ADB resources. And we are collaborating with the World Bank and other multilateral development banks to operationalize and scale up donor support for the Climate Investment Funds. We indeed hope to use our increased Asian Development Fund window of $11.3 billion for next four-year period to effectively contribute towards our climate change initiatives.

However, it is important to understand that we do not have enough official development assistance to simply "buy out" the problem of climate change. In fact, we cannot come even close. For example, the quantity of emission reductions that can be "purchased", i.e. without any leverage, by $10 billion of ODA funds at $20 per ton of carbon dioxide, is still less than 3% of what is needed to cut global emissions in half by 2050. For that reason, we must use concessional funds in a way that will leverage and catalyze other funding and "unleash" private capital. The key is to establish incentives that will induce companies and individuals to go about their businesses differently - much differently.

On this front, we at ADB are preparing to provide concessional funds for the incremental cost of shifting from prevailing technologies to more efficient alternatives. The majority of investments will come from existing financing channels but the "soft" funds will encourage the transfer to more efficient technologies that may initially be more expensive.

As a start, a study funded through our Clean Energy Financing Partnership Facility will assess barriers to the deployment of Integrated Gasification Combined Cycle or "IGCC" technologies in India. IGCC is currently the most advanced coal utilization technology, and can significantly reduce carbon dioxide emissions during a power plants' operational lifetime. Once these barriers are identified, concessional loans can offset the initial high cost of IGCC equipment until the economics under commercial terms become equal to that of conventional technology.

We are also developing guarantee services for clean energy so that private companies can take higher levels of risk in new countries, sectors, and technologies. This is also being prepared under the Clean Energy Financing Partnership Facility.

Besides these concessional funds, our Carbon Market Initiative provides up-front financing, as well as technical support, for greenhouse gas mitigation projects. This fills the initial capital and capacity constraints of many low-carbon projects and allows them to move forward. For instance, we will be financing a geothermal space heating project in China's Hebei Province. Geothermal energy will replace the current coal fired boilers and room heaters, thus improving local air quality and reducing greenhouse gas emissions. The project will also generate additional revenue from the sale of carbon credits which will flow into a poverty fund to improve access to heating service for the poor. We plan to extend carbon market services to our developing member countries well beyond 2012 and have proposed the Future Carbon Fund that will use post-2012 credits to provide upfront financing for new projects.

As I announced at our Annual Meeting last month in Madrid, we are investing $100 million as seed capital to help establish five private sector funds focused on clean energy investments. The objective is to catalyze private sector capital to advance energy efficiency, renewable energy, and other low-carbon opportunities. We are aiming to mobilize a total of $1.2 billion for investments in projects across Asia.

III.  Way to Move Forward - Regional Cooperation and Partnership

Quite obviously, in order to marshal adequate financial resources for this onerous task of mitigation of climate change to ensure sustainable development, all concerned will have to effectively collaborate. This calls for active and successful regional cooperation efforts.

To confidently move forward, national efforts need to be effectively complemented by active interagency and interdisciplinary collaboration. The main idea should be to mainstream both climate change mitigation and adaptation into national development strategies.

There is no denying the fact that there are significant hurdles in the way of moving forward towards finding the much needed financial resources equal to this gigantic task. But through our creativity, perseverance, zeal, commitment, and most importantly, PARTNERSHIPS, I am confident that we can find effective solutions together to provide the required financial resources for the task at hand.

IV.  Concluding Remarks

Given the enormity of challenges confronting us with climate change, the choice should be crystal clear- take action now or pay dearly later. Through partnerships, we can promote policies and financing schemes that advance energy efficiency, increase the use of renewable energy, and help developing nations adapt. In doing so, we can make the future brighter, and more resilient for the Asia and Pacific region, and for the world.

I look forward to working with you to take on this increasingly important development challenge and multiply our collaborative efforts to find an enduring solution for our posterity. Thank you.