Neither rich countries nor poor ones can tackle climate change alone. The rich bear most of the responsibility for the greenhouse gases in the atmosphere. But if they make cuts while the poor go on a carbon-heavy growth binge, the climate will suffer anyway. Rich-to-poor aid has thus been a big part of the discussions ahead of December’s climate conference in Copenhagen, which is meant to hammer out a successor to the Kyoto protocol.
Public money will only go so far. The cash on the table for the rich world to help the poor world amounts to tens of billions-nowhere near enough to meet the needs of surging economies like those of China and India, which are both adding heavily polluting coal-fired power-stations at an alarming rate. Hundreds of billions will be needed for greener growth in this part of the world. How then to turn tens of billions of public dollars into hundreds of billions in private finance? Pension funds have a duty to guarantee their members’ retirement benefits, after all, not cut carbon.
New thinking on this problem is emerging. In a forthcoming paper the World Economic Forum (WEF) suggests how public money can be used to guarantee, at least partially, rich-world investment in developing countries’ greenery. Currency and political risk are among the factors currently keeping European pension funds, say, from investing in Indian renewables. The WEF calls for negotiations in which development banks-the World Bank or regional ones like the Asian Development Bank-would use public funds from the rich world to guarantee investors against these sorts of country risks.
Investors are also putting forward ideas of their own. On September 16, a group of 181 institutional investors, together representing $13 trillion in assets under management and including national, state and private pension funds, called on world leaders to agree stringent carbon-cutting targets at the Copenhagen meeting. Emissions must fall by 50-85% by 2050, said the group, and cap-and-trade systems like the one Europe has (and America’s Congress is considering) must be a big part of the plan. Predictability of future policy is vital for these large, would-be green investors.
To turn private capital into green projects in the poor world, the group floated the idea of government-guaranteed bonds for climate-related investment, as well as more direct public support for specific green funds, in the form of loss-sharing agreements and debt guarantees. Some investors, like CalPERS, a huge Californian public pension fund, have already experimented with government-hedged green bets at a local level. Now to convince leaders to do it globally.