From Vietnam to Vanuatu: Financing the clean energy revolution in emerging economies

China faces an unprecedented water crisis; years of overuse, unchecked industrial pollution and urbanisation have pushed its rivers, lakes, wetlands and streams to breaking point, many have dried out or have turned vivid colours through chemical contamination killing aquatic life. Water resources are swallowed up by the enormous demands of agriculture and industrial uses such as cleaning coal. Wells now have to be dug ever deeper to tap supplies, putting more pressure on the water table.

The air in Chinese cities is in a similar sorry state, deadly smog which keep the elderly and infirm at home is increasingly common, even on “good” days the air is often thick with dust and pollutants, the result is a public health disaster with over 1 million deaths attributed to air pollution every year. These scenes are now being repeated across other fast industrialising emerging economies such as India and Indonesia.

Thanks to its recent Five Year Plans and vocal demand from its citizens China is witnessing the start of an unprecedented effort to tackle the huge problems of waste, scarcity and pollution. Where China leads other emerging economies will follow suit, countries like Vietnam, Turkey and Egypt have their own growing problems, but they are not yet on the scale of China’s endemic levels of pollution and waste and have a chance to act before they run out of control. As this environmental crisis gets worse the need to find answers becomes more urgent, which is where environmental technology comes into play.

Environmental technology is a wide ranging sector but includes renewable energy, energy efficiency, public transport or any technology or applications which can reduce pollution, limit greenhouse gas emissions or improve people’s well-being. More often than not these solutions are often fairly obvious, there aren’t many cities that don’t want emission free modern bus fleets or newly installed super-efficient municipal heating systems, but of course not all cities can afford these ambitions.

Budget constraints are a feature of all governments but are even more keenly felt in developing countries, but there are options on the table for cities and states to access funds that will pay for environmental technology.

The Clean Technology Fund is run by Multilateral Development Banks (MDBs) like the Asian Development Bank and African Development Bank, they utilise the fund and invest it their countries of operation working with the governments to help match the money to their national and regional goals. So far US$3.8 billion has been invested – the MDB’s credibility also attracts private money increasing the impact of the project and helping to develop a self-sustaining market for environmental technology.

The Fund has backed everything from Turkish geothermal energy projects to Moroccan solar to public transport in Colombia. These help wean emerging economies away from fossile fuels and towards a more sustainable future. Despite the success and scale of these projects it is still a fraction of what is required to tackle the problems of climate change, pollution and waste that they are designed to solve.

The Scaling Up Renewable Energy Fund is aimed squarely at frontier markets who typically still lack the market for environmental technology but do have fast growing energy needs. Rather than turning to damaging yet tempting fossil fuels the Fund enables countries support the growth of clean energy. By backing early stage projects the Fund can help develop a market and expertise around solar and wind which provides a powerful demonstration effect, which along with the fact it is done in conjunction with MDBs provides a lure for private money even in frontier markets.

When the Pacific island of Vanuatu wanted to develop more sustainable energy sources the Fund backed by the World Bank was on hand to finance a solar powered rural micro grid which aims to connect the scattered population across many islands. The scheme also plans to extend access to electricity to 90% of the population (it was only 25%) by investing in new solar panels, hydro projects and measures such as installing energy efficient modern street lighting. This kind of infrastructure is invaluable for isolated nations like Vanuatu which traditionally face high energy costs.

The World Bank are also on hand to help governments determine the right policies and laws to help encourage clean energy and efficiency such as:

Mandatory standards and labelling of energy efficient white products.

Ensuring tariff and VAT legislations is reformed to make solar panels more attractive.

Legislation enacted to allow Public Private Partnership risk sharing schemes to encourage the private sector into the renewables sector.

These Funds are the ideal bridge between public and private finance as well as creating a market for environmental technologies, without them many projects would be considered too risky. In addition the influence of the MDBs on governments can often bring about real change in policies and legislation which create the right environment for a flourishing environmental technology sector.



Categories: climate finance, Country Investment Analysis, Development finance, Frontier Markets

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