Financing Low Carbon, Climate Resilient Infrastructure: The Role of Climate Finance and Green Financial Systems

Abstract

This paper focuses on the need to financing low-carbon climate resilient (LCR) Infrastructure in order to achieve the Paris Agreement’s climate change goal of keeping global average temperature well below 2 degree Celsius and in order to meet the Sustainable Development Goals. For instance, approximately 70 percent of greenhouse gas emissions come from infrastructure (such as electricity generation, transportation, industry, and buildings) and that the resulting climate change will have a disproportionate impact on the poorest and most vulnerable communities.

To meet global infrastructure needs between 2015 and 2030, spending on infrastructure will need to increase from current levels of around $3 trillion a year to over $6 trillion in 2030. This increases to $8 trillion a year once investments in energy efficiency and primary energy are included.

However, the net costs of building LCR are low and potentially net positive. Yet there are significant financing challenges because the costs and savings of building LCR infrastructure are realized by different actors at different times. As a result, there are significant financing challenges as the costs and savings are realized by different actors over time.

Private sector finance could meet up to half of the infrastructure investment needs. The paper focuses on how climate finance can be used to increase the flow of private capital into LCR infrastructure. The paper discusses the looming infrastructure needs of both emerging markets and developing economies and the role that this new infrastructure can play in either increasing or reducing the degradation of our climate. Specifically, the report:

• Outlines LCR infrastructure needs from 2015 to 2030 and the need to reallocate capital from carbon intensive infrastructure such as coal-fired power stations into low carbon energy options, energy efficiency and green technologies;

• Analyzes the implications of the 2015 Paris climate change outcomes for climate finance;

• Provides an overview of available climate finance, where this finance is coming from, and how it is being used;

• Discusses how climate finance can be most effectively used to finance LCR infrastructure projects, with a focus on using public concessional finance as provided through the multilateral climate funds to de-risk and crowd-in private sector finance the role of multilateral climate funds; and

• Explores efforts to increase private sector investment in LCR infrastructure projects by greening financial systems to ensuring that financial systems accurately account for climate risk and allocate capital consistent with broader climate change goal.