Policies, Management and Financing Needs for Climate Change and Green Growth

Ede Ijjasz Sector Manager, Sustainable Development The World Bank June 24, 2011

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Outline
Adaptation to climate change new capacity and financing mechanisms Climate change mitigation new instruments and policies for financing The long-term lock-in constraints: urban growth financing policies for low carbon cities

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Annual Natural Disaster Economic Loss

(in US$ millions)
Country 1. USA 2. China 3. Japan 4. Italy 5. India 6. Germany 7. France Annual mean (80-08) 18.000 10.700 7.100 2.000 1.600 1.200 1.000 1.000 900 800 2008 57.290 109.520 0 0 0 1.200 0 3 75 0

In 2008, natural disasters cost the world US$200 billion. USA and China bore 90% of this burden

8. UK 9. Mexico 10. Turkey

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Chinas Vulnerability
Vulnerability of China to meteorological hazards: 70% of land area 50% of population 80% of industrial and agricultural areas

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Source: China Meteorological Administration

Extreme Weather Events

In recent decades, China has been hit by more extreme weather events and the area affected by these events has increased. The frequency of typhoons is less but typhoons are associated with higher intensity winds and precipitation
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Sea Level Rise

Sea level rise in 2009 is higher than those in recent 30 years: 68mm higher than the period 1975-1993. Close to 80 million people live in low elevation coastal zones.

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From Optimal to Robust Planning New Skills and Capacity Required

Planning and designing programs and investments using past climate information may lead to expensive mistakes Robust planning is needed:
Priority to no regrets Buying safety margins in new investments to increase resilience to climate change. Reversible and flexible options. For example, restricting urban development in an area that might be prone to higher flooding can be reversed easily if flooding recurrence do not increase, instead of building more expensive protective infrastructure Institutionalize long-term planning that incorporates scenario analysis and assessment of strategies under a wide range of possible futures.
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A Climate Change Adaptation Strategy

The foundation of the adaptation strategy is a strategy that tackles current weather-related risks This should be supplemented by a strategy that prepares the economy to manage the uncertainties about future climate conditions A strategy to tackle current weather-related risks in China would involve structural and non-structural solutions to Avoid, Withstand, and Recover from the impacts of weather events Adaptation also involves developing more comprehensive catastrophe risk financing frameworks
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Green Growth through Adaptation Policy & Regulatory

Unlock Urban Land Values Zoning and Land Use
Sanitation and wastewater

Menu of Financing Gap bridging factors

Redevelop Urban Land Guarantees Private financing Concessional Loans for public good aspects Redefine Roles and Responsibilities for Brown Agenda

Legislative Mandates Privatize landfill/STP management Establish PPP arrangements

Solid Waste Management

Set Abatement Specifications Pay on abatement Establish insurance mechanisms

Vulnerability to disasters

Pay for achieving national abatement standards Establish Catastrophic Risk Financing arrangements

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Outline
Adaptation to climate change new capacity and financing mechanisms Climate change mitigation new instruments and policies for financing The long-term lock-in constraints: urban growth financing policies for low carbon cities

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$46 trillion: energy sector investments in 2010-2050* $150 billion a year additional investments in CFT needed at least $85 billion a year needed in East Asia and Pacific**

Many CFT Investments are neither commercially viable nor attractive

Needed: Additional sources of funding Public sector interventions (policies, programs, economic , regulatory, etc) international support
WORLD BANK *Source: IEA (2010), Energy Technology Perspectives: Scenarios and Strategies to 2050 ** Source: World Bank (2010), Winds of Change: East Asia's Sustainable Energy Future

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New Technologies
Abatement cost

Energy Efficiency
0

Renewable Energy Energy pricing reforms

Abatement potential

Policy Tools Financing Instruments

Credit Line Guarantee Dedicated Fund Consumer Financing

Regulations Financial incentives Institutional reform

Feed-in Tariff or Renewable Portfolio Standard Tax on fossil fuel

Support for R&D Financing incremental cost Transfer technologies

EE Market Segments
Traditional bank clients Borderline (credit enhancement) SMEs & Public Sector Consumer long-term financing

RE Barriers
Long-term tenure Technology risk guarantee SME developers Consumer long-term financing

New Tech Risks Concessional loan Technology risk guarantee Venture capital

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Economic instruments
   

Regulatory instruments
  

Financial instruments
 Grants, Loans, Guarantees  Export Credit Agencies  Bonds  Equity funds

Taxes Subsidies Tradable Permit schemes Property rights

MRV Green Procurement Carbon Accounting (WSCSD, IFC, etc) Greening capital markets

The instruments should be deployed in concert; portfolio is context dependent

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Sources of support
Buildings & Urban Space

Channels of support
Economic instruments Taxes Subsidies Tradable Permit Schemes, etc

85% of financing will come from private sector But investment climate should change Carbon markets Concessional finance International support

Renewable Energy

Alternative Fuels

Regulations and Monitoring

Stable, predictable carbon price is ideal but politically difficult

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Wholesale Finance
Green Project Finance Green Venture Capital and Private Equity Technology Leasing

Retail Finance
Green Mortgage Green Commercial Building Loan Green Car Loan, Credit Card

Green Finance
Asset Management
Fiscal Fund (Treasury Fund) Eco Fund, Carbon Fund, Eco ETF Cat Bond (Natural Disaster Bond)

Insurance
Auto Insurance Carbon and Green Insurance Catastrophe Insurance

Country-level legal, regulatory and financing frameworks can help

* Source: Based on: Korean Capital Market Institute (2009), Developing Green Finance in Korea WORLD BANK

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The Answer: A Country-specific Blend of Various Available Instruments

Public Policies
China Green tax, Green procurement Korea Commission on Green Growth Japan s Hatoyama Initiative

Emission Trading
Tokyo mandatory trading scheme 4 environmental exchanges in China Regional Greenhouse Gas Initiative, US

Green Growth Targets

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Outline
Adaptation to climate change new capacity and financing mechanisms Climate change mitigation new instruments and policies for financing The long-term lock-in constraints: urban growth financing policies for low carbon cities

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Densities matter when it comes to avoiding highcarbon growth patterns

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Cit y D e n s it ie s a n d t h e ir GHG Emis s io n s p e r c a p it a

W ashington 20 GHG Emissions per c

15 Los Angeles Capetown Bangkok Prague Shangai New-York London 5 Rio de Janeiro Beijing

Portland 10

Barcelona

Seoul

Density (H 0 0 50 100 150 200 250 300

/H ) 350

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Why a Compact City?

Urban Form Determines Cities Energy Efficiency

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Why a Compact City?

The trends are challenging:

Zhengzhou

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But Compact is not Enough

Urban Design around Public Transport Stations has Major Impacts on Ridership
2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 New York London Beijing

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New approaches an refor areas are nee e for low carbon urban growth
Performance of a city should be evaluated more comprehensively A more comprehensive performance matrix that incorporates LCC development indices and not just GDP growth Cities need to develop sustainable municipal finance mechanisms Initiate and guide municipal finance reform to introduce more stable local revenue bases Develop a sustainable municipal borrowing framework Learn from international experiences Create development patterns where efficiency objectives are integral Sequencing of urban development

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