Development Banks Key to Reaching Paris Goals

National and multilateral development banks must step up their focus on clean energy lending to developing countries to achieve the Paris climate summit’s goal of reducing net human greenhouse emissions to zero in the second half of the century, a study by the World Resources Institute’s New Climate Economy initiative finds.

Clean energy attracted a record US$329 billion in global investment last year, but “still not enough to limit global warming below 2°C or provide energy access to the 1.1 billion people who lack it,” industry blog Power Online notes. Increasing investment by regional and national development banks in clean energy and energy efficiency to US$1 trillion annually by 2030, the New Climate Economy study asserts, could reduce global GHG emissions by more than the yearly emissions of the United States.

The report explores ways to reduce financing costs, finding that cooperation among development banks, governments, and the private sector can lower the perceived risk of clean energy investments and the cost of capital to develop them.

“Everyone knows that we need to invest more in clean energy,” said New Climate Economy Director Helen Mountford. “What we need to recognize is that the capital is already available. Investors are on the hunt for new opportunities. We need to scale up risk mitigation approaches, and the money will pour in.”

Because of their mandate, development banks can take on risks that other actors cannot, the study argues. For every $1 they invest they can leverage up to $20 in private financing. New vehicles like green bonds and YieldCos are also catching on, reducing liquidity risk.

“Clean energy projects face financing models designed for fossil fuels,” said report co-author Ilmi Granoff. By contrast, “renewables have no fuel costs, low operating costs, and can be flexibly deployed. We need to change the paradigm so that clean energy assets are priced to reflect their low risk.”