Climate change is far more than just a long-term trend — it’s happening today, and its repercussions are all too real, threatening to overwhelm key development progress made over previous decades. Arnaud Bouillé, though, says that green energy investment also represents a key economic opportunity for emerging markets
Climate change represents a “fundamental threat” to efforts to tackle poverty, and countries must agree collective action to tackle it as part of their plans for international development, Rachel Kyte, Vice President and Special Envoy on climate change at the World Bank Group (WBG) said recently. "Countries need to take bolder action now, before the impacts of climate change put prosperity out of reach for millions and roll back decades of development. If we don’t confront climate change, we won’t end poverty,” she added.
She’s absolutely right, and it’s heartening to hear such a senior development leader recognize the gravity of the situation. Climate change is not only an environmental issue, but also a fundamental challenge to economic growth and financial stability; one that requires quick action in order to prevent it from blocking any meaningful attempt to end poverty and deliver more inclusive growth around the world.
Going global
The problem is now all too apparent: weather-related damage costs an average of US$200 billion a year globally, with climate change increasing the cost of development by 25% to 30%, according to the WBG. But of course, it’s not just about climate change. Access to sustainable sources of energy is also crucial because it involves physical infrastructure such as natural gas pipelines. Energy affordability and reliability also rank highly, while far too many people in developing countries — particularly those affected by higher temperatures — are facing huge difficulties in accessing a secure and safe supply of drinking water, an issue that is of particular importance.
Although we are on target to meet the 2015 MDG for water supply (by 2015, halving the proportion of people without sustainable access to safe drinking water and basic sanitation), much more still needs to be done. About 2.6 billion people — half the developing world — lack even a simple “improved” latrine and 1.1 billion people have no access to any type of improved source of drinking water, according to data from theWorld Health Organization. As a result, 1.6 million people die every year from diarrhoeal diseases (including cholera) attributable to lack of access to safe drinking water and basic sanitation, and 90% of these are children under five, most of whom live in developing countries.
The global nature of these challenges reflects the global nature of today’s renewable energy market. From Japan and Southeast Asia to Africa and South America, renewable energy is now viewed as a viable energy source that is gaining a solid and growing share in the energy mix. Developing countries are playing a critical role in shaping this landscape, with countries such as Ethiopia, Kenya, Indonesia, Malaysia and Uruguay all coming to the fore.
Development banks such as the WBG and the African Development Bank are also helping finance the development of clean technologies and renewable energy in order to create jobs, establish new industries and help countries develop into resource-efficient and low-carbon economies. Policy-makers, too, have an important role to play. Rather than focusing purely on revenue-based support, governments need to create a stable, consistent policy framework that helps manage and mitigate risks, so that 50-year investment decisions can be made with greater certainty.
Horizon scanning
It’s important to note, though, that substantial challenges still remain. The fact that renewable energy will make up an increasing proportion of the global energy mix is not in doubt — falling capital costs and minimal operating expenses will make the numbers stack up for energy consumers, stable and long-term returns will keep investors happy, and the reality of our planet’s finite resources will maintain a sustainability imperative. However, this does not give the renewable energy sector a divine right to attract investment.
As investors compete for funds, climate change is continuing to cast an increasingly long and borderless shadow, limiting an economy’s capacity to create jobs, especially in the developing world. And certainly, those who live there need little reminder of our changing climate; it’s in front of them every day. As temperatures soar and plummet, ocean levels rise and the frequency of extreme weather increases, their day-to-day lives are increasingly shaped by the weather and its impact on their agriculture, food and water supplies.
However, there remains an underlying cause for optimism. Although the failure to generate any significant results at last November’s United Nations Climate Change Conference was disappointing, the fact that the WBG in particular has placed climate change so central to its operations is evidence of the issue’s increasing resonance across the development sector.
Now is the time for policy-makers, investors and businesses to come together anew. The scale of the challenge is clear, but so is the opportunity. Green energy investment, tailored to each developing country, offers a pivotal route out of poverty; creating jobs, strengthening economies and protecting the environment in the process. Few can argue against such results. Let’s get to work.
This feature was first published in the June edition of EY's Dynamics magazine
