Friday, April 10, 2015

The Business case for the Green Climate Fund

  Since 2014, more than 30 countries have pledged support to launch the Green Climate Fund, or GCF, a new multilateral fund that will invest in projects that help developing countries reduce their greenhouse gas emissions and build resilience to climate effects. More than $10 billion has been pledged by countries from both developed and developing regions for the fund’s preliminary capitalization. The Obama administration requested $500 million in the fiscal year 2016 federal budget as an initial contribution toward the $3 billion U.S. pledge. Now is the time for Congress to appropriate this initial contribution and continue the bipartisan legacy of multilateral climate finance.

  Investing in the GCF is in the United States’ interest for several reasons. First, as the Department of Defense has reported, climate change has the power to destabilize vulnerable regions and create space for the growth of extremism. Creating climate-resilient communities around the world therefore benefits U.S. national security interests by helping avert the need for costly military interventions. Investing in a low-carbon economy also improves domestic climate safety and economic security, as failure to rein in emissions would carry ever-rising costs for disaster recovery and adaptation. Already, extreme weather events cost the United States billions of dollars annually. In 2014, the United States experienced eight extreme weather events that each resulted in losses in excess of $1 billion.

  In addition to the above benefits, a successful GCF would support business interests in the United States and around the world. GCF investments would not only work to reduce the negative effects of climate change that threaten American companies’ operations but would also open new markets for private-sector engagement by providing specific opportunities for new investment and exports through its projects.

Reducing business risks through global climate investment

  Rising global emissions threaten U.S. business interests by increasing the frequency and severity of the effects of climate change. This threat is compounded by underinvestment in global resilience. A Carbon Disclosure Project survey of public companies from 2011 to 2013 found that major U.S. companies are already experiencing costs associated with climate change. To take several examples:

-VF Corporation, which produces clothing brands—including The North Face, Wrangler, and Timberland—stated that flooding and extreme weather in Pakistan and Australia in 2010 drove up cotton prices. According to the survey, the company expects climate change to “increase such occurrences.” Another multinational clothier, Gap Inc., also faced high cotton prices as a result of drought in China and the United States.

-News Corporation, the parent company of FOX Broadcasting Company, noted that its businesses are susceptible to extreme weather and cited extreme precipitation in Australia, wildfires in Russia, and cyclones in Fiji in 2011, which caused disruption of its operations and increased costs between 2010 and 2013.

-Bank of America and Hewlett-Packard, or HP, both suffered financial losses due to extreme flooding in Thailand in 2011.

  Meanwhile, major American companies, including Coca-Cola and Heinz, have begun to list climate change among the risks posed to their businesses in their annual Security and Exchange Commission filings. Starwood Hotels, owner of Westin, Sheraton, and other properties, projects that it could potentially incur an approximate $10 million to $20 million increase in annual cooling costs alone, based on International Energy Agency climate change projections.

  By investing in projects and programs that reduce global emissions and increase global climate resilience, the GCF will help protect U.S. businesses and their increasingly globalized operations.

Opening new markets through development

  The GCF is dedicated to implementing projects across diverse regions and in countries that are particularly vulnerable, including the least developed countries, African states, and small-island developing nations. This kind of implementation ensures that investment gains will not be confined to the middle-income countries—such as Brazil, India, and Mexico—that have been the primary beneficiaries to date of multilateral climate investments. By spurring development in regions that are currently seen as too risky for significant private-sector investment, the fund’s activities will open new markets for U.S. business engagement.

Supporting projects that benefit American companies

  The Climate Investment Funds, or CIF, are precursors to the GCF launched during the George W. Bush administration. CIF projects to address that climate change benefited American companies directly through investment and export opportunities. It is likely that similar or even enhanced benefits will result from the GCF, which, as a core part of the fund, includes a “Private Sector Facility” that is devoted to mobilizing private investment.

  Several examples of companies that have benefited from the CIF are described below. These businesses represent only a small selection of companies that have benefited; others include AECOM and Johnson Controls.

  Clipper Windpower, based in Cedar Rapids, Iowa, provided 27 wind turbines to the 67.5-megawatt La Mata-La Ventosa wind farm project in Oaxaca, Mexico. The $190 million project leveraged $15 million in financing from the Clean Technology Fund, or CTF, which is a subfund of the CIF. This financial assistance helped Clipper Windpower export its products across U.S. borders for the first time, while also supporting Mexico’s emerging wind industry.

  Financing from the CTF has also supported multiple solar photovoltaic projects in South and Central America, which were developed with Missouri-based SunEdison. The company is developing a $146 million plant in Honduras capable of producing 81.7 megawatts of solar power and was helped in this endeavor by a $19.5 million investment from the CTF, as well as $48 million from the International Financial Corporation. This project is currently the largest renewable energy development in Central America and offers a major business expansion opportunity for the company. SunEdison is also developing a $190 million 73-megawatt solar plant in Chile, supported by $16 million in concessional financing from the CTF.

  CIF financing has likewise supported geothermal projects in Indonesia and Kenya, which are also contracting with U.S. businesses. Ormat Technologies, of Reno, Nevada, received a $254 million contract to supply energy converters that generate electricity from geothermal heat for the 330-megawatt Sarulla geothermal project in North Sumatra, Indonesia. The Asian Development Bank provided $350 million for the execution of the $1.17 billion project, and the CTF provided another $80 million. A Kenyan subsidiary of Ormat Technologies partnered with Symbion Power, an electric infrastructure company based in Washington D.C., on a 35-megawatt geothermal plant in Kenya in November 2014. The project is estimated to cost $324 million, of which the Scaling-Up Renewable Energy Program, a component of the CIF, will fund $40 million.

  When the GCF begins to receive the funding pledged by the United States and others, it can start building on the CIF and support new investments in clean energy and climate resilience. As climate change subjects the world to increasingly severe and unpredictable weather events, these crucial investments can help protect U.S. businesses, while simultaneously opening up new opportunities for private-sector engagement.

  About the authors: Ben Bovarnick is a Research Assistant with the Energy Policy team at the Center for American Progress. Alexander Tankou is an intern at the Center. Thank you to Gwynne Tarasaka, Senior Policy Advisor for Energy at the Center, for her contributions to this column.

  This article was published by the Center for American Progress.

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