The debate was coordinated by Emmanuelle Bastide, journalist at RFI. The speakers were Séverin CABANNES, Deputy Chief Executive Officer, Société Générale ; Helen CLARK, Administrator, UNDP ; Philippe JAHSHAN, President, Coordination SUD ; Jacques MOINEVILLE, Deputy Chief Executive Officer, AFD and Said MOULINE, Chief Executive Officer, National Agency for the Development of Renewable Energy and Energy Efficiency.
Please find below the Conference synthesis:
Today, the needs for the fight against climate change “are way above the resources mobilized” (Jacques Moineville): the issue of financing zero carbon development models is becoming a matter of urgent importance. Public-private financial blending is the best solution for investments to effectively address the challenges. However, it will only be possible to implement projects that offer little or no profitability with public financing.
Low-carbon finance: unmet needs
“An additional USD 700bn a year [would be] necessary in order to achieve a low-carbon footprint”: although the “available estimates are imprecise”, the fact is that “investment needs are not met”. Consequently, the two main challenges are “to rechannel investments via public policies” and “mobilize private investments” (Jacques Moineville).
There have been improvements in these two components. For example, back in 2009, Morocco gave “priority to renewable energies and energy efficiency”: thanks to the ambitious strategy implemented, Morocco’s public authorities have managed to “mobilize green financing” allocated by both development institutions, such as the World Bank, AFD and KfW, and private banks (Saïd Mouline).
Furthermore, there has been a mobilization of the private sector in recent years: at Société Générale, “70% of financing for power generation is devoted to renewable energies and is therefore zero carbon”. More generally, the green bond market is worth “USD 25bn in outstanding amounts today compared to USD 2.5bn two years ago” (Séverin Cabannes). These are certainly positive developments, as the challenge of the Sustainable Development Goals “will not be able to be met by public finance alone”. To address it, “all sources of funding are important” (Helen Clark).
Create leverage by diversifying sources of funding
How are public and private investments coordinated in financing for zero carbon development? In the fight against climate change, public investments need to play “a catalytic role” (Helen Clark). They provide an incentive for private investors who are attentive to the profitability-risk ratio: if a project comprises a grant or credit enhancement (with a risk first of all borne by the public authority), “it creates real leverage which allows a private investor, with their rational logic, to invest in sustainable development” (Séverin Cabannes).
The Green Fund is often mentioned in negotiations concerning COP21. It is an innovative mechanism that promotes this ambitious type of financing arrangements: it involves “setting up blending – i.e. contribution – mechanisms through grants or highly concessional financing, financing from other donors”, who are public or private funders. There is a considerable leverage effect: “one euro of European grants allows an investment of 40 euros” (Jacques Moineville).
Morocco, at its level, has also developed public-private partnerships to conduct projects in line with the fight against climate change: this is the case for the construction of the Renault plant in Tangiers, “the world’s first carbon neutral automotive plant”. What is really important is that each party benefits: “For the public sector, it is not a question of bearing the risks, while the private sector reaps the benefits” (Saïd Mouline).
Tension in the allocation of financing?
However, it must be emphasized that public financing continues to be “crucial for supporting the transition towards a green economy […] in sectors that are not attractive for private capital” (Helen Clark). Examples include smallholder farming or “projects that are generally not profitable and not intended to be so”: they concern countries “where it is first and foremost not a question of reducing the contribution, but of climate change adaptation” (Philippe Jahshan).
Consequently, does the risk not lie in having to make choices between the distribution of Official Development Assistance, at a time when “partners like UNESCO are concerned about […] the decline in grants for the development of education, particularly in Sub-Saharan Africa” (Emmanuelle Bastide)? There is tension in credit allocation: “one of the consequences of long-term crises, like in Syria, concerns the allocation of resources” for development (Helen Clark).
However, while an NGO platform like Coordination SUD deplores “the choices made, in particular to the detriment of social sectors”, it does not wish to “put into competition” the use of public funding: it advocates for the adoption of a “holistic systemic approach”. Indeed, “development and climate issues are inextricably linked”. For example, in Burkina Faso, AFD seeks to combine the two approaches: in this country, “which needs energy to develop”, “if we finance a solar power plant rather than an oil-fired power plant, we have a development project with a climate cost-benefit” (Jacques Moineville).
The opinions expressed on this website are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.