Global Climate Change Investment Falling Short of Need, Report Says

Global investment in climate change plateaued at $359 billion in 2012, roughly the same as the previous year, according to a new study by the Climate Policy Initiative (CPI).

The Global Landscape of Climate Finance 2013 says this figure falls well below the $5 trillion the International Energy Agency projects is needed by 2020 to limit global warming to two degrees Celsius — and the gap is likely to widen. The World Bank estimates we are on a path to four-degree Celsius warming, which suggests that efforts to scale up finance are falling further and further behind.

The report says public sources provided $135 billion, or 38 percent of total finance, and played a critical role in enabling private finance through incentives, low-cost loans, risk-coverage mechanisms, direct project investment and technical support. These public measures facilitated $224 billion in private investment, or 62 percent of total investment, from sources such as project developers ($102 billion); manufacturers and corporations ($66 billion); and households ($33 billion).

While there is significant public support for climate activities, support for fossil fuel energy consumption and production continues to consume $523 billion in public money each year for developing and emerging economies alone, according to a recent report from the OECD.

"Investment to combat and adapt to climate change is happening around the world, but it's short of where it needs to be and efforts to grow it have not been successful enough," said Thomas C. Heller, Executive Director of Climate Policy Initiative. "Leveling the playing field can help unlock significant additional finance."

Climate investment was split almost evenly between developed and developing countries, with $177 billion and $182 billion, respectively. Private investment into renewable energy projects in Europe totaled $73 billion, while investment in China was $68 billion, the U.S. $27 billion, Latin America $7 billion, and India $5 billion. Latin America also received additional $19 billion in public money.

However, 76 percent ($275 billion) of all spending was domestic, meaning it originated in the country in which it was used. Of the remaining$84 billion that flowed between countries, a significant amount was private money flowing between developed countries.

Public sector money made up the vast majority of developed to developing country flows. These figures illuminate a bias by private investors toward environments that are more familiar and perceived to be less risky, the report says.

"Currently, climate finance is mostly a domestic game," said Barbara Buchner, Senior Director at Climate Policy Initiative. "This implies that effective national policy is critical to increasing climate finance globally. There may also be an opportunity to increase international flows, by addressing the perception of additional risk in overseas investments."

The study notes that less finance is deploying more large-scale renewable energy. In 2012, there was less investment in large-scale projects than in the past, which was focused on fewer projects but resulted in greater capacity. This suggests that developers are achieving greater economies of scale and bringing technology costs down.

Any doubt that climate change is occurring due to human action was extinguished last month when leading scientists from the Intergovernmental Panel on Climate Change (IPCC) announced that they are now 95 percent confident that human influence is the dominant cause of global warming. They claimed the effects of climate change will persist for many centuries due to past, present and expected future emissions of carbon dioxide.