The CDM is failing to boost the use of clean technology in many developing countries, a new report said.
The report, which was authored by the Global Climate Network, a group of international policy institutes, said the Kyoto protocol’s clean development mechanism (CDM) is likely to play only a modest role in funneling finance to poorer countries.
These nations have been pledged $100 billion by developed countries by 2020 under the Copenhagen accord.
“The failure of Kyoto protocol countries to commit to a further period of emissions reductions post-2012 and of the US to pass comprehensive legislation to cap its emissions suggests that the future of the CDM and other mechanisms remains uncertain,” the report said.
It added that flows of carbon market finance to developing countries would likely remain low under the CDM.
Basing its findings on studies of energy financing in four countries — China, India, Nigeria and South Africa — the report proposed several measures that could help deploy the vast sums needed to generate low carbon energy in developing countries.
This funding would also help these countries to deal with the impacts of climate change.
Last week, UN Secretary General Ban Ki-moon’s climate advisory panel published recommendations on raising climate finance.
These proposals include a tax on aviation and shipping, use of proceeds from the auctioning of allowances in the EU’s emissions trading scheme, and levies on the use of fossil fuels.
The proposals for raising money will be discussed at this year’s international climate talks in Cancun, Mexico, which start in four weeks’ time.
The Global Climate Network, meanwhile, said investors would need reassurance from governments in order for private sector cash to be deployed.
The report said industrialised countries could underwrite the loans in order to reassure investors who have been reluctant to plough money into projects in developing countries.
Investors could also be provided with insurance against big policy shifts in host countries.
The report added that governments could offer credit to help guard against risks linked with fluctuations in foreign exchange.
The private sector could be persuaded to provide upfront financing through a publicly-backed fund that would identify smaller, cleaner energy projects.
And for higher risk clean energy projects, a government-backed fund would invest a proportion of the equity but receive returns last.
The survey said that for every $1 of public finance invested, between $2 and $10 could be leveraged from the private sector.
The Global Climate Network said private finance would be “undoubtedly needed”, because of the costs involved in promoting a shift in favour of cleaner energy, which range between $265 billion and $565 billion by 2030, the survey said, citing the World Bank.
Some developed country governments have proved reluctant to offer new and additional money for climate funds in the wake of the global economic downturn, mounting sovereign debt and tough austerity measures.
Meanwhile the experiences of the developing countries surveyed showed how existing measures had failed to scale up investment in renewable technologies.
Excluding China, where investment in wind projects is booming, the average annual investment needed for renewables in India (for solar only), Nigeria and South Africa is $15.93 billion if these countries are meet existing goals or policies.
But the current gap with government ambitions is around $15.73 billion, the survey found, meaning that countries have only invested $200 million themselves.
The report said that developed countries should not only try to encourage a big role for the private sector in providing finance, but should also try and encourage a stable policy framework in the developing world.
In addition, rich nations should also find ways of alleviating the higher costs of using more expensive cleaner technologies in poorer countries.
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