Green Climate Fund: Road to nowhere?

According to Reuters, “a U.N. committee has completed the draft design of a fund to help developing countries tackle climate change, paving the way for its launch in 2013”.  This ‘Green Climate Fund’ (GCF) is intended to channel up to USD 100 billion a year by 2020 to help developing countries fight climate change.

This “draft design” sounds ominous: an investment instrument designed by the UN to channel large capital flows to developing countries, without seemingly being concerned with the obvious, i.e. providing the private sector with the incentives to continue to do so using an established mechanism (the CDM) already channelling billions of dollars towards that very same goal – with many of these billions going to projects with high environmental integrity after an initial period when abuses occurred which for the most part have been rectified.

A day earlier, we had an internal meeting at our Singapore office to review our one-year old initiative to invest USD 100 million in bio-gas projects in Indonesia, and decided to withdraw it.  (Of the USD 100 million, we have already invested USD 10 million; the balance was expected from us and private sector sources which we had already identified – both debt and equity providers).

Here’s what is wrong with this picture:  while U.N. Committees are “designing funds,” and “paving the way” for their “launch in 2013” many companies like ours – at the forefront of mitigating GHGs in a commercially sensible way – are cancelling (some of) their investments in fighting climate change, and the uncertainties post-2012 are delaying decisions on substantially more private sector investments.  Sindicatum, one of many market participants and a relatively small company, has alone invested some $220 million beginning in 2008 doing just what this UN Committee is purporting to do.

In Indonesia’s Lampung province, there are some 70 starch and ethanol plant (many of which are mom-and-pop operations) which produce waste water from their manufacturing process.  This waste water has traditionally been allowed to decompose in open lagoons and local water courses (and therefore polluting not only the air but also the local land and water resources, with obvious and substantial harmful impacts on both the planet and on the local population).  We were planning to install waste water treatment plants at up to 20 sites to capture the methane gas that would otherwise have been released to the atmosphere and to clean up the pollution of the local water supply.  Our return was to be from the sale of the resulting biogas to the plants (they need the energy because this area of Indonesia is subjected to frequent electricity blackouts and Indonesia in general is short of energy) and from carbon credits we would earn under the CDM (because the revenues from the sale of the biogas are not enough to justify a return on a foreign investment in this sector).

We cancelled our investment initiatives in the biogas sector in Indonesia for a simple reason:  The uncertainty with respect to whether carbon credits are available under the CDM from projects registered after 31 December 2012 renders these projects unattractive from a financial perspective.

Perhaps our politicians could focus on making what’s working now work better (private funding and public-private partnerships), instead of launching new instruments based around grant-based finance and which therefore by definition won’t work.  In the meantime, investment is declining in the very same field where ambitious USD 100 billion proposals (which probably will never see the light of day) are using up precious time and resources.

At Sindicatum, we have adapted our business model accordingly and we continue to invest in greenhouse gas abatement in developing countries (and in the United States), though today only when we can own or control substantial related natural resources which protect our downside from the vagaries of climate change politics and UN committees.

Assaad Razzouk is Group CEO of Sindicatum Sustainable Resources, a global sustainable resources company headquartered in Singapore.

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