Less talk, more action on climate change

The world cannot solely rely on the efforts of governments to fight climate change. Daniel Hersson debunks 4 myths surrounding the state of play and what it will take to move climate action forward in a post-Paris world.

It’s been more than a year since the historic Paris COP21 agreement. A month ago, climate change was discussed again at COP22 in Marrakech. Meanwhile, Asia continues to face growing climate pressures, so it’s time to move beyond dialogue to real projects on the ground.

Here are four myths that I’ve encountered in the post-Paris scenario which should be dispelled to encourage faster action:

1. Governments will lead the way.

This is no longer the case.

In 2014, the private sector invested more than US$240 billion in low-carbon projects, accounting for 61 per cent of total global investment. This year, green bond issues are projected to reach US$100 billion, up from only US$2.6 billion in 2012.

That’s far from enough but a good start, and more is likely to come. Citibank, Goldman Sachs, and Bank of America have pledged more than US$300 billion for climate finance in the next decade; Bill Gates and other high-profile investors recently announced a new US$1 billion fund targeting new disruptive clean technology (cleantech) ventures.

The role of governments will change to focus on enabling the private sector to invest and do more, faster. This includes removing barriers, getting out of the way when necessary, and being more creative in using public capital.

2. We need better technologies.

Proven, scalable cleantech technologies are already available, and they keep getting better. The real problem is deployment. Most countries in Asia still lack the local businesses, business models, supply chains and services required to efficiently sell, install, and operate cleantech. Solutions that look good on paper, offering attractive paybacks, often end up being too expensive and too risky. 

Take rooftop solar. The price of a module is often less than 20 to 30 per cent of total installed cost, while 50 to 60 per cent goes into ‘soft costs’ like finding customers, permits, financing, installation, and maintenance. To drive this cost down, an entire new industry of solar marketing specialists, installers, financiers and operators needs to emerge.

The same goes for energy efficiency, green buildings, sustainable agriculture, or distributed energy. Good technologies are already out there, but we can’t get them to market. Instead of more technology pilots, let’s put our money into supporting local businesses and entrepreneurs that can de-risk and scale deployment.

3. Big corporations will fix climate change.

I worked for more than a decade at one of the world’s largest energy companies. We were convinced that with our capital, global reach, and the best engineers, we would succeed at any energy business. We didn’t, despite spending billions trying. Big companies tend to be locked into existing technologies, business models, and mindsets – no matter how hard they try to change.

On the other hand, start-ups are faster and leaner. They can experiment more, understand local market needs better, and excel at ‘disruptive innovation’ that radically challenges how we approach or solve problems, including how to get cleantech to market. They start small, but can grow quickly and become big – really big.

The world’s largest producers of solar PV, electric cars and wind turbines were all founded by entrepreneurs less than 20 years ago. Seven out of 10 Chinese renewable energy companies were set up after 2010, while three-quarters of India’s solar PV was installed by young entrepreneurs.

No country has scaled cleantech successfully without also developing a strong base of local entrepreneurs.

4. We lack money.

There is no shortage of capital. In 2015, total global venture capital investment reached a record US$136 billion, and this year new bond issuance is expected to exceed US$6 trillion, another all-time high. However, less than 2 to 3 per cent of that money ends up in low-carbon sectors. We need to double or triple this share in the next five to 10 years.

The problem is that most climate businesses and projects are viewed as too risky, complicated, and incapable of offering competitive returns. A major reason is the lack of strong and experienced entrepreneurs. Cleantech is too capital-intensive, and in most cases not worth the personal risk, so less than 2 per cent of Asian startups are in cleantech.

Instead of more technology pilots, let’s put our money into supporting local businesses and entrepreneurs that can de-risk and scale deployment.

So, what should we do? First, develop and nurture local start-up ecosystems to support and help scale local cleantech entrepreneurs in Asia. We need to attract the best entrepreneurs to cleantech and provide them mentoring, industry expertise, and access to customers.

Second, we need to increase investments in Asian entrepreneurs who can accelerate and de-risk cleantech deployment. Finding smarter ways to encourage and crowd in more private investment into these businesses is where public capital can have the most impact.

ADB is helping to make this happen through initiatives like the Asia Cleantech project at the Asia-Pacific Climate Technology and Finance Center that partner with leading start-up accelerators and support new cleantech funds and investors like the US$400 million Asia Climate Partners Fund. We’re helping build small but powerful local and global networks around cleantech entrepreneurship like the New Energy Nexus.  

These myths go to the very core of what is needed to beat climate change. If we don’t move past them now, the achievements of Paris and Marrakech will amount only to meaningless rhetoric as we zip past 2°C on an increasingly warming planet.

 

Daniel Hersson is a clean technology venture capital expert. This post is republished from the ADB blog

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