Why investing in intermediary cities should be a priority for a green recovery

By Michael Lindfield, Senior Consultant, former Senior Specialist at the ADB

Although the COVID-19 pandemic will change the context for investment decisions – including for climate investment in intermediary cities in emerging markets and developing countries – little has been done to detail these consequences. In general, consequences for financing institutions and cities may include lower inflows to institutions like pension funds and insurance companies, and increased pressure to buy government bonds and lower revenue base, thus reducing cities’ and other urban institutions’ ability to service debt and/or provide availability payments to concessions. Additional consequences include potentially lower emerging market and developing economy sovereign and sub-sovereign credit ratings (increasing the cost of debt), and curbed economic growth, thus curtailing the potential for cost recovery in relation to green projects.    

These consequences are likely to impact intermediary cities more than capitals or megacities because they have lower credit ratings and less technical capacity. However, there will be opportunities if climate investment is integrated into COVID-19 recovery financing, creating the right incentives for investors. The critical alignment relates to the perceived risk/return profile of investments. If the rate of likely return will be sufficient to compensate for the risks of investing, then private, institutional and commercial entities will invest, provided minimum regulatory hurdles, such as minimum credit ratings, are met.

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Green windows of opportunity for latecomer development in renewable energies

By Xiaolan Fu, University of Oxford, Rasmus Lema, University of Aalborg and Roberta Rabellotti, University of Pavia

There is increasing recognition that policies aimed at meeting environmental targets may open new economic development paths, especially for emerging economies, given the green transformation and related techno-economic paradigm changes across institutional, market and technological domains. Looking at China, a recent article highlights the importance of institutional transformation to create “green windows of opportunity” (GWOs) for economic structural change associated with the green economy. Green windows of opportunity represent a set of favourable, temporary conditions for “latecomers” to catch-up in the long run in sectors central to the green economy. 

To investigate GWOs there needs to be a new framework for two main reasons. First, it is essential to deviate from the environmentally unfriendly development pathways undertaken in the past by advanced economies of North America and Western Europe. Emerging economies should ‘develop differently’ from the outset rather than catch-up along established pathways. Second, the green transformation, as a significant driver of current capitalist development, has features that sets it apart from earlier transformations. It is the first industrial and technological revolution with a deadline and it is steered explicitly by public policy, driven not just by economic motivations, but also by social value. 

Green windows of opportunity

This new analytical framework is summarised in Figure 1, with green windows of opportunity at its core, driven by institution and policy changes rather than technological or market change. Empirical evidence on biomass, hydro, solar photovoltaic, concentrated solar power and wind shows that institutional changes are the central drivers of green windows of opportunity. Examples from China include both cross-cutting changes such as the implementation of the 2006 Renewable Energy Law and sector-focused missions such as the Golden Sun Demonstration Program in the solar photovoltaic sector and the Rind the Wind Program. While the drivers of the emergence of these green windows are essentially institutional and policy-driven in nature, they influence and interact with technological and market transformations.

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The IMF’s turn on climate change

By Kevin P. Gallagher, Professor and Director of the Global Development Policy Centre at Boston University’s Pardee School of Global Studies, and Co-Chair of the ‘Think 20’ Task Force on International Finance to the G20

The International Monetary Fund (IMF) has recently pledged to put climate change at the heart of its work. A laggard to date, the IMF has to catch up fast to ensure that the world community can meet its climate change and development goals in a manner that doesn’t bring havoc to the global financial system. The IMF’s first test on climate change will be the extent to which it incorporates climate risk into this year’s reform of IMF surveillance activities. Given that these reforms will lock in for close to a decade, if the IMF doesn’t act now the consequences for prosperity and the planet will be grave.

Kristalina Georgieva has been a strong advocate of greening the financial system through her new post of Managing Director of the IMF, which she began in the fall of October 2019.  Unfortunately, she took office when the shareholder of the IMF with the most voting power, the United States, was led by a President who claimed climate change was a hoax. In the face of that pressure and to her credit, Georgieva steadfastly advocated for incorporating climate change into IMF operations and for a green recovery from the COVID-19 crisis even though her biggest patron made it difficult to put her words into action.

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Are African countries heading for a carbon lock-in or leapfrogging to renewables?

By Galina Alova, Smith School of Enterprise and the Environment, University of Oxford

Non-hydro renewables are likely to account for less than 10% of Africa’s power generation by the end of this decade. My recent co-authored study predicts fossil fuels to continue to dominate the electricity mix in many African countries, and the continent as a whole.

Opportunity to power development with renewables

Africa is presented with an important opportunity to make a decisive leap to renewables this decade. The continent’s energy demand is projected to more than double in the coming years, as countries seek to industrialise and improve the development outcomes for their growing populations, including providing affordable power to close the energy access gap. At the same time, Africa – the land of sun and wind – possesses vast renewable energy resources.  

Against this backdrop, renewables have become increasingly more competitive in the past years, with their cost set to decline further compared to conventional fossil-fuel-based generation. The affordability of battery storage has also significantly improved, with lithium-ion battery packs hitting a record low in 2020.

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Getting more durable deals in extractives: knowledge is a power best shared

By Iain Steel, Research Associate, ODI & Founding Director, Econias

“It’s a high-risk country, there’s no infrastructure, and the resources are low quality.” I have heard these arguments countless times over the years from investors in extractives projects. And in every single negotiation I have advised governments on, across Africa and Asia-Pacific, investors have asked for tax incentives that they claim are necessary for financial viability. But how are governments to judge these claims when investors don’t share the underlying data?

Extractives projects are uncertain and risky. Nobody knows the true geology of the asset before it is developed, the precise amount of investment required, and the operating costs to extract and refine the resources. And the only thing we really know about commodity prices is that they’re volatile and unpredictable. Who would have thought in January 2020 that within four months the price of oil would be negative?

Unbalanced deals are a bad result for all parties

Investors often have better information than governments when negotiating extractives contracts. This is not a criticism of governments, but a function of the work that is usually undertaken by investors. Investors tend to explore for resources and commission studies to determine the technical and financial feasibility of projects. They are also likely to have deeper sectoral expertise and experience than governments, and know the value of their intellectual property.

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Ciudades sostenibles, el nuevo desafío de América Latina: El rol de la innovación y de la cooperación pública-privada

Por Maurizio Bezzeccheri, Director de Enel para Latinoamérica y gerente general de Enel Américas

Según datos de Naciones Unidas, la concentración media de la población mundial en zonas urbanas aumentará del 55% en 2018 hasta casi el 70% en 2050. Sin embargo, en América Latina y el Caribe a día de hoy este porcentaje ya roza el 81% de la población. Las ciudades ocupan solo el 3% de la superficie de la tierra, pero representan entre el 60% y el 80% del consumo de energía y generan el 75% de las emisiones de carbono. De ahí su importancia a la hora de impulsar la descarbonización para así hacer frente a uno de los desafíos más urgentes de nuestros tiempos: el calentamiento global. Sin duda son retos complejos que requieren de un esfuerzo conjunto público y privado y entre niveles de gobierno. Pero al mismo tiempo, nos regalan una valiosa oportunidad de avanzar en la dirección correcta, trabajando para crear ciudades sostenibles, resilientes, seguras e inclusivas.

UNA VENTANA AL FUTURO

Alrededor del mundo, nuevas ciudades están desafiando el concepto establecido de cómo opera una ciudad mediante el uso de redes digitales que entrelazan los sistemas de electricidad, agua, desechos y gas, creando una matriz unificada de operaciones urbanas y un crecimiento explosivo en el intercambio de información.

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¿Por qué deberían aplicar precios al carbono los países en desarrollo cuando las economías más avanzadas no cumplen sus propias metas?

Por Jonas Teusch, economista, y Konstantinos Theodoropoulos, estadístico, Centro de Política y Administración Tributaria de la OCDE

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Gravar el uso de la energía en aras del desarrollo sostenible

¿Por qué los países de baja renta deberíanaplicar políticas de fijación del precio del carbono para reducir sus emisiones? Es notorio que las economías más avanzadas del mundo distan mucho de alcanzar el nivel de precios requerido para cumplir los objetivos del Acuerdo de París. Más del 70% de las emisiones de los países de la OCDE y del G20 no tributan en absoluto y más de la mitad no están sujetas a precio alguno, aun tomando en consideración los regímenes de comercio de derechos de emisión.

Las emisiones de carbono de la mayoría de las economías en desarrollo y emergentes palidecen en comparación con las de los países de la OCDE y del G20. Por ejemplo, las 15 economías en desarrollo y emergentes1 analizadas en un reciente informe de la OCDE titulado Gravar el uso de la energía en aras del desarrollo sostenible  representan, en total, menos del 4% de las emisiones mundiales, mientras que los países de la OCDE y del G20 en su conjunto son responsables de más de las tres cuartas partes de las emisiones mundiales de carbono.

En este contexto, ¿es importante que ninguno de los 15 países analizados en el informe aplique una política expresa de precios del carbono y que el 83% de las emisiones quede exento de todo gravamen?  

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Pourquoi les pays en développement devraient taxer la consommation de carbone alors même que les économies avancées sont très loin du compte ?

Par Jonas Teusch, économiste, et Konstantinos Theodoropoulos, statisticien, Centre de politique et d’administration fiscales de l’OCDE

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Taxer la consommation d’énergie au service du développement durable

Pourquoi les pays à faible revenu devraient-ils mettre en œuvre une politique de tarification du carbone afin de réduire les émissions de carbone, alors que les économies les plus avancées au monde appliquent des tarifs largement insuffisants pour atteindre les objectifs de l’Accord de Paris ? Plus de 70 % des émissions produites par les pays de l’OCDE et du G20 échappent à tout impôt, et plus de la moitié d’entre elles sont tout bonnement gratuites, même en tenant compte des systèmes d’échange de droits d’émission.

Les émissions de carbone de la plupart des économies émergentes et de celles en développement sont faibles par rapport à celles des pays de l’OCDE et du G20. Par exemple, les 15 économies en développement et émergentes1 analysées dans un récent rapport de l’OCDE intitulé Taxer la consommation d’énergie au service du développement durable génèrent moins de 4 % des émissions mondiales de carbone, tandis que les pays de l’OCDE et du G20 sont collectivement responsables de plus des trois quarts de ces émissions.

Dans ce contexte, faut-il se préoccuper du fait qu’aucun des 15 pays examinés n’applique aujourd’hui une tarification explicite du carbone, et que 83 % des émissions de carbone échappent à tout impôt ? 

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Why should developing countries implement carbon pricing when even advanced economies fall woefully short?

By Jonas Teusch, Economist, and Konstantinos Theodoropoulos, Statistician, OECD Centre for Tax Policy and Administration

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Taxing energy use for sustainable development

Why should low-income countries implement carbon pricing policies to reduce carbon emissions when  the world’s most advanced economies are falling woefully short of the prices needed to reach the objectives of the Paris Agreement? Indeed, more than 70% of emissions from OECD and G20 countries are completely untaxed, and more than half remain entirely unpriced even when accounting for emissions trading systems. Carbon emissions of most developing and emerging economies pale in comparison to OECD and G20 countries. For example, the 15 selected developing and emerging economies1 analysed in a recent OECD report Taxing Energy Use for Sustainable Development account for less than 4% of global emissions, whereas OECD and G20 countries collectively account for more than three quarters of global carbon emissions.

Against this background, does it matter that none of the 15 selected countries currently price carbon explicitly, and 83% of carbon emissions remain entirely untaxed?

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The challenges and opportunities of implementing local climate action lessons from Quelimane, Mozambique

By Manuel A. Alculete Lopes de Araújo, PhD, Mayor of Quelimane City, Mozambique

Mozambique, one of the most vulnerable countries in Africa to natural disasters, has had to learn first-hand that the effects of climate change are determining factors in the country’s deteriorating poverty situation. As one of the hot spots for various types of natural disasters, mostly directly related to climate change, such as floods, droughts, and cyclones, the country’s development achieved over the years is periodically undermined. As a result, the country still ranks 180th out of 189 on the United Nations Development Programme (UNDP) Human Development Index. Mozambique’s coastal cities, which could potentially represent a vital driver for the country’s growth, are also particularly exposed to disasters. Tropical cyclones, for instance, occur regularly in the area. Cyclone Idai and Cyclone Kenneth hit Mozambique in 2019 at just a few weeks interval, causing enormous destruction and the loss of many lives. But in recent years, the port city of Quelimane decided to tackle climate change through local climate action, involving a broad constellation of public and private sector actors, with the goal of triggering long-term systemic transformation and paving the way for other cities.

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