Investor Brains Target "Smart" Climate Finance

Smart financing can multiply limited public funds to fight climate change, say investors targeting a financing gap and a major stumbling block for the world to agree to a new climate deal.

Developing countries want rich nations to pay them to fight a climate change problem largely created by the industrialized world, under a deal meant to be agreed on this month in Copenhagen.

But there is a huge funding gap as recession-hit developed countries struggle to make concrete offers ahead of a Dec. 7–18 summit.

Carbon markets have so far failed to deliver the tens of billions needed, deploying $6.5 billion in developing countries last year under carbon offset schemes under Kyoto.

"There's a whole new world to look at in addition to carbon finance," said Murray Ward from the New Zealand-based Global Climate Change Consultancy.

Some developing nations want as much as 1% of the wealth of better off peers, while rich countries and analysts estimate the climate cost to developing nations at between $100 billion and $300 billion annually by 2020.

Only about $10 billion is on the table now.

"You can see a huge difference in ambition levels," said HSBC climate analyst Nick Robins.

Ideas center on how to use limited public funds to mobilize much greater private sector cash of around $100 billion.

They range from public loan guarantees or high-risk equity stakes in projects, to bonds where governments sell notes, which they repay over 10–15 years (e.g., getting up-front investor cash now to protect rainforests).

One new idea is to link a portion of industrialized nations' swelling sovereign debt to delivering on their climate promises—which may give private funds the extra confidence to invest in alternative energy, but cost nothing in extra public commitments.