U.N. Report: Major Shift in Investments Needed to Respond to Climate Change

Significant changes in the patterns of investment and financial flows are needed in the next 25 years to address climate change, according to a report released on Aug. 23 by the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC).

The study, an "analysis of existing and potential investment and financial flows relevant to the development of an effective and appropriate international response to climate change" found that the additional amount of investment and financial flows in 2030 will amount to between 1.1 percent to 1.7 percent of global investment.

"Developing countries will require a large share of investment and financial flows because of their expected rapid economic growth," said UNFCCC Executive Secretary Yvo de Boer. "This presents a real opportunity."

While the estimated investment flows to developing countries in 2030 represent 46 percent of global needs, the resulting emission reductions achieved by these countries in 2030 would amount to 68 percent of global emission reductions.

Additional financial flows needed in 2030 for adapting to climate change impacts amount to several tens of billions of dollars, in particular, in sectors and countries that already are highly dependent on external support such as the health sector in least developed countries or for coastal infrastructure in developing countries vulnerable to sea level rise.

"The study shows us that a conscious effort to shift from traditional investment to more climate-friendly alternatives will require governments to adopt new policies and change the way they use their funds. The required shift in future investment and financial flows needs a combination of actions by the intergovernmental process under the UNFCCC and national governments," de Boer explained.

One key way of enabling increased funding outlined in the report is by means of the carbon markets. The carbon market spawned by the Kyoto Protocol and policies to promote renewables are already playing an important role in shifting investment flows. Activities in the Protocol's Clean Development Mechanism (CDM) pipeline alone are estimated to have generated investment of around $25 billion (U.S. currency) in 2006. The CDM permits industrialized countries to invest in sustainable development projects in developing countries and thereby generate tradable emission credits.

"This is indicative of how quickly investment flows can respond to changes in policies and incentives. A long-term international agreement on climate change will broaden the range of mitigation measures that are attractive investments and could allow the expansion of existing market mechanisms to a market of $100 billion (U.S. currency) per year," the United Nation's top climate change official said.

The report will help delegates meeting for the United Nations Climate Change Conference in Bali (Dec. 3 to 14) in assessing the financial architecture needed for a post-2012 agreement, for which negotiations are expected to be launched this year.

The report can be downloaded at http://unfccc.int/cooperation_and_support/financial_mechanism/items/4053.php.

Check out the archives of Environmental Protection for additional articles related to climate change, including "Report: Practical Solutions to Global Warming May Offer Major Economic Opportunity for U.S."

This article originally appeared in the 08/01/2007 issue of Environmental Protection.

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