Tuesday, May 14, 2013

Investing in the Green Economy: Leveraging Significant Private Investment through Modest Public Finance

Wide spectrum public investment is the key to growing the green economy. This augers three important questions: How can we attract adequate amounts of private investment to unleash the full potential of the green economy? What do we invest in? How do we scale-up finance from developing economies?

Investment in clean energy has increased, with global spending on renewable energy rising six-fold since 2004. Despite ongoing economic weakness around the world, much more needs to be done.

As much as $100 trillion is required by 2030 to finance global infrastructure needs if we are to avoid an unsustainable increase in global temperatures. A total of $140 billion annually is required just to green the estimated $15 trillion investment in energy generation by 2020.

A recent United Nations Environment Programme (UNEP) report titled Green Economy and Trade-Trends, Challenges and Opportunities offers some valuable insight as to how we can generate the vast sums needed.  This report indicates that public investments in key areas (economic infrastructure, technical assistance, education, training and sustainable resources like renewable energy) can help developing countries benefit from the green market.

To generate this level of funding governments can use tax dollars as seed money. We have repeatedly seen how modest amounts of public finance can leverage significant private investment. This includes development banks which have been crucial catalysts of private investment, as have feed-in tariffs, green bonds, and publicly sponsored insurance schemes that cover political and currency risk.

According to Simon Zadek, Visiting Scholar at Tsinghua School of Economics and Management, and Senior Fellow of the Global Green Growth Institute and the International Institute for Sustainable Development, each tax dollar can be leveraged to yield 3-8 dollars in private investment.

As suggested by Zadek, modest levels of public finance can radically increase public investment in the green economy..

© 2013, Richard Matthews. All rights reserved.

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