What is the proper role for private finance?

20 November 2013

You may have noticed the developed countries’ increasing  enthusiasm for having private finance substitute for their direct support as part of meeting the the promise of mobilizing US $100 billion per year by 2020.

This year, two US-hosted ministerial meetings and the pre-COP finance discussions focused almost exclusively on the role of private finance, whilst the glaring uncertainties around the provision of public finance were barely discussed. And the invitation letter from the COP presidency to today’s finance ministerial encourages civil society organisations to ‘present their own ideas on possible ways of mobilizing sources of finance in the private sector’ as if to silence calls on the urgent need to scale up public finance.

So you be the judge: are developed countries sliding back on their side of the bargain and using private finance to sidestep the need to increase public finance?  Today’s Finance Ministerial is an opportunity to highlight that whilst private finance has a role to play in the global climate transition, it is not a substitute for scaling up  crucially needed public support.

Public finance has a critical role to play in mitigation by helping to catalyse larger private investments,. The real need is estimated to exceed $1 trillion globally,  if we are to limit the temperature increase below 2 degrees Celsius. Developed countries are kidding themselves if they think limiting the provision of public finance to a minor proportion of the $100 billion will leverage this scale of change.  If we are serious, it’s obvious that far more than $100 billion in public finance  is needed for mitigation alone. Now as for adaptation, the world’s poorest countries and communities will require public finance since private finance will favour mitigation. This will increase  the already neglected  adaptation gap in the world’s poorest countries.

Last month the US special climate envoy said, ‘No step change in overall levels of public funding from developed countries is likely to come anytime soon. The fiscal reality of the United States and other developed countries is not going to allow it’. 

But let us remind the developed country Parties of three other ‘fiscal realities’.  The first is the devastation caused by Typhoon Haiyan, which should serve as a wake-up call that scaled up public finance is vital to support resilience in the world's most vulnerable countries.

The second is that developed countries are subsidising fossil fuel energy with by at least $58 billion each year, which could instead be channelled for international climate finance.   The money is there, what’s lacking is the political will to drive  solutions forward.

Finally, developed countries urgently need to grasp the reality that their myopic focus on private finance will not help build trust and momentum. Instead, failure to scale up public finance is a source of considerable unease among developing countries, and risks derailing an effective 2015 outcome.