By Kenneth Chomitz and Vinod Thomas
The UN Secretary-General has presented options for raising $100 billion a year to promote development while fighting climate change. This is timely, but for such funds to make a difference, we must get past a set of myths that prevent the efficient use of resources.
Myth no. 1: Energy efficiency can’t meet energy needs.
Energy efficiency doesn’t get enough respect. “You can’t grow with energy efficiency,” say fans of flashy new powerplants, “and you can’t provide energy access to the poor.” Untrue, because people don’t really care about energy, but rather about the light, heat, and transport that it animates. Energy efficiency can provide these services cheaper, faster, and with less environmental damage than new generation.
Indeed, we find that many kinds of energy efficiency offer economic returns that dwarf those of most other development projects. In Ethiopia, for instance, a $5 million project to distribute compact fluorescent light bulbs obviated the need to spend $100 million to lease and fuel diesel powerplants. Vietnam, too, has met rapidly growing demand for energy in part through efficiency investments. Promoting energy efficiency right now helps defer the need to build long-lived fossil fuel plants, buying time for wind and solar power to become more cost-competitive.
Myth no. 2: Protected areas don’t help the environment.
Protected areas now cover one quarter of the remaining tropical forest. They are intended as a bulwark against deforestation, which accounts for about one sixth of global greenhouse gas emissions. But some skeptics deride them as ineffective ‘paper parks’, defenseless against large scale loggers and developers. Others fear that protected areas impoverish forest dwellers.
But new research shows that strictly protected areas do discourage deforestation. Moreover, protected areas that allow sustainable use by local people are even more effective at reducing deforestation. Areas controlled by indigenous people are yet more effective, by a wide margin. And in Costa Rica and Thailand, protected areas are associated with reduced local poverty.
Myth no. 3: Carbon markets will naturally promote renewable energy investments.
Carbon markets are designed to reward investors for reducing greenhouse gases, nudging them away from fossil fuels and towards clean energy investments. Projects that generate energy from landfill gas, for instance, enjoy favorable incentives because methane reduction commands a high price.
But for many hydropower and wind facilities, prevailing prices of carbon have been too low to push investors’ returns over a hurdle. And payments for carbon offsets do not address the investor’s critical problem of up-front financing for these capital-intensive projects. The result is that carbon payments may end up providing mere icing, rather than leverage, for private capital.
Myth no. 4: Technology transfer revolves around intellectual property rights.
Developing countries need to acquire a wide range of technologies in order to realize their development ambitions without repeating the environmentally damaging mistakes of the developed countries. Much attention has been devoted to the role of intellectual property rights (such as patents) as barriers to, or avenues of, technology transfer.
Yet there is tremendous scope for using pilot and demonstration projects to speed the diffusion of technical and institutional innovations. For instance, a World Bank/GEF demonstration project in Colombia convinced ranchers that retaining some tree cover in their pasture would increase profits, leading to enthusiastic scale-up of this innovation, which had the side benefits of conserving biodiversity and boosting carbon storage. Another project introduced the first three energy service companies to China, sparking wide-spread replication of this approach to energy efficiency finance. Grant finance was used to kick-start these projects, which seemed initially risky. This was a very high-leverage use of funds.
With atmospheric carbon dioxide concentrations ticking inexorably up, with billions of dollars at stake, we need to transcend these myths. More emphasis on energy efficiency, conservation and sustainable use of forests, real financial leverage, technology demonstration and scale up: these are vital ingredients for putting climate resources to effective use.
Kenneth Chomitz is a Senior Adviser with the Independent Evaluation Group-World Bank and Vinod Thomas is the Director-General, Evaluation, World Bank Group.
