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Creating Markets for Climate Business An IFC Climate Investment Opportunities Report Contents iv Acknowledgements v Foreword vi Acronyms vii Introduction 123 Making It Happen: Cross-Cutting Solutions for Market Creation 1 19 35 Pathways to grow green finance Grid-Connected Off-Grid Solar and Climate-Smart How can blended Renewable Power Storage Agriculture finance help deliver NDC investment goals? Summary Summary Summary Creating markets for green Market snapshot and Market snapshot and Market snapshot and innovation growth potential growth potential growth potential Tools, initiatives and Creating markets for Creating markets for Creating markets for resources grid-tied renewable power off-grid solar and storage climate-smart agriculture Initiatives, tools, and Initiatives, tools, and Initiatives, tools, and 150 Endnotes resources resources resources ii Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report 53 71 87 107 Green Buildings Climate-Smart Climate-Smart Climate-Smart Urban Transport and Urban Water Urban Waste Summary Logistics Infrastructure Management Market snapshot and Summary Summary Summary growth potential Market snapshot and Market snapshot and Market snapshot and Creating markets for green growth potential growth potential growth potential buildings Creating markets for Creating markets for Creating markets for Initiatives, tools, and climate-smart urban climate-smart urban climate-smart waste resources transport water investment investment Initiatives, tools, and Initiatives, tools, and Initiatives, tools, and resources resources resources  iii Acknowledgements This report was prepared by the Climate Business Katie Kennedy; Green Buildings Chapter: Prashant Finally, this report benefited tremendously from the Department (Alzbeta Klein, Director), Climate Finance Kapoor, Corinne Figueredo, Rebecca Menes, Rusmir review and comments of a number of external experts, and Policy Group (Vikram Widge, Head). The lead Music, Autif Sayyed, Lenore Cairncross, Martina including: Lance Pierce, President, CDP North America; author was Tom Kerr, with significant support from Aditi Bosi and Thomas Moullier; Climate-Smart Urban Marina Grossi and Laura Albuquerque, CEBDS; Maheshwari and consultant Jagabanta Ningthoujam. Transport and Logistics chapter: John Graham, Barbara Buchner, Senior Director and Jessica Brown, Sona Panajyan managed communications around the Navaid Qureshi, Shomik Mehndiratta, Tatiana Quiros Associate Director, Climate Policy Initiative; Marwan report. Initial sector policy research was performed and Maria Cordiero; Climate-Smart Urban Water Ladki, Expert in Sustainable Agriculture, Food and by Vivid Economics. Report design and production Infrastructure chapter: George Butler, William Davies, Agriculture Organization; Michael Waldron, Markets assistance was provided by Maria Teresita Aniana. Sophie Tremolet, William Kingdom and Ye-rin Um; Analyst, Renewable Energy Division, International Creative design, layout and printing services were and Climate-Smart Urban Waste Management chapter: Energy Agency; Steve Nicholls, Head of Environmental provided by the World Bank’s in-house printing and James Michelsen and Silpa Kaza. Berit Lindholdt Sustainability, National Business Initiative—South multimedia team, led by Gregory Wlosinski. Copy Lauridsen, Joyita Mukherjee, Jonathan Coony, Justine Africa; Jane Ebinger, Director of Policy, Sustainable editing services were provided by Clarity Editorial. Yulia White, Joshua Gallo and Geoff Keele all offered Energy for All; Annapurna Vancheswaran, Senior Guzairova managed the budget. significant input to the Making it Happen chapter. Director of Communication, Outreach and Advocacy Unit, TERI; Grant Kirkman, Head Relations Many World Bank Group colleagues and experts In addition, several other colleagues provided very Management—Finance for Climate, United Nations provided critical input and ideas to shape this report. helpful cross-cutting input and comments, including Framework Convention on Climate Change; Jayoung The authors are very grateful for the insightful John Donnelly, Steven Baillie, John Graham, Ye-ra Park, Senior Manager, Environment and Climate and review and expert input from the following people: Park, Charlene Coyukiat, Lisa Da Silva, Minakshi Heidi Huusko, Senior Manager, Government Affairs, Grid-Connected Renewable Power chapter: Guido Seth, Martin Buehler, Wenxin Li, Milagros Rivas Saiz, Environment and Climate, United Nations Global Agostinelli, Peter Mockel, and Sean Whittaker; Off- Vipul Bhagat, Eliana Kaloshi, Rong Zhang, Jean-Marie Compact; Emily Farnworth, Head of Climate Change at Grid Solar and Storage chapter: Guido Agostinelli, Masse, Vipul Prakash, Ruth Hupart, Philip Kileen, Arun the World Economic Forum. Their collective wisdom and Peter Mockel and Hoi-Ying So; Climate-Smart Sharma, Vladimir Stenek, Peer Stein, Elcin Akcura, contributions have dramatically improved the report’s Agriculture Chapter: Nina Zegger, Ahmad Slaibi, Denise Odaro, Brenna Lundstrom, Raul Alfaro-Pelico, comprehensiveness and potential for impact. Marc Sadler, Alberto Millan, Tobias Baedecker, Stephen and Amelia Midgely. The Climate Business Department D’Alessandro, Aira Htenas, Marketa Jonasova and Anchors also reviewed and supported the report. iv Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Foreword commitments submitted by 21 emerging market countries as advice. These activities will improve yields while promoting part of the Paris Agreement, and found $23 trillion in investment healthy soil, clean groundwater and reduced greenhouse-gas opportunity if they achieve their targets by 2030. This report emissions. The City of Buenos Aires is demonstrating how builds from that effort by providing information for investors, local governments can create markets for urban transport and banks and companies about the most attractive climate waste that are attractive for private investors. It has launched investment opportunities, while offering governments a set of an ambitious $400 million transportation plan to boost urban best practice policies and measures that have been proven to connectivity, decrease congestion, and ease pollution by attract private investment. reducing the use of cars through a bus rapid transit line and bike sharing stations; and is also advancing climate-smart waste The way to deliver on the Paris climate pledges is to create management and green buildings. Finally, we can and must vibrant markets for climate business. The good news is that increase private investment in adaptation and resilience. IFC many countries are already making progress. Over $1 trillion recently used blended finance to invest in the Mocuba Solar in investment is already flowing annually into climate-related plant, which delivers climate resilience for Mozambique by projects; with the right policy frameworks in place, trillions diversifying the electricity mix, while producing electricity that more will be triggered. Philippe le Houérou is cheaper and cleaner than fossil-fuel-based alternatives. Chief Executive Officer, IFC Witness the Mobisol Pay-As-You-Go business model, which IFC is also using financial innovations such as green bonds to is providing over 60,000 affordable solar home systems in A dangerously warming planet is not just an environmental make it easier for investors to participate in climate business. East Africa, via payment through mobile phones. This has led challenge—it is a fundamental threat to our way of life and Colombian banks Bancolombia and Davivienda became the to an expanding set of local jobs and has the added benefit of threatens to put prosperity out of the reach of millions of people. first private banks in Latin America to issue green bonds in April establishing credit histories for customers that had previously In 2015, governments acted decisively by establishing the Paris 2017; other private banks in the region are expected to follow. lacked them. There is also a growing market for green buildings. Agreement, which aims to stabilize the climate before the end And in October 2017, Fiji became the first emerging market to In the four years since its inception, IFC’s EDGE has resulted of this century. Unlike previous commitments, the Agreement issue a sovereign green bond, raising 100 million Fijian dollars in the certification of more than three million square meters took a bottom-up approach in which 189 countries submitted ($50 million) to support climate change mitigation and adaption. of green floor space, and is now available in more than 130 national commitments that sent a clear signal to businesses and countries. In Vietnam, a consortium of 12 developers has IFC is privileged to play a key role in advancing climate solutions investors around the world: a low-carbon future is coming. pledged to certify projects green with IFC's EDGE program. with the private sector. Since 2005, we have provided advice As we seek to address climate change, we need to remember and invested more than $18 billion in long-term financing for Agribusiness is increasingly investing in climate-smart practices that the lion’s share of economic growth, infrastructure needs, climate business. In the last fiscal year alone, we provided more that deliver increased productivity, enhanced resilience and and related carbon pollution will take place in rapidly growing than $4.7 billion in climate-smart financing, including more than reduced emissions—thereby helping countries to achieve their emerging economies. This creates a unique opportunity: to $1.7 billion mobilized from other investors. IFC is committed to climate and food security goals. IFC client Kingenta is helping ensure that this growth is sustainable and resilient, while step up as an advisor, investor and partner with our clients and China achieve its target of zero growth in fertilizer use by creating jobs, improving livelihoods, and offering positive governments to build on this success and grow new markets for transforming to an integrated solutions provider that supports returns on investment. Last year, IFC studied the national climate business. farmers with high-quality and locally tailored fertilizers and  v Acronyms BRT Bus rapid transport MW Megawatt CSA Climate-smart agriculture MWh Megawatt-hour EBRD European Bank for Reconstruction and Development NDC Nationally determined contribution EDGE Excellence in Design for Greater Efficiencies OECD Organisation for Economic Co-operation and Development ESCO Energy service company PAYG Pay-As-You-Go GDP Gross domestic product PPP Public Private Partnership GHG Greenhouse gas PV Photovoltaic GPS Global positioning system REDD Reduce emissions from deforestation and forest degradation in developing countries GW Gigawatt SE4All Sustainable Energy for All GWh Gigawatt-hour SSA Sub-Saharan Africa IRENA International Renewable Energy Agency TWh Terawatt-hour KWh Kilowatt-hour VAT Value-added tax LED Light-emitting diode vi Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Introduction  vii Introduction C limate change presents us with perhaps our biggest challenge. In recent years, we have seen growing evidence of the effects of climate change. Greenhouse-gas pollution continues to build up in the the norm for companies. In 2016, 190 of the Fortune 500 companies reported saving $3.7 billion through renewable energy and energy- efficiency efforts alone.3 atmosphere, causing more intense storms, floods, droughts, and heat Engaging the private sector in climate-smart investments will be essential waves. In recent years, we have seen growing certainty and evidence to achieving the goals of the Paris Agreement. In many sectors, private of climate change impacts, with supply chains disrupted, increased finance already plays a large role; the Climate Policy Initiative estimated commodity price volatility, and severe impacts on communities. The that in 2014, private capital made up over 60 percent of $392 billion in World Bank Group’s Turn Down the Heat report warns that even more annual climate finance flows.4 However, meeting the ambitious targets dangerous effects are still to come unless humanity changes course.1 set in Paris will require trillions of dollars more in investment. The New In 2015, governments acted decisively, putting in place the Paris Agreement Climate Economy initiative estimates that the world needs to double to tackle climate change before the end of this century. Unlike previous its current investment—to about $6 trillion per year—between now commitments, this agreement took a bottom-up approach—189 countries and 2030 just to meet global infrastructure needs.5 Two-thirds of this submitted national commitments with targets to increase investment in investment is needed in low- and middle-income countries, which have renewable energy, energy efficiency, sustainable infrastructure, and climate- gained an increasing share of global gross domestic product (GDP) since smart agriculture. These commitments sent a clear signal to businesses and 1990.6 Growth has accelerated not only in large economies such as China investors around the world: a low-carbon future is coming. and India, but also in many smaller countries in Asia, Africa, and Latin America. This means that nearly all projected economic growth—and Achieving the Paris Agreement will create significant investment related greenhouse-gas emissions growth—is expected to come from opportunities. If the commitments are realized, they will create over $23 developing countries.7 trillion in investment potential in 21 large emerging markets between now and 2030.2 Climate change is a business opportunity and markets are growing. The climate challenge is an opportunity—one in which the private sector is Governments are not the only ones taking action. More than 1,000 ready to invest. Businesses are increasingly finding innovative solutions businesses and hundreds of local governments have made ambitious to reduce greenhouse-gas emissions at a profit in sectors like renewable climate commitments, and are putting their pledges into action by energy, climate-smart agriculture (CSA), green buildings, and sustainable investing in low-carbon solutions (Box 1). There is growing proof transport, while generating jobs and making cities cleaner, healthier, that clean energy and other climate-smart investments are becoming viii Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 Business and local governments: Leading on climate change Any effort to decarbonize the economy at the carbon emissions. The Business and Sustainable currency lending, sending a signal of confidence to local, regional or global level requires business Development Commission estimates that energy- investors. engagement. Public policy plays a key role in efficient buildings, clean vehicles, urban public IFC’s Cities Program10 is engaging in these types of stimulating innovation by requiring or incentivizing transport and resilience-building in cities represents strategic investments with cities around the world businesses to reduce their emissions. Business and an opportunity of over $1.1 trillion globally by by taking a holistic view of needs and offering investor leadership is also key. This leadership has 2030.9 To tap into these low-carbon, private solutions in urban transportation, water and waste been growing steadily since the United Nations sector solutions, cities are adopting land rights management, street lighting, affordable housing, Secretary General’s Climate Summit in 2014, and was reforms, improving access to resilient, low-carbon energy efficiency, and climate resilience. IFC’s global in evidence at the Peru, Paris and Marrakech climate infrastructure, and providing incentives for private network enhances its ability to mobilize commercial talks. The Non-State Actor Zone for Climate Action investment. financing for priority projects, connect cities with now includes commitments by more than 2,000 For example, the City of Bogotá’s bus rapid transit capital markets, and help improve creditworthiness companies and over 450 investors.8 (BRT) system—featuring dedicated bus lanes, through financial management training. elevated stations, and smart card payments—has “More than 600 companies, based in 47 countries, saved commuters as much as 40 minutes per day “Cities are leading the way in confronting climate representing a market capitalization of more than and reduced air pollution by 40 percent, making change, and they would be doing even more, even $15 trillion have now made bold commitments to public transit an attractive alternative to driving. faster, if they had greater access to funding. This is climate action. They include over 300 of the world’s Other cities, including Buenos Aires, Johannesburg a big challenge that we can start to address with biggest companies committing to set a science-based and Cape Town, are building and expanding similar practical steps, like helping cities improve their credit target, indicating their commitment to the Paris networks as part of an emphasis on transit-oriented rating, measure their funding needs, and connect Agreement. The momentum is unstoppable.” development—making green and efficient mobility a specific projects with lenders. The more power we can ——Nigel Topping, Chief Executive Officer, We Mean priority. In Izmir, a city of 4 million people on Turkey’s give cities, the more investment opportunities we can Business coalition Aegean coast, municipal authorities have tackled unlock.” growing congestion and air emissions through Local governments are also vital actors in addressing ——Michael Bloomberg, United Nations Special Envoy investments in a new ferry service, metro line, for Cities and Climate Change climate change. Cities consume two-thirds of the tramway, and a smart traffic lights network. Izmir world’s energy and generate 70 percent of global also received a domestic AAA credit rating for local Introduction ix and more resilient. Nowhere is this more evident than in China, 73 percent since 2000 and 50 percent since 2014)15 and governments which became a green energy leader after the government designated invest in charging infrastructure. In 2017, France, India, and Norway set renewable energy as a strategic industry. It now has more than one-third aggressive targets to phase out gasoline-powered vehicles in the next 15 of the world’s wind power capacity and a quarter of its solar power, and years. Bloomberg New Energy Finance forecasts that electric cars will is leading a revolution in battery technologies.11 Africa has seen 62,000 be cheaper than conventional cars without subsidies between 2025 and jobs created from renewable energy development, with thousands more 2030.16 Global renewable power providers like Enel are beginning to expected as the continent realizes its potential to tap into more than combine batteries with solar PV to produce power after dark in sunny 1,100 gigawatts (GW) of solar power capacity, 350 GW of hydropower places where power is expensive, such as in mining operations in Chile.17 capacity, and over 100 GW of wind power capacity.12 All of these changes will require governments to respond with targeted policies to ensure that renewable providers are fairly paid for their services. “The Paris Agreement has been called a $20 trillion investment opportunity. Whatever the precise figure, it is certainly an economic “Open cross-industry partnerships spanning along the value chain opportunity with profound social and environmental benefits too. will bring new opportunities for the efficient consumption of I would urge all businesses, corporations, financial institutions, and clean energy. A digitized grid, coupled with a sound investment investors to fully align with the goals of the Agreement—in support framework, will allow for unprecedented interactions between all of governments, in support of people everywhere.” the actors of the energy system.” —— Patricia Espinosa, United Nations Framework Convention on —— Francesco Starace, Chief Executive Officer, Enel Group Climate Change Executive Secretary This rapid growth is expected to continue. Bloomberg New Energy Annual global investment in climate business solutions is over $1 trillion, Finance projects $6 trillion in new investment in wind and solar power and is accelerating. The combined markets for renewable energy ($297 between now and 2040. Global electricity markets will be completely billion), energy storage ($2.5 billion), green buildings ($388 billion), reshaped, with wind and solar as the two largest generators of power, climate-smart urban transport ($288 billion), water recycling ($23 billion), and fossil fuels making up less than a third of capacity.18 Just less than and municipal waste management ($160 billion) are today worth more half of global investment in new power capacity to 2040 will be in Asia than $1.1 trillion. In 2016, global renewable power generation capacity Pacific, with $4 trillion going to China and India.19 rose by 9 percent; a fourfold increase from 2000. For the second year in Successful climate business markets are on the rise. $388 billion was a row, renewable energy accounted for more than half of the new power invested in energy-efficient buildings globally in 2015, up 9 percent from generation added worldwide.13 Solar power is getting cheaper much quicker the previous year.20 While this investment has been centered in developed than anticipated: photovoltaic (PV) module prices have reduced 72 percent countries so far, rapidly growing urban populations in countries like China since 2009, and experts forecast another 67 percent reduction by 2040.14 and India will account for much of the new growth. Energy-efficient Wind energy is also making major advances in cost and performance. heating, ventilation, and air conditioning is currently a $76 billion global Electricity delivery and use is becoming a decentralized, community-based market.21 Businesses and cities are collaborating to develop low-carbon, business, particularly in Africa and Asia, where communities are using resilient urban infrastructure to provide citizens with sustainable transport, smarter energy by combining small-scale solar, and batteries. Electric water, and waste management services. Over the next decade, trillions of vehicles are also gaining popularity as battery costs continue to drop (down x Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report dollars will be invested in transport infrastructure, with many climate- smart investment opportunities for businesses, including electric vehicles, BRT, light rail, and multimodal transport and logistics. The global waste market is already worth $154 billion and is expected to double by 2020, while water supply and sanitation services require more than $13 trillion in investment between 2016 and 2030. Companies are partnering with local governments to offer low-carbon water savings and recycling services, as well as waste-to-energy systems. Climate-smart agriculture is also a rapidly expanding market, as food producers strive to meet growing demand for modern, sustainable diets. Between 2004 and 2013, global investment in the agribusiness sector tripled to more than $100 billion. Climate-smart agricultural practices are gaining ground as businesses seek to address the combined challenges of food security and climate change. Government action is accelerating market development. Addressing climate change requires large-scale economic transformation, with major changes in the energy system, industrial processes, heating and cooling, transport systems, urban infrastructure, land use and consumer behavior. Countries have adopted more than 1,200 climate change laws, up from 60 two decades ago. Renewables now receive direct policy support in nearly 150 countries.22 The implementation of the Nationally Determined Contributions (NDCs) submitted as part of the Paris Agreement will only accelerate the market for climate-friendly solutions. Several countries are starting to implement these targets, with a focus on creating a positive climate for private investment that results in a pipeline of bankable projects for investors (Figure 1). “The top priority for governments and business should be to convert the targets agreed and the pledges made at Paris into vibrant markets for climate business. This is the growth story of the future, and is the only way to deliver lasting and inclusive prosperity.” —— Nicholas Stern, Chair, Grantham Research Institute on Climate Change and the Environment, London School of Economics Introduction xi FIGURE 1: Countries are making progress in creating markets for climate business Sweden France Morocco India Costa Rica Colombia Côte d’Ivoire Zambia Chile (Source: IFC analysis) COSTA RICA SWEDEN CÔTE D'IVOIRE Supportive policies for EVs and renewables will Sweden recently raised ambition to be climate Cote d'Ivoire aims to generate 42 percent of help Costa Rica become carbon neutral by neutral by 2045 power from renewables by working with IFC 2021 to attract private investment FRANCE COLOMBIA Plan Climat raises France's climate ambition ZAMBIA Colombia's 10-year National Climate with strong targets for EV, renewables and Scaling Solar is helping Zambia to attract low- Policy prioritizes sectors for investment; the carbon pricing cost solar investment and deliver energy access Sostenible Fund will raise capital MOROCCO INDIA CHILE Already a clean energy leader, Morocco is using India is already on track to exceed its NDC Chile's new National Climate Action Plan public-private initiatives to achieve its NDC targets for solar and wind energy due to will accelerate private investment in renewable strong policies and incentives energy xii Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report CHILE C O LO M B I A C O S TA R I C A During the last decade, Chile has In June 2017, Colombia announced a “Colombia is committed to fiscal The government aims to be the world’s established itself as one of the top 10-year National Climate Policy for policies and reforms that help us first carbon-neutral economy by 2021, 10 renewable energy markets. The comprehensive management plans that to successfully implement the Paris with 100 percent renewable energy by government introduced competition in integrate climate considerations into local Agreement, as shown in the tax 2030. The Seventh National Energy Plan electricity markets, which has resulted and territorial development plans, as well reform approved last year where we 2015–2030 sets a clear path for private in a stronger grid with dramatically as national energy and infrastructure included a carbon tax, among other investment in Costa Rica’s low-carbon reduced electricity production costs.23 sector strategies. The government also climate related provisions that are future: it currently has tax exemptions The country has also worked to diversify established a new fund, Colombia part of our sustainable development for renewables, tenders for new its renewable energy base away from Sostenible, to raise public, private, agenda. From instituting carbon projects, and net metering to facilitate hydropower to a mix of solar, wind, and and international funding for NDC taxes to strengthening social development. A new law to promote geothermal power. This has resulted in implementation.25 The private sector has and economic resilience, finance the use of electric vehicles will exempt reduced energy imports. Chile’s NDC been contributing ideas for innovative ministers have access to a wide range electric and plug-in hybrid cars from builds on this success, setting a carbon climate solutions through efforts like the of public policy instruments which tax, and another law proposes to ban intensity target to reduce carbon dioxide banking sector’s Green Protocol, which could help their countries to manage petroleum vehicles by 2030.28 emissions by 30 percent below 2007 is developing climate-smart agriculture the effects of climate change.” 27 levels by 2030. In August 2017, the financing tools, and the National —— Mauricio Cárdenas, Minister of country launched the National Climate Association of Industrialists’ Clean Finance, Colombia Action Plan, with the goal of doubling its Energy Investment Accelerator, which is current renewable electricity generation demonstrating the potential for rooftop from 45 percent of the energy mix to solar electricity.26 90 percent by 2030. 24 Introduction xiii C ÔT E D ’ I VO I R E FRANCE INDIA In its NDC, Côte d’Ivoire committed to In June 2017, France adopted the Plan By some estimates, India is already on “India aspires to global leadership reduce greenhouse-gas emissions by Climat, which includes a new long-term track to exceed its NDC target of reducing on climate action, by setting 28 percent compared to business as objective to be carbon neutral by 2050. greenhouse-gas emissions intensity by up to ambitious solar targets and directing usual by 2030. To achieve these targets, 29 This is significantly more ambitious 35 percent by 2030. Its success in creating 31 that all cars sold in the country be the government has developed a plan than the country’s NDC.30 Plan Climat markets for solar power, estimated at more electric by 2030. For companies for implementation and monitoring of includes a commitment to use carbon than 13 GW in capacity in 2017, has led like Mahindra, this represents a way the proposed actions, and recognizes pricing to phase out coal power plants the government to expand its National to reinvent ourselves and deliver the importance of developing a well- by 2022, and to increase the share of Solar Mission. The new target is 175 GW profits—and prosperity—for all.” defined resource mobilization strategy renewable energy to 32 percent by 2030. of installed solar energy by 2022—five —— Anand Mahindra, Chairman, comprising public and private financing. It also aims to end the issuing of new times the original target. Guided by the Mahindra Group licenses for hydrocarbon exploration or National Wind Energy Mission, with a “Cote d’Ivoire has strong ambitions the renewal of existing permits by 2040. target to install 60 GW by 2022, India is to scale up cost-effective, reliable The government has set a target to phase now the world’s fourth largest wind power renewable energy; we are pleased to out all greenhouse-gas-emitting cars by generator. The government also recently work with IFC to engage the private 2040, when only hydrogen-powered or announced a commitment to end the sale sector to help achieve our targets.” electric vehicles may be sold. of gasoline-powered cars by 2030. —— Thierry Tanoh, Minister for Petroleum, Energy, and Renewable Energy Development xiv Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report MOROCCO SWEDEN ZAMBIA Morocco is integrating its NDC targets Sweden has already successfully Zambia’s NDC aims to boost off-grid “There can be no doubt that into the country’s policy framework, decoupled its economic growth from and decentralized renewable energy developing countries will be at the including leveling the playing field for greenhouse-gas emissions growth systems. This will help address frequent forefront of the green economic renewable energy by reducing fossil-fuel through supportive policies that include blackouts and power shortages in the revolution, bringing jobs in clean subsidies. The country’s NDC sets a carbon taxes. In June 2017, the country country. The government has joined energy, improved air quality and 52 percent renewable energy generation officially committed to achieving carbon the World Bank Group’s Scaling Solar more productive land.” target for 2030, and is making strong neutrality by 2045, five years earlier Program and completed its first private —— Ngozi Okonjo-Iweala, Co-Chair progress. In early 2016, 35 percent of than its previous plan. Its new climate auction in May 2016 to build two large of the Global Commission on the the country’s energy mix was renewable, legislation will provide the long-term solar plants (600 megawatts [MW] Economy and Climate; Chair of largely as a result of the Noor I solar conditions for business and society to capacity in total). The lowest bid was just the Board of Gavi, The Vaccine park in Ouarzazate.32 The government implement the transition. Sweden now over $0.06 per kilowatt-hour (kWh)—the Alliance has also created innovative new public- has long-term climate goals that go cheapest solar power to date in Sub- private entities to help increase capacity beyond 2020 and an independent climate Saharan Africa and among the lowest and awareness about climate change policy council that reviews climate tariffs in the world.35 By comparison, solutions, including 4C Maroc, also policy.34 diesel-fired power costs about $0.20 per known as the Moroccan Competence kWh and is subject to price volatility. Center for Climate Change. 4C Maroc establishes a platform for dialogue between Moroccan ministries, private sector actors, and civil society groups to develop implementation roadmaps and investment plans.33 Introduction xv B OX 2 Creating markets for climate business This report has been designed to help inform private companies and investors about the myriad opportunities that exist in climate business around the world. It will help governments translate their climate ambitions into successful markets for climate business. It synthesizes the lessons learned from several decades of successful market creation across the globe, spanning sectors and regions. The following chapters offer guidance for creating markets in seven key climate business sectors: • Grid-connected renewable power • Off-grid solar and storage • Climate-smart agriculture • Green buildings • Climate-smart urban transport and logistics IFC: Creating markets for climate • Climate-smart urban water infrastructure business • Climate-smart urban waste management Since 2005, IFC has developed expertise in creating Each of the sectors has a market snapshot and growth forecast, along markets for climate business, cultivating innovative with a set of proven policies and regulations, financial innovations, partnerships and financing products for key sectors such and business models. The final chapter, Making It Happen, outlines as climate-smart agriculture, green buildings, low- cross-cutting solutions like green finance and blended finance—which carbon cities and renewable energy. In 2016/17 alone, strategically use limited amounts of public finance and regulation to IFC’s climate investments totaled $3 billion, covering 90 mobilize much larger sums of private capital. It highlights important projects in 41 countries. It mobilized an additional policy solutions like reducing fossil fuel subsidies and pricing carbon, $1.8 billion from other investors. These investments are which are key to level the playing field for low-carbon investments. also delivering significant environmental value. The latest Finally, it showcases two solution to help cities attract private capital for fiscal year’s investment and advisory projects reduced climate-smart urban infrastructure: enhancing city creditworthiness and more than 6.7 million metric tons of greenhouse-gas creating public-private partnerships. emissions, equivalent to taking 1.4 million cars off the road. IFC will work closely with businesses, investors, and governments to build on this success and grow new markets for climate business. www.ifc.org xvi Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Sector Market snapshot Highest growth markets Key actions to attract private investment Grid-Tied • In 2016, over 160 GW of renewable energy capacity was built • There is $6 trillion in new investment potential in wind and solar power up to Step 1: Set a target. Step 2: Put in place smart, market-responsive Renewables • This was $280 billion in investment, 2X fossil- 2040; half in Asia-Pacific region policies. fuel investment • Africa is attracting solar investment, with 170 Step 3: Ensure that other policies are not MW in Algeria and 500 MW in South Africa • China & India are the leading markets, with inhibiting market growth. nearly 1/2 new capacity added • China led in wind power additions in 2016, Step 4: Adapt policies to meet the evolving needs with 23.4 GW new capacity • Over 100 countries targeted renewable of the electricity market. energy in their NDCs • Battery storage markets are expected to reach 21 GW by 2025 Off-Grid Solar • The global energy storage market was $2.5 billion in 2016, with hot markets in • Investment in emerging market energy storage will grow from $2.5 billion to Step 1: Set a target. Step 2: Publicize a grid expansion plan to give and Storage Sub-Saharan Africa and South Asia $23 billion in 2025 confidence to developers and investors. • 89 million people in the developing world • Sub-Saharan Africa has the greatest growth Step 3: Provide targeted incentives to encourage own at least one solar light potential deployment. • 31 NDCs target off-grid solar and storage • Pay-as-You-Go companies raised Step 4: Allow different electricity tariffs for mini- $223 million in capital in 2016 grids and rooftop PV. Step 5: Provide microfinance, training and education. Climate-Smart • Agriculture is a $5 trillion global industry, supporting 500 million farmers and • By 2032, food demand will increase 20%, driven by growth in the developing world. Step 1: Mainstream climate-smart agriculture into national policies and sector development Agriculture responsible for 10% of consumer spending and • Food production will need to increase 70% plans. 30% of greenhouse-gas emissions Step 2: Address inefficient government price and • Over the last 40 years, global meat subsidy regimes to reward CSA. consumption has grown 2X and will continue Step 3: Invest in strategic infrastructure to to grow facilitate CSA investment. • Over a third of all food that is grown is wasted Step 4: Promote outreach, training, and • 61 NDCs specifically target CSA agribusiness centers of excellence. Green Buildings • Energy-efficient building investment was $388 billion in 2015 and is growing • Energy-efficient buildings need nearly $300 billion annual investment to achieve climate Step 1: Develop regulatory tools, including building codes, government procurement, stabilization appliance standards and performance labels. • 86 countries target energy-efficient buildings in their NDCs • ESCOs have emerged as a key business Step 2: Build capacity via public awareness, model; global revenues were $24 billion in awards, audits, ratings and certification, 2015 workforce training and technical assistance. Step 3: Provide targeted incentives, revolving loan funds, risk guarantees and energy performance contracts. Step 4: Encourage utilities to act via advanced metering, demand response, time-based tariffs, subsidies and ESCO support. Introduction xvii Sector Market snapshot Highest growth markets Key actions to attract private investment Transport and • Over 750,000 EVs have been sold— a $163 billion market • Investment in transport infrastructure will grow to $900 billion per year by 2025 Step 1: Avoid the need for urban commuting via better urban design, bike lanes and consolidated Logistics • Governments are creating markets for EVs • The Asia-Pacific will attract over $8 trillion freight centers. by phasing out combustion engines in the in investment through 2025 Step 2: Shift from personal vehicles to other coming decades modes of transport with BRT, metro systems, • Doubling vehicle efficiency and enabling travel demand management, fiscal measures and • Bus Rapid Transit is an attractive urban fuel switching could save $8 trillion PPPs. mobility option—over 150 global cities now cumulatively by 2050 have BRT systems Step 3: Improve technology for passenger vehicles and freight via fuel economy standards, • Over 80 countries target transport in their tax rebates, EV infrastructure and automation and NDCs optimized routing. Climate- • More governments are looking to the private sector for climate-friendly water supply and • Investment for water supply and sanitation could exceed $13 trillion by 2030, with $8 Step 1: Establish water access, cost recovery and service quality goals, increase inter-government Smart Water treatment investment trillion needed in the Asia-Pacific region coordination and foster water-smart public Infrastructure • In 2015, private sector water investment alone awareness. totaled $5.3 billion • The global market for water recycling Step 2: Ensure financial sustainability by technologies is $23 billion, and rapid growth implementing water pricing and removing • More than 100 countries mention the water will continue subsidies. sector in their NDCs Step 3: Make public-private cooperation deliver increased water efficiency via guarantees, PPPs, project preparation funds and performance-based contracting. Step 4: Build capacity through training, regional cooperation, public awareness, home/equipment certification, auditing and benchmarking. Climate-Smart • The global waste market may reach $2 trillion by 2020 • Strong waste-to-energy investment is likely; the Asia-Pacific and Latin American Step 1: Achieve economies of scale by aggregating waste flows and developing regional plans/ Urban Waste • Over the past 2 years, $300 billion in waste regions will see the most growth partnerships. Management processing investment projects have • Between 2009 and 2013, waste generation Step 2: Use an integrated waste management attracted capital increased by 15 percent each year in Brazil approach to attract private investment. and China • 800 waste-to-energy facilities were worth Step 3: Get the prices right via cost recovery $7.4 billion in 2013 through taxes, volume-based fees and other means. • Waste recovery and recycling markets are around $265 billion Step 4: Put incentives in place through appropriate WTE pricing, mandates for compost • Over 80 countries include waste in their and other sector policies. NDCs Step 5: Raise consumer awareness to reduce non-recoverable waste streams. xviii Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Grid-Connected Renewable Power 1 Key indicators There is $6 trillion in new In 2016, over 160 GW of investment potential in wind renewables capacity was built and solar power between now around the world accounting for and 2040; half of this potential $280 billion investment, double is in the Asia-Pacific region. what fossil fuels received. There will be up to $11 trillion China and India lead market cumulative investment by 2040, development, with nearly 50% of mostly in emerging markets. new global capacity. 2 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report 2016 2015 Over 100 major companies In 2016, 75 GW of solar China led in global wind are creating markets by PV was built around the power installation in 2016, committing to go 100% world—equivalent to building over 23 GW. renewable energy. 31,000 panels installed every hour. Battery storage markets Africa is beginning to attract Over 100 countries are expected to reach 21 major solar investment, with targeted grid-connected GW by 2025, driven by cost Algeria (170 MW+), renewable power in their reductions of over 50%. South Africa (500 MW+) and NDCs. Zambia leading the way. Grid-Connected Renewable Power 3 Grid-Connected Renewable Power 1.1 Summary competition, with record-breaking bids achieving the lowest installed cost for renewables to date. Renewable power is transforming the global electricity system, with new capacity and investment values consistently outstripping performance There is growing corporate appetite or customer-sited renewable energy. in the fossil-fuel sector. In 2016, more than 160 GW of solar, wind, Led by the RE100 initiative (see Box 3), companies from diverse sectors hydropower, geothermal, and biomass capacity was built around the are committing to power 100 percent of their global operations with world, equivalent to twice the United Kingdom’s total installed capacity. renewable energy. This includes technology giants like Intel, Google, This means that 62 percent of capacity added to the system that year Apple, and Amazon, as well as banks like Goldman Sachs—the first U.S. was renewable, representing an investment of almost $297 billion, more bank to sign a corporate power purchase agreement—and consumer- than double the investment in fossil fuel and nuclear generation.36 oriented companies like Unilever.38 In 2016, Dalmia Cement from India became the first cement company to join the RE100. IFC banking clients There is increasing demand for renewable energy in emerging markets, also cite renewable energy as the top priority for their climate business. led by China and India. According to Bloomberg New Energy Finance, in 2016 China added 34.5 GW of solar power and India added 4.1 GW— Increasing cost-competitiveness, policy support, and corporate demand together accounting for more than 50 percent of new global solar means that the forecast is good for renewable energy. According to the capacity. Similarly, China and India added 23.4 GW and 3.6 GW of wind International Energy Agency, cumulative investment in renewable energy power respectively in 2016, accounting for half of global capacity added could reach between $7 trillion and $11 trillion by 2040.39 Much of that year. Brazil, Jordan, and South Africa are other emerging markets the new investment will be concentrated in solar PV and wind power in with significant new investment in renewable energy. developing markets. Innovation and economies of scale have cut the cost of solar PV by half since 2009, and the cost of wind power keeps falling Policies are accelerating market creation. A total of 114 countries as turbine size grows and lessons are learned. These advances have targeted renewable energy growth as part of their national commitments seen solar and wind reach costs comparable with non-renewables in a to the Paris Agreement, sending a strong signal to investors and growing number of countries, which has boosted investor confidence companies. To implement these targets, governments are increasingly and driven the sector’s growth. using market-creating policies like renewable energy auctions. More than 20 countries held auctions in 2016.37 This has led to increased Policies are still needed to ensure strong market growth, including supportive frameworks that facilitate an increasing amount of variable renewable energy on the grid. Smart policies and market reforms are 4 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 1 : N U M B E R O F C O U N T R I E S TA R G E T I N G R E N E W A B L E E N E R G Y I N T H E I R N D C 4 0 Solar, utility Geothermal Renewable Waste-to- Biofuels energy energy Waste Ocean Hydro Wind Solar scale Region East Asia and Pacific 24 15 10 9 14 6 5 1 4 Europe and Central Asia 7 5 5 6 2 2 1 Latin America and Caribbean 22 9 13 9 11 6 4 2 1 Middle East and North Africa 14 10 8 2 1 3 1 4 1 1 Oceania 2 South Asia 6 4 4 4 5 3 3 1 1 Sub-Saharan Africa 37 32 24 32 23 6 8 4 Western Europe 2 Total 114 75 64 62 56 23 17 17 8 3 (Source: World Bank, INDC Database; see indc.worldbank.org) needed to incentivize energy storage, so that it can help balance the 1.2 Market snapshot and growth potential grid and manage supply. Policies should ensure that renewable power Renewable power deployment continued to break records in 2016. providers are not disadvantaged as they enter the grid. Countries where More than 160 GW of new renewable power capacity was added in renewables are at an early stage of development will need to work with 2016—the largest annual increase in renewable power capacity to date. stakeholders to develop a plan for grid expansion. This represents about 62 percent of the power added to the grid that The sector will continue to grow as countries implement their climate year, which means capacity in renewables outpaced fossil fuels by a ratio targets. The countries focusing on renewable energy in their NDCs have of almost 2:1.41 Solar PV had the largest capacity increase, with 75 GW many technology-specific targets and actions to achieve, as shown in added in 2016, followed by wind (55 GW) and hydro (25 GW).42 Table 1. Because solar and wind receive the most attention, this chapter Investment in renewable energy remained robust in 2016, at $297 billion will focus largely on these two technologies. (including large hydropower), falling slightly by 3 percent because of falling costs and fewer hydro plants coming online.43 Emerging markets accounted for just over half of this investment (Figure 2). China remained the largest investor, accounting for almost 30 percent Grid-Connected Renewable Power 5 FIGURE 2: Global investment in renewable power UNITED STATES EUROPE 50 150 40 120 Billion USD 30 Billion USD 90 20 60 10 30 0 0 AMERICAS CHINA 15 120 12 100 80 Billion USD 9 Billion USD 60 6 40 3 20 0 0 BRAZIL AFRICA & MIDDLE EAST INDIA ASIA & PACIFIC 12 15 15 50 10 12 12 40 8 Billion USD Billion USD Billion USD Billion USD 9 9 30 6 6 6 20 4 2 3 3 10 0 0 0 0 (Source: Bloomberg New Energy Finance) 6 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report of global financing in 2016. After China, India ($8.7 billion) and Brazil world committing to procuring 100 percent of their electricity from ($7 billion) were the other two developing countries among the top 10 renewable sources. markets for non-hydro renewable energy investment.44 SOLAR PV Renewable power markets are expected to maintain strong growth. The International Energy Agency expects total deployed renewable Solar PV overtook wind as the fastest growing renewable energy energy capacity to grow from more than 2,100 GW in 2016 to between technology in 2016. A total of 75 GW of solar PV was built around the about 2,800 GW and 3,000 GW by 2021; this will result in between world—the equivalent of 31,000 panels installed every hour.54 China $7-11 trillion in cumulative investment in the sector. 45 was the global leader, followed by the United States, Japan, India, and the United Kingdom, which together accounted for 85 percent of new The cost of solar and wind power is expected to continue to fall. The construction. The largest additions in Africa were by South Africa (over cost of wind was 66 percent lower in 2016 than in 2009 and solar 500 MW) and Algeria (over 170 MW), while Zambia claimed the PV costs decreased by more than 85 percent.46 Costs are expected to lowest-cost solar PV bid on the continent (see Box 5). continue to drop, with a 66 percent decrease for solar PV, a 47 percent decrease for onshore wind, and a 71 percent decrease for offshore wind Continued cost reductions may see the global market double by 2021. by 2040.47 These projected reductions are largely the result of cheaper The solar PV sector attracted $114 billion in investment in 2016. This technology and equipment, better operation and maintenance regimes, represents a fall of about 4 percent year-on-year, demonstrating that and increased efficiency from larger initiatives, especially in wind.48 cost reductions are allowing more capacity to be built for less money. Bloomberg New Energy Finance expects installed solar capacity to Achieving cost-competitiveness across most countries is expected to increase 14-fold by 2040, while wind is projected to grow fourfold.49 increase investment in solar, creating major demand for energy storage and electricity market reform. Solar PV is forecast to increase from The nascent energy storage market is poised for growth. Clean 303 GW of total installed capacity at the end of 2016 to between Technica expects global energy storage to grow seven-fold, from 550 GW and 650 GW by 2021.55 about 3 gigawatt-hours (GWh) in 2016 to more than 20 GWh in 2025.50 Although costs are more difficult to predict, a steep fall in the Grid-tied distributed solar, i.e. rooftop solar for residential and cost of storing energy is anticipated. 2016 saw a 12 percent drop in commercial consumers, is set to grow in key emerging markets like utility-scaled lithium-ion batteries from the previous year; this trend is India. In 2016, there was nearly $40 billion invested in rooftop and expected to continue as production ramps up globally. 51 other small PV projects.56 The United States invested the most (more than $13 billion), followed by Japan ($8.5 billion, down from about Favorable prices and policies have led to increased corporate interest. $27 billion in 2015), and China ($3.5 billion). India’s small-scale solar Commercial and industrial customer demand is becoming a major sector is poised for growth, driven by the government’s ambitious target driver of growth for the renewable industry. Corporate renewable to install 40 GW of rooftop solar power by 2022. energy demand has increased from about 500 MW in 2010 to a peak of 5.3 GW in 2015, with 3.25 GW in the United States alone.52 Despite WIND slowing to 4.5 GW in 2016, largely due to changes in the U.S. market, record capacity in Europe, the Middle East, Africa, and the Asia Pacific Wind power remains the second largest source of renewable energy after helped sustain demand.53 Initiatives like the RE100 (see Box 3) are hydro, accounting for almost 22 percent of total renewable capacity. A enabling further growth, with some of the largest companies in the total of 55 GW of wind power was built in 2016, increasing total global wind capacity by about 12 percent to 487 GW. China led construction, Grid-Connected Renewable Power 7 B OX 3 RE100: Big business creating markets by committing to 100 percent renewable power RE100 was launched in 2014 at Climate Week in New York as a global initiative of influential businesses committed to using 100% renewable electricity. It is spearheaded by The Climate Group, in partnership with CDP, as part of the We Mean Business Coalition. Its membership has ranged from companies involved with information technology and finance to consumer discretionary and healthcare. RE100 membership is diversifying. 2015-16 saw RE100 welcome five members from China and India. RE100 now counts three major automobile manufacturers (BMW Group, General Motors and Tata Motors Limited) and a leading cement maker (Dalmia Cement) among its members. As of September 2017, 111 companies have joined the initiative, surpassing the original goal of 100 members and accounting for 150 terawatt-hours of electricity demand annually—equivalent to the demand of Poland or Sweden. Most members have committed to achieving 100% renewable electricity by (or before) 2024. Renewable Energy Certificaties purchases (60%) and green tariffs were the most popular purchase routes for members to achieve their targets in the United States and Europe in 2015. RE100 witnessed increasing use of corporate power purchase agreements and on-site generation in 2016, with many members planning to use these options in future. www.theRE100.org 8 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report building 23.4 GW of wind, followed by the United States, Germany, technology that pumps water uphill to a reservoir during times of India, and Brazil. excess capacity, and then releases it through a hydroelectric turbine to generate electricity when it is needed. It accounts for 96 percent of the Major investment and cost reductions may see wind power capacity world’s storage. However, lithium-ion electrochemical storage is the more than double by 2026.57 The sector attracted $112 billion in 2016, subject of growing interest, since it is the most common battery type in down 9 percent year-on-year but yielding more capacity, again reflecting electric vehicles and has benefited from major research and development lower costs of installation. The average total installed cost of wind investment in recent years. This has supported a 65 percent cost power has fallen by two-thirds between 1983 and 2014, and may fall by reduction from 2010 to 2015.61 Clean Technica expects global energy a further 12 percent by 2025. The cost of electricity from new turbines storage to grow from about 2.9 GWh at the end of 2016 to 21 GWh by is likely to fall even faster, because efficiency gains, increased use, and 2025.62 Half of this storage will take place “behind the meter,” meaning better logistics are making the electricity produced by new turbines it will be installed on the customer’s side of the utility meter to reduce considerably less expensive—potentially falling by up to 34 percent by the customer’s utility bill. The largest markets for grid-connected energy 2025. Wind power is forecast to rise from 487 GW of total installed storage by 2025 will be the United States, Japan, China, Germany, capacity at the end of 2016 to around 1,110 GW by 2026.58,59 Australia, the United Kingdom, and India, with eight countries expected U T I L I T Y- S C A L E S TO R AG E to breach 1 GWh of storage in their markets. While the markets are smaller, activity is also growing in Kenya, South Africa, and the Utility-scale energy storage is emerging as a high-growth market that Philippines.63 can play a role in supporting the development of renewable energy. Energy storage technologies can be broadly categorized as follows: 1.3 Creating markets for grid-connected • Mechanical (such as flywheel, pumped hydro) renewable power • Electrochemical (batteries) While the market outlook is strong for grid-tied renewable energy, policies • Chemical (hydrogen, synthetic natural gas) are still needed to address risks, including uncertainty about grid access, • Thermal unclear land titles, and a high cost of financing. Governments can foster attractive markets for grid-tied renewables through setting targets, adopting • Electromagnetic (capacitors). supportive renewable energy policies, ensuring non-renewable polices align They are being developed to address different needs, including managing with renewable energy goals, and adapting policies to manage dynamic supply and demand, and balancing loads when renewables are not market needs as the share of renewables in the energy system grows operating. There is no single best storage technology. The optimal choice (Figure 3). In addition, countries where renewables are at an early stage depends on parameters such as density, round-trip efficiency, cycle life, of development can develop a comprehensive plan for grid expansion, ambient temperatures, safety needs and cost. The cost of different storage in partnership with large electricity customers, developers, investors and options depends on scale, application and siting. Prices for large installed utilities. To help facilitate an increasing amount of variable renewable grid-scale battery storage systems are approaching $300-350/kWh today, resources, countries should provide policy frameworks, market reforms and are expected to be around $250/kWh in the early 2020s. This is and incentives for energy storage so that it can help balance the grid and based on today's cost of a Lithium-ion battery pack at $220/kWh. 60 manage supply. Finally, policies should ensure that renewable power Pumped storage remains the biggest storage technology by capacity, providers are not disadvantaged as they attempt to connect with the system. but battery storage is growing fast. Pumped storage is a conventional Grid-Connected Renewable Power 9 FIGURE 3: Steps to create markets for grid-connected renewable energy 1 2 3 4 ALIGN OTHER ADOPT MARKET- ADOPT MARKET- POLICIES WITH SET A TARGET RESPONSIVE RESPONSIVE RENEWABLE ENERGY POLICIES POLICIES GOALS • Consult with • Reverse auctions are a • Grid extension/access • Conduct a public stakeholders and good way to unleash policies are needed to assessment of grid develop vision competition and ensure that renewable capacity/future growth statements leading to mitigate budget risks power can come to to ensure grid stability specific targets market at lowest cost and renewables • Feed-in tariffs should integration at lowest • Targets can be be carefully managed • Address issues related cost capacity-based or share to avoid lock-in of to land titles, permits of energy generation/ technology and to allow and approvals, • Support grid consumption for rapidly changing especially in densely interconnection, which technology costs populated areas allows for electricity to be traded between • Renewable portfolio • Using an independent countries and regions standards, renewable market regulator can energy certificates and help level the playing • Recognize the value net metering, among field, especially in of energy storage via other policies, can help vertically integrated incentives and removal provide holistic policy markets of barriers support 10 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report S T E P 1 : S E T A TA R G E T. feed-in tariffs.66 Auctions have been successful in advanced renewable markets like Germany and the United Kingdom, as well as in emerging Most governments develop clean energy white papers and vision economies like Brazil, Chile, India, Mexico, and South Africa.67 statements in consultation with industry and affected stakeholders. These actions signal a country’s clean energy ambitions and help to Feed-in tariffs remain a popular policy tool, but must be managed ensure that plans are achievable and broadly supported before targets carefully. About 70 countries have some type of feed-in tariff,68 which sets are set. More than 150 countries have set national renewable energy a fixed price per unit of renewable energy in the electricity grid. Different targets. Some countries develop technology-specific targets and frame 64 technologies may attract different tariffs depending on technology them in terms of capacity. For example, India’s National Solar Mission costs and location. With rapidly changing technology costs, commercial aims to have 100 GW of solar power by 2022. Other targets are sensitivities around pricing, and accelerating learning rates, creating expressed in terms of a share of final energy consumption. For example, fair and durable feed-in tariffs is challenging. This can be addressed by the European Union intends to have at least a 27 percent share of integrating flexibility mechanisms into tariff policy, such as rates that renewable energy consumption by 2030, encompassing energy end-uses decline predictably over time and regularly scheduled rate reviews. such as electricity, heat, and transport fuels. Other factors to consider Other policy instruments include the renewable portfolio standards and in setting a target include the ease of monitoring progress, incentivizing renewable energy certificates. Portfolio standards ensure distribution generation rather than capacity, making targets mandatory rather than utilities and direct consumers procure a certain share of their electricity aspirational, stakeholder engagement to generate support for the target, from renewable sources, usually in some form of timely increment. This and the existence of supportive policies.65 can be expanded to include storage technologies. While the standards have helped create markets in advanced economies like the United S T E P 2 : P U T I N P L A C E S M A R T, M A R K E T - States and the United Kingdom, it has had mixed results in emerging R E S P O N S I V E P O L I C Y F R A M E WO R K S TO AC H I E V E markets, including India, which tried a form of portfolio standards in T H E TA R G E T. the early 2010s. Renewable energy certificates—whereby the owner In many countries, preference for feed-in tariffs is giving way to claims the emissions and other benefits associated with renewable auctions. But the local context, such as the state of the electricity energy generation—are tradable financial instruments that can be used market, fuel subsidies, and the relative cost of electricity, is an important by utilities and large independent consumers to fulfill their renewable determinant in the success of market development policies. obligations. They are usually implemented together with portfolio Renewables auctions are an increasingly popular tool to encourage standards to fulfill obligations when there could be physical shortage of usage in a controlled manner. Sometimes called “reverse auctions”, renewable electricity. Creating similar certificates for storage capacity this approach involves the government or utility setting a target for the can monetize storage and encourage the use of renewable energy, amount of renewable energy it wants to acquire, then asking developers supported by the system-level cost savings that storage can deliver. to offer project bids, including the electricity price required to build and The state of the electricity market, in addition to supply and demand, operate the project under a long-term power purchase agreement. Once determines the appropriateness and success of renewable portfolio bids are received, the authority awards contracts to winning proposals standards and energy certificates. based on criteria such as price and project feasibility until the targeted Net-metering policy can be used in tandem with other policy capacity is achieved. As renewable energy technology costs fall, this instruments (especially feed-in tariffs) to support customer-sited method helps to manage the challenge of determining market prices renewable energy on the grid, especially residential and corporate and mitigates budgetary risks associated with other policies such as rooftop solar and other customer-sited installations. It allows Grid-Connected Renewable Power 11 B OX 4 Creating markets for grid-tied renewable energy ARGENTINA: RENEWABLE ENERGY • Standardizing environmental and social • Working with governments to improve the AUCTIONS standards by ensuring IFC performance investment climate. standards are applied for each project. In 2016, Argentina embarked on a series of energy • Helping energy companies strengthen project sector reforms with the arrival of new President • Incorporating a guarantee of off-taker concepts, technical designs, and business plans. Mauricio Macri. Following a 15-year hiatus of obligations to backstop ongoing payments and • Helping clients secure financing. international investor interest in Argentina, the termination payments. • Supporting local banks to boost internal capacity Macri administration realized the importance Following IFC’s advice and the implementation of and process renewable energy loans. of establishing a bankable, best-practice power a World Bank guarantee, Argentina successfully purchase agreement regime and energy auction completed two energy auctions in October and • Organizing business-to-business workshops and process to achieve competitive electricity generation November 2016, awarding 1.5 GW of wind and databases to match international companies and costs and increase investment. The government of 900 MW of solar projects to local and international local developers for joint ventures. Argentina teamed up with IFC’s Global Power team bidders. The November auction resulted in average The result was the development of a $1.1 billion to draft a power purchase agreement and structure pricing of $53/MWh for wind and $55/MWh for solar. investment program in 500 MW of small-scale the bid process, which included: The auctions are estimated to bring in $3.5 billion hydro projects in the region, generating 2000 GWh/ • Reducing the retail price, which will advance in investment over the next two years and grow year. IFC provided $28 million in financing for these competition. renewable energy from just under 2 percent of the projects and mobilized another $40 million. The current energy mix to at least 8 percent by 2018. Small Hydro program is now being replicated in • Tailoring bidding criteria by defining and Nepal, with similar plans under development in East adhering to capacity limits and quotes, and WESTERN BALKANS: DEVELOPING Asia Pacific and Sub-Saharan Africa. allowing for market opening measures and a PARTNERSHIPS TO SCALE UP SMALL simpler approach to the bidding process. HYDROPOWER www.ifc.org • Including international arbitration in the IFC used a holistic strategy to grow the small power purchase agreement to ensure project hydropower market in the Western Balkans. The bankability. approach involved: 12 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Grid-Connected Renewable Power 13 B OX 5 Scaling Solar in Zambia Solar power is an increasingly affordable, quick-to- term strategy to generate 600 MW from solar. In build solution for countries in need of additional May 2016, the program completed its first auction, electricity. Scaling Solar, launched by the World choosing from seven prequalified bids. The lowest Bank Group in 2015, provides an easy-to-follow bid was just over $0.06 per kWh, which is fixed for process to plan, procure, and launch grid-connected 25 years. This is the cheapest solar power to date solar projects within two years using private sector in Sub-Saharan Africa and among the lowest solar financing. It offers governments the tools to quickly tariffs in 2017. increase energy generation at stable low tariffs Zambia’s Scaling Solar debut is expected to meet its and allows developers to bid on well-structured, targets and deliver 73 MW of solar power capacity standardized projects through a competitive, within two years. It is the region’s first utility-scale transparent process that reduces risk and costs. solar project outside South Africa. While a partial Zambia was experiencing daily blackouts, stemming risk guarantee helped mitigate off-taker risk, Zambia from drought that had crippled its hydroelectric has demonstrated that market solutions and private capacity, when it became the first country to sign sector financing for low-cost renewables in low- up for Scaling Solar in 2015. The government aims income countries are feasible. to build two large solar plants as part of its long- www.scalingsolar.org 14 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 6 homeowners and commercial and industrial consumers to sell excess electricity back to the grid, offsetting their costs and creating an additional incentive to use renewables. Net metering has been used widely in North America and Europe and is gaining traction in emerging markets—especially in China and India—but delays in market reform India: Creating markets for grid- are a challenge. Regulations for a competitive wholesale and distribution connected renewables market and open access have been difficult to implement, but are India’s government is targeting 175 GW of installed catalytic to market development. renewable power capacity by the end of 2022, including Other fiscal credits and incentives such as accelerated depreciation 100 GW from solar, 60 GW from wind, 10 GW from and generation-based incentives can be used with some of the policy biomass, and 5 GW from small hydro. instruments discussed above to enhance market creation. Market Reverse auctions have played a major role in achieving regulators can make the issuing of operational permits and the approval the cost-effective use of renewable energy while of utility modernization plans contingent on storage.69 minimizing government risks. Tariffs continue to break record lows, with the winning bid for 250 MW of solar S T E P 3 : E N S U R E T H AT O T H E R N O N - R E N E W A B L E PV in April 2017 at $0.05/kWh, continuing a long-term P O L I C I E S A R E N OT I N H I B I T I N G M A R K E T G ROW T H . trend that has seen auction prices fall by 70 percent Countries are developing solutions to manage challenges related to since 2010.73 To avoid failure in the auction process, and renewable energy technologies. These include: recognizing the limits of transmission infrastructure to • Creating policies to ensure renewable power can come to market. The transport electricity from India’s solar PV hotspots to best renewable energy resources are often in less populated areas far demand centers, a major green energy corridor is being from the grid, which means built capacity may remain unconnected to built in partnership with Germany’s GIZ via a €1 billion the grid.70 This can be overcome by extending the grid, or preparing soft loan from the German development bank KfW.74 approved construction sites with grid connectivity, as has been done As the share of renewables on the grid grows, India is in India, where the government prepared sites with prebuilt grid focusing on energy storage. In 2016, the government connections for large solar power projects.71 mandated that storage be included in a 100 MW solar • Addressing issues related to land titles, permits, and approval tender in Andhra Pradesh and a 200 MW solar tender processes. When renewables are developed in densely populated areas, in Karnataka Saurabh.75 Renewables make up about secure access to land is a challenge. In addition to land acquisition, 17 percent of India’s total installed capacity, and its the permit and approval processes often create unanticipated project most recent renewable electricity roadmap aims for delays in developing countries, especially for large wind farms and 40 percent by 2030. The move towards specifying solar installations. Innovative solutions that focus on underused land, storage requirements shows that India is transitioning such as India’s canal-top solar installations, can help address land towards a future-oriented grid that requires storage challenges, while providing secure land tenure can help make land 72 to maintain frequency control, balance the grid, and markets much more efficient. Streamlining the permit and approval manage the inherent intermittency of renewable energy. processes can also help accelerate project development. Grid-Connected Renewable Power 15 • Using independent and non-discriminatory regulation to ensure different times, for example via intermittent short charges/discharges that renewable generators, who are often new market entrants, are for frequency regulation, via load reduction during peak hours, or via not disadvantaged. This is particularly important when renewable shifting renewable generation over several hours. Market design should generators are selling electricity to a utility with thermal generation allow for “value stacking” of different applications and for storage to interests. Without a strong, independent regulator ensuring market operate both as a generation and transmission asset. competition, incumbents might discriminate against renewable generators and independent power producers. I N N O VAT I V E F I N A N C I N G M O D E L S Yieldcos are an influential financial innovation in the renewables S T E P 4 : A D A P T P O L I C I E S T O M E E T T H E E V O LV I N G industry. A yieldco is a publicly traded company focused on dividend N E E D S O F T H E E L E C T R I C I T Y M A R K E T. growth, created by a parent or standalone energy company. The yieldco When renewables are at an early stage of integration, it is best practice owns and operates renewable assets, promising contracted predictable for authorities to conduct a public technical assessment of grid cash flows while maintaining tax advantage.82 It allows parent connection capacity and tailor grid investments with the growth of companies to finance large-scale projects while ensuring access to lower renewables in mind. As renewable penetration grows, ensuring grid capital costs. The first yieldco was started in the United States in 2012 stability is of paramount importance. Electricity market reforms can and grew to 10 companies with a peak market capitalization of almost be used to incentivize the right types of generation capacity and reduce $28 billion by 2015.83 After a challenging year in 2015, owing to the demand during peak periods. Support for grid interconnection allows low oil price and the effects of renewable energy company SunEdison’s electricity to be traded. In addition, it is important that wind and solar 76 bankruptcy, the yieldco market is slowly making a recovery.84 plant outputs are reflected in planning for the wider power system. A Securitizing assets, particularly for residential solar, is another financial well-balanced portfolio of wind and solar PV plants can contribute innovation promising lower capital costs. Solar asset-backed securities to grid stability without needing to expand the grid. Building plants are emerging as a credible debt financing instrument in the U.S. in different locations also helps ensure a smoother output of power, residential solar market. IFC is helping to demonstrate the viability of enabling better management.77 asset-backed securities structures for rooftop solar in India (see Box 7), Energy storage contributes to grid stability, and incentives can help and then translate this for other emerging markets.85 encourage storage use.78 For example, the United Kingdom has Project financing is central to the future health, direction, and undertaken major electricity market reforms to incentivize investment momentum of the energy storage industry.86 It is a transition away in secure, low-carbon electricity,79 and California has developed energy from reliance on self-funding, captive lending, and government storage mandates requiring its major utilities to procure 1.3 GW of grants, signaling technology maturity and growth. In 2017, CIT Bank, storage capacity by 2020.80 In June 2017, the state of Massachusetts Macquarie Capital, and Advanced Microgrid Solutions provided the introduced a comprehensive program for energy storage. Targets were industry’s first financing for an energy storage project—a 50 MW fleet set for 600 MW of installed capacity by 2025.81 New York is expected of behind-the-meter systems in West Los Angeles.87 SUSI Partners, a to follow suit soon. Success in developed country markets could send a Swiss investment manager, recently closed the first round of its Energy strong signal to developing countries. Storage Fund with a pool of €66 million. Another €14 million is already Regulation and market design are key for storage. Energy storage can committed for the second round of financing.88 deliver several benefits to the grid. The business case for storage is easier to make if storage assets can participate in different markets at 16 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 7 Can the asset-backed securities market finance solar? The India Innovation Lab for Green Finance is a In the first phase, the program will establish a public-private initiative that aims to drive green loan book (warehouse line) to provide loans to growth in India. IFC is working with the lab creditworthy solar rooftop projects. In the second secretariat, the Climate Policy Initiative, to refine the phase, the loans will be refinanced by issuing green program’s structure. asset-backed securities, initially to local institutional debt investors. The composition of the loan pools The proposed financing program will provide will have to meet certain underwriting criteria. The affordable and accessible debt financing to size and timing of the bond issuance will depend on developers of solar rooftop projects that target market conditions and investor appetite, and may be institutional, commercial, and industrial customers, issued on a rolling basis. and demonstrate the viability of a sustainability- focused asset-backed securities structure for the www.climatefinancelab.org/the-labs/india Indian market. Grid-Connected Renewable Power 17 1.4 Initiatives, tools, and resources The International Energy Agency (IEA) works to ensure reliable, The Global Solar Council (GSC) is an international organization affordable and clean energy for its 29 member countries and founded in 2015 to coordinate the efforts of the world’s solar beyond, and has a wealth of data, policy perspectives, technology energy associations. roadmaps and outlook reports on renewable energy. www.globalsolarcouncil.org www.iea.org The Global Wind Energy Council (GWEC) was established in The International Renewable Energy Agency (IRENA) is 2005 to provide international representation for the wind energy an intergovernmental organisation that supports countries in sector. their transition to a sustainable energy future, and serves as www.gwec.net the principal platform for international cooperation, a centre of excellence, and a repository of policy, technology, resource and The Global Energy Storage Alliance (GESA) was established in financial knowledge on renewable energy. 2014 to bring together energy storage and clean energy industry www.irena.org associations for knowledge sharing and advancement of energy storage solutions. The Renewable Energy Policy Network for the 21st Century www.globalesa.org (REN21) brings together governments, NGOs, research institutes and academia, international organizations and industry to learn The RE100 is a collaborative global initiative uniting more than from each other to advance renewable energy. 100 businesses committed to 100 percent renewable electricity, www.ren21.net working to increase demand for—and delivery of—renewable energy. The Renewable Energy and Energy Efficiency Partnership www.re100.org (REEEP) focuses on advancing the renewable and energy- efficiency market, particularly in developing countries, primarily by The Regulatory Indicators for Renewable Energy (RISE) is de-risking and scaling up clean energy business models. a global policy scorecard that assesses policy and regulatory www.reeep.org frameworks for energy access, energy efficiency and renewable energy. Sustainable Energy for All (SE4ALL) is a global initiative to http://www.worldbank.org/en/topic/energy/publication/rise--- achieve universal energy access, improve energy efficiency, and regulatory-indicators-for-sustainable-energy increase the use of renewable energy. www.se4all.org The Energy Sector Management Assistance Program (ESMAP) is administered by the World Bank Group, and focuses The International Solar Alliance (ISA) is a common platform on increasing the knowledge and technical capacity of low- and for cooperation to advance deployment of solar energy through middle-income countries to achieve a sustainable energy solution. innovative policies, projects, programmes, capacity-building www.esmap.org measures and financial instruments. www.isolaralliance.org The World Business Council for Sustainable Development's Low Carbon Technology Partnerships initiative (LCTPi) is a joint public and private initiative to accelerate low-carbon technology development. Renewable energy is one of the solutions that the WBCSD and its member companies have identified as critical to reach climate stabilization. www.lcpti.wbcsd.org 18 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Off-Grid Solar and Storage 19 Key indicators Cost reductions in batteries and Sub-Saharan Africa and South Asia solar PV have opened up many dominate the off-grid market. There new markets—the number of off- are now over 100 off-grid solar grid systems grew by 41 percent companies globally and 20 million between 2015 and 2016, with quality certified solar lights have 8.2 million systems sold. been sold. 89 million people in the developing world own at least one solar light. 20 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report India Kenya Ethiopia India leads the off-grid solar Annual investment in market, with over 3 million energy storage in emerging systems sold in 2016; Kenya markets was 2.5 billion in was 2nd with 1.2 million, and 2016 and is expected to Ethiopia third with 500,000. reach $23 billion in 2025. pay-as-you-go PAYG solar business models 31 NDCs include targets for raised $223 million in capital this sector. in 2016. Off-Grid Solar and Storage 21 Off-Grid Solar and Storage 2.1 Summary storage solutions have opened up new off-grid applications that were previously too expensive. Globally, the number of off-grid solar systems Providing energy to communities with limited access to formal energy in use grew by 41 percent between 2015 and 2016, with the 8.2 million grids remains the main driver for off-grid solar power and distributed systems sold representing about 50 percent of sales of all off-grid storage. These off-grid technologies include solar lanterns, solar home products in that period. Investment in micro- and mini-grids has also systems, mini-grids and micro-grids, and distributed battery storage. accelerated, with the global market expected to reach $200 billion.93 Solar lanterns and solar home systems provide enough electricity There are now over 220 mini-grids in operation; in 2015-2016, mini- to power lights and charge cellphones, while mini- and micro-grids grids accounted for $68 million of equity, debt and grants raised.94 support demand from residential, industrial, and commercial customers. Moreover, small-scale energy storage can create autonomous mini-grids New business models have reduced transaction costs and introduced that provide households with uninterrupted electricity access and/or on- a more reliable way to pay for solar home systems and mini-grid demand electricity service.89 applications. Pay-As-You-Go (PAYG) solar companies raised $223 million in capital in 2016, while $75 million was raised in debt and equity finance The off-grid solar market is dominated by emerging markets, mainly in for mini- and micro-grids in East Africa and Southeast Asia alone.95 This Sub-Saharan Africa and South Asia. Ethiopia, Kenya, and Tanzania are growth is expected to continue, particularly in the storage sector: annual the leading markets in Africa, accounting for 66 percent of units sold, investments in storage of all types in emerging markets are forecast to while India leads the way in Asia.90 In less than a decade, more than 100 grow from about $2.5 billion in 2016 to $23 billion in 2025, with China companies around the world have been created to focus on standalone and India leading the way.96 This will result in 80 GW of new storage solar lanterns and solar home systems. By July 2015, 20 million solar capacity compared to the estimated 2 GW existing today, only a small lights had been sold. Today, about 90 million people in the developing fraction of which will be in remote applications.97 world have at least one solar lighting product in their home.91 Bloomberg New Energy Finance predicts that one in three households There are still barriers preventing strong off-grid markets, including a globally will use off-grid solar by 2020. 92 failure to capture the value of off-grid solar and storage in regulations, challenges with permitting, and challenges accessing suitable finance. Cost reductions and advances in technology are enabling large-scale Governments are beginning to address these by recognizing the role that deployment of distributed solar PV and mini-grids. The dramatic drop off-grid technologies play in electrification and providing supportive in the costs of solar PV and lithium-ion batteries and advances in energy policies, including differentiated tariffs, clear technical and safety 22 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 2 : N U M B E R O F C O U N T R I E S W I T H S U B S E C T O R S I N C L U D E D I N T H E I R N D C Region Off-grid solar Mini-grid Off-grid renewable energy East Asia and Pacific 4 2 1 Europe and Central Asia Latin America and Caribbean 3 1 Middle East and North Africa 3 North America South Asia 1 1 1 Sub-Saharan Africa 6 4 4 Total 17 7 7 (Source: World Bank, INDC Database; see indc.worldbank.org) FIGURE 4: Off-grid solar market segments standards, and targeted financial incentives and duty exemptions for Urban equipment and operations. The inclusion of these technologies in Main grid 31 NDCs (see Table 2) provides further evidence that mini-grids are promising investments. Population density Solar lantern Solar home system 2.2 Market snapshot and growth potential Peri-urban/ dense rural All of the off-grid solar market segments (solar lantern and solar home Clean energy micro-grids systems, mini- and micro-grids, and off-grid storage) are developing (5-100kW) rapidly. The most active markets are in Bangladesh, East Africa, Ghana, India, and Nigeria. Sales of solar home systems are largest in India, where Clean Energy sales rose from 2.6 million units in 2015 to more than 3 million units in Nanogrids Solar irrigation (<5kW) 2016. Sub-Saharan African countries rounded out the top five countries 98 Rural with the most sales in 2016, with sales of 1.2 million systems in Kenya, Basic Medium Large Intensive 0.5 million in Ethiopia, and 0.4 million each in Tanzania and Uganda. (Lighting & (TVs, radio, fan) (Fridges, small (Large product uses) phone charing) productive uses) These markets are becoming commercially viable, and more businesses are spreading to markets like the Democratic Republic of Congo. Energy intensity (Source: IFC, Hystra) Off-Grid Solar and Storage 23 With a low electrification rate (35 percent of households connected to than 32 companies in at least 30 countries. Companies like Lumos electricity overall), Sub-Saharan Africa has the greatest growth potential Global, Mobisol (see Box 8), M-KOPA, d.light, and BBoxx are already for off-grid solutions, though opportunity also exists in Bangladesh, connecting thousands of homes each month using rooftop solar India, Indonesia, and Pakistan. South-Central Asia is the second largest 99 home systems. The model is now being applied to other areas like market for distributed solar systems, with sales growth of clean cooking and water pumping. Mobile PAYG is particularly well 19 percent between 2015 and 2016. 100 established in East Africa, where mobile phone penetration is relatively high, and is gaining popularity in West Africa and Southern Asia. In OFF-GRID SOLAR the future, data from PAYG customers may be used to establish credit Solar PV costs are falling rapidly—a trend that is expected to continue— histories, improving access to finance.105 making solar home systems an increasingly attractive solution. New business models will expand markets for energy storage. High Innovation, increased production, and the implementation of lessons upfront costs for residential products remain a challenge, especially learned from experience have reduced the price of solar PV by 58 percent among the poorest households. Pico-solar projects package lightweight, since 2010.101 Increased cell efficiency has driven down costs by reducing portable charging panels with electrical appliances, making solar home the surface area and associated materials needed to produce the same systems more affordable. The success of innovative PAYG schemes output. Large additional cost reductions are still to come from improved in East African markets could be rolled out more broadly. A major solar modules and other components, with the total cost of rooftop challenge for distributed energy storage is developing ways to share the systems expected to fall by more than 20 percent by 2021 in countries financial benefits of energy storage systems between consumers and the like India and China.102 project developer. Sales of off-grid solar systems are growing rapidly, especially in India. MINI-GRIDS The use of off-grid solar systems (including pico-solar and systems less than 100 watts) grew by 42 percent globally between 2015 and 2016 The falling cost of renewables is making micro- and mini-grids more to 8.1 million systems, representing about 50 percent of sales of all off- cost-effective than extending the grid in some markets. Investment in grid products in that year. Sales of off-grid solar systems in 2016 were micro- and mini-grids continued to accelerate in 2016, with the global led by India (3.1 million systems), Kenya (1.2 million), and Ethiopia market expected to reach $200 billion.106 Markets are maturing to allow (500,000 million). Pico-scale products—lightweight, portable solar grids to accept power for less than 24 hours, so that systems can be panels—are the most common types of systems, comprising 94 percent turned off when there is insufficient renewable energy to meet demand. of all off-grid solar products. Sub-Saharan Africa and South Asia In addition, mini-grid systems that can provide constant power are together accounted for more than 80 percent of global sales in 2016.103 widely available.107 The PAYG business model is changing the viability of rural Small islands are becoming an attractive market for distributed solar and electrification, and PAYG companies are attracting significant storage mini-grids. This is largely driven by the need for small islands to investment, especially in East Africa. PAYG solar companies raised reduce their overreliance on imported petroleum products, which have $223 million in 2016, up from just $3 million invested in 2012.104 cost, ecological, and energy security risks. The World Bank’s Energy The mobile-enabled PAYG business model is revolutionizing the Sector Management Assistance Program is behind the Small Island commercial viability of rural electrification: it allows people to make Developing States “DOCK” Support Program, which provides advice small payments over time, making solar products accessible to low- and investment support to small island developing states looking to income households. The PAYG business model is being used by more transition to clean technology. Solar projects include the Regional Solar 24 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 8 Mobisol makes solar power affordable in East Africa Mobisol GmbH is a leading PAYG solar energy service Zambia; and fund new products and services, such • Job creation: Mobisol’s expanding sales and company in East Africa. It seeks to make renewable as insurance products and microloans. IFC invested distribution network, as well as customer service energy solutions affordable for consumers who more than €5.4 million in the company and expects offerings, supports small business and creates lack access to grid electricity through an innovative the following: local jobs. lease-to-own business model. It has developed a • Access to energy: Mobisol is scaling up off-grid • Establishing credit histories for the unbanked: high-quality, modular solar home system that has an power solutions in Sub-Saharan Africa to people By offering customers a chance to pay for the embedded metering system. This allows customers without access to electricity. It is expected to solar home system over time, Mobisol enables to pay through a 36-month payment plan via mobile provide energy access to more than 4 million unscored and unbanked individuals to build a money payment platforms. To date, the company people by 2021. credit history, resulting in enhanced financial has sold over 60,000 units in Rwanda and Tanzania, inclusion. Customers have gone on to buy other which is equal to more than 4 MW of total installed • Environmental and health benefits: Solar products such as appliances or access to school capacity. home systems displace the use of fossil fuels, such loans using the same payment technology after as kerosene and diesel, or car batteries, which In 2016, IFC was invited to partner with FMO, the they have paid off their Mobisol loan. pollute the environment and come with health Dutch development bank, to help Mobisol accelerate and safety hazards. www.ifc.org growth in Kenya, Rwanda, and Tanzania; expand into new markets such as Nigeria, Uganda, and Off-Grid Solar and Storage 25 B OX 9 PV Scale-up Project in the Caribbean and the Cabo Verde Distributed Solar Energy Systems.108 Tesla and SolarCity recently helped the island of Ta’u in American Samoa to completely move from petroleum to solar and storage (see Box 10). Distributed energy service companies are attracting investment for micro- and mini-grids. These companies tend to provide fee-for-service electricity and usually follow a build-own-operate structure. Distributed energy service companies typically use solar-hybrid systems with smart metering technologies, although applying the PAYG model to the companies’ mini-grid systems is also being explored.109 In 2016, $75 million was raised in debt and equity finance by distributed energy service companies in East Africa and Southeast Asia alone.110 Blended finance approaches can help accelerate commercial viability for new business models by encouraging new investors to enter the market (see Making it Happen chapter). Mali’s mini-grid O F F - G R I D S TO R AG E Major investment and deployment is expected in energy storage, which Mali has a decentralized rural electrification model with is a key component of off-grid systems. Energy storage in emerging more than 60 private operators—mainly diesel mini- markets will likely grow by more than 40 percent annually in the grids and solar home systems—managed by the Malian coming decade, adding about 80 GW of new storage capacity to the Agency for Development of Rural Electricity. Integrated estimated 2 GW existing today, though only a small fraction of this energy planning is key to Mali’s approach to rural will be for off-grid applications.111 Annual investments in storage in electrification. The electrification agency works with local emerging markets are expected to grow from about $2.5 billion in 2016 authorities and developers before granting concessions. to $23 billion in 2025.112 About half of the growth is expected in China, Explicitly stating what the options are for developers with $7 billion in India, $4 billion in South Asia, $3 billion in North as the national grid expands provides some degree of Africa and the Middle East, $2.5 billion in Sub-Saharan Africa, and certainty. Having a centralized agency and a committed $2 billion in Latin America and the Caribbean.113 Including energy policy framework has also allowed Mali to attract donor storage in off-grid systems increases reliability and user satisfaction, and funding for off-grid electrification projects. allows mini-grids to provide power 24 hours a day. https://pwc.to/2hNBGyR Lithium-ion batteries are the dominant storage technology for off-grid applications, and continue to decrease in price. The cost of lithium batteries used in portable electronics and electric vehicles has fallen 65 percent since 2010, opening up new off-grid applications that were previously too expensive.114 Cost reductions have been driven by rapidly increasing production capacity, as well as technical advances, 26 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 0 Creating markets for off-grid solar in the Pacific SOLAR AND BATTERY STORAGE MICRO- The project involved a 1.4 MW solar micro-grid, OFF-GRID SOLAR ENERGY IN GRID REPLACING DIESEL IN TA’U ISLAND, backed by 6 MWh of battery storage. SolarCity PAPUA NEW GUINEA AMERICAN SAMOA provided the solar installation while 60 Tesla In Papua New Guinea, about 80 percent of the Powerpacks secured the storage requirements. The Like most small islands, islands in American population have no access to electricity. Since 2014, project took a year to implement and was financed Samoa have traditionally been powered by diesel more than 1.3 million people, or 16 percent of the by the American Samoa Economic Development generators. Aside from the environmental cost, country’s population, have gained access to phone Authority, the Environmental Protection Agency, and this means that islands are susceptible to high charging and energy services. Over the next two the U.S. Department of the Interior. It is expected transport costs and supply and cost risks from a years, Lighting Papua New Guinea is expected to to save more than 100,000 gallons of diesel fuel per volatile commodity like oil. In 2017, the island of build a market for a further 300,000 people with year, in addition to ensuring a reliable and secure Ta’u managed to completely move away from access to PAYG and other smart solar products. IFC supply of energy on the island. diesel by installing a solar and battery storage- provided business connections, market intelligence, enabled micro-grid that can supply all of the island’s and consumer education that allowed global solar electricity needs. manufacturers enter the market. For more information, see: blog.solarcity.com/ island-in-the-sun/ and http://bit.ly/2y27Txj. Off-Grid Solar and Storage 27 FIGURE 5: Steps to create markets for off-grid solar and storage 1 2 3 4 5 MAKE ELECTRICITY CONSIDER ENHANCE USE FISCAL SET A TARGET PLANNING DIFFERENTIATED SUPPORTING INCENTIVES TRANSPARENT TARIFF STRUCTURES POLICIES • A target sends a signal • Publicizing a grid • Potential incentives • Differentiated tariffs • Encourage microfinance to the private sector expansion plan include subsidies for can be used to help for customers and that the government gives confidence to off-grid equipment and mini-grid operators suppliers supports off-grid developers about policy removal of excise duties achieve cost recovery • Training and education systems support and market size • Grants, incentives, • Introducing time- is critical for mini-grid • Provide clarity on the rebates and varying rates can deployment and the future of mini-grid demonstration projects incentivize energy widespread deployment operations when the will encourage energy storage by allowing of distributed energy main grid arrives storage deployment consumers to use storage behind-the-meter • Project preparation storage systems for facilities can help fill the cost reduction and peak gap between concept management and investment 28 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 1 including thicker electrodes and higher voltages.115 Lithium-ion batteries are estimated to account for 80 percent of global energy storage installations by 2025.116 2.3 Creating markets for off-grid solar and storage Off-grid solar and storage markets have tremendous promise, but investors and companies still face risks and barriers. These include a lack of clarity on the role of off-grid storage in overall national and local energy plans, a failure to capture the value of off-grid solar and storage in regulations, challenges with permitting, and low access to finance on suitable terms.117 Governments can address these risks by taking a holistic approach that includes target setting, planning for expansion, smart policies and incentives (including different tariff structures) and other policies (Figure 5). S T E P 1 : S E T A TA R G E T. Fluidic Energy provides a cleaner Targets signal to private players that the government supports off-grid alternative to diesel systems. Several countries have developed distributed solar targets: Fluidic Energy, headquartered in Scottsdale, Arizona, Rwanda aims to reach 22 percent of its population with distributed is a privately held provider of energy storage solutions. renewable energy systems by the 2018 fiscal year, increasing its off-grid Founded in 2007, the company supplies zinc-air batteries power generation to 22 MW. Tanzania announced a target of 1 million to support critical loads and backup power applications solar installations by the end of 2017, which is expected to supply solar worldwide, particularly in Southeast Asia. IFC invested electricity to 10 percent of the nation’s population and create over $7 million in the company in 2013. 15,000 jobs.118 The company’s products include remote site STEP 2: MAKE ELECTRICITY PLANNING management, multi-year performance warranties, and T R A N S PA R E N T. innovative financing terms. Its rechargeable metal-air battery system provides low-cost backup power to Making electricity grid expansion plans public helps give confidence cellular towers connected to unreliable electricity grids. to developers making investments in off-grid equipment.119 The This novel technology, which Fluidic has already deployed government of Rwanda is providing clear policy support for solar home in countries such as Indonesia, helps reduce the costs systems and mini-grids in the country’s short-term electrification plan. of sustaining mobile networks in rural areas and offers The governments of Kenya and Sierra Leone have both indicated that a cleaner alternative to diesel generators and lead-acid mini-grids are part of their national electrification strategy, while the batteries. Nigerian Electricity Regulatory Commission has recently stated that http://bit.ly/2wQ2O8S Off-Grid Solar and Storage 29 B OX 1 2 electricity distribution companies may now use mini-grids as a bridge technology to accelerate electrification activities.120 To sustain the market for mini-grids, clarify what will happen when the main grid arrives.121 Typical options that can be developed for mini-grid owner-operators if the grid arrives include: • Converting from a power producer to a power distributor and buying electricity from the main grid for resale to customers. • Selling electricity to the interconnected grid operator and ceasing sales to retail customers. • Selling the distribution grid to the interconnected grid operator and receiving compensation for the asset. STEP 3: CONSIDER OFFERING FISCAL INCENTIVES T O E N C O U R A G E D E P L O Y M E N T. Kenya, Rwanda, and Tanzania all removed value-added tax (VAT) on Securitization of renewable assets is solar products in the 2015 fiscal year.122 Tanzania also offers subsidies helping to lower the cost of capital for mini-grids, storage systems, and renewable energy equipment, as well as some duty exemptions for mini-grid enabling technologies.123 India for BBOXX removed excise duties on off-grid solar systems in 2014. In 2015, Uttar In 2015, BBOXX, a leading PAYG company based in Pradesh, the Indian state with the most people lacking access to energy, the United Kingdom, partnered with Oikocredit, a announced plans to waive its VAT on solar energy equipment. Other Netherlands-based investor, to structure the first incentives, such as grants and rebates, can further help to stimulate the securitization of off-grid solar assets in the world. Using energy storage market. 12 years’ worth of data it had collected, BBOXX structured asset-backed notes called distributed energy asset S T E P 4 : C O N S I D E R A L LOW I N G D I F F E R E N T receivables. These notes represent a bundle of customer E L E C T R I C I T Y TA R I F F S T R U C T U R E S D E P E N D I N G contracts. Their value is based on future receivables O N T H E S I Z E A N D OT H E R C H A R AC T E R I S T I C S O F M I N I - G R I D S O R R O O F T O P P V. on the customers’ contracts. The initial pool of notes consisted of 2,400 customers with a low risk of default Tanzania applies differentiated rules to distributed energy service based on repayment history. Oikocredit bought the first companies that allows them to charge cost-reflective tariffs that differ issuance for 52 million Kenyan shillings ($508,000), which from the national tariff, depending on the size of the mini-grid. India’s gave BBOXX enough capital for about 1,200 solar home Ministry of New and Renewable Energy developed a Best Practice systems. Guidebook on State Level Solar Rooftop PV Programmes that includes options for setting differentiated tariffs.124 It can also be valuable to http://bit.ly/2eTRyUs introduce time-varying rates, which incentivize energy storage by 30 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report allowing consumers to use behind-the-meter storage systems to reduce A partnership between the Indian Ministry of New and Renewable electricity costs and better manage peak loads. 125 Energy, the Overseas Private Investment Corporation, and a consortium of foundations, the initiative provides project preparation support that S T E P 5 : E N H A N C E S U P P O RT I N G P O L I C I E S will catalyze long-term debt financing for distributed solar power. The Encourage microfinance for customers and suppliers. Governments Climate Policy Initiative serves as the program manager.129 can support microfinance independently or by arranging financing Larger players are using the debt market to raise capital. Off Grid with multilateral institutions and managing it through domestic Electric, which operates in Rwanda and Tanzania, raised $45 million in programs. Under the microfinance model, households and businesses December 2015 through a debt facility, with capital from the Packard may take out a small loan from a bank to cover the cost of renewable Foundation, Ceniarth, the Calvert Foundation, and USAID, among energy equipment. For example, the Renewable Energy Microfinance others.130 Nova Lumos in Nigeria secured a $50 million debt facility and Microenterprise Program initiative by Arc Finance offers small from the Overseas Private Investment Corporation in November 2016.131 loans that have benefited more than 1 million people across Haiti, More tested businesses can move towards securitizing assets, which helps India, Kenya, Nepal, and Uganda by supporting the sale of 200,000 lower the cost of capital and opens up opportunities to attract/leverage distributed renewable energy products.126 additional investment. In 2015, in a first of its kind, PAYG company Provide training opportunities to ensure successful deployment of BBOXX managed to securitize its off-grid solar assets and raise more mini-grids and distributed energy storage. The Massachusetts Energy than $500,000 through a Dutch investor, Oikocredit (see Box 12). While Storage Initiative recommends that the state, national government, and it remains relatively new and small in scale, securitization can provide electricity regulators educate city and educational institutions, electricity the necessary financing tool for larger PAYG and distributed energy distribution companies, and energy managers about policy options and service companies to access debt financing and diversify risk. savings opportunities available through distributed storage, especially when paired with time-of-use pricing.127 For solar and mini-grid deployment, education and training is also essential. IRENA offers an online training platform called Project Navigator that provides guidance on how to develop bankable renewable energy projects, including mini- grids and solar home systems.128 I N N O VAT I V E F I N A N C I N G M O D E L S In addition to implementing supportive policies, innovative financing models can help unlock private investment in solar power. Traditionally, most solar home system business models were based on equity financing. But as off-grid solar business grows, their capital needs are changing, and they are increasingly seeking international grants and equity financing to address the high costs of local debt. One solution being advanced is US-India Clean Energy Finance, a project preparation facility that aims to provide access to energy in underserved regions of India by supporting early-stage distributed solar project development. Off-Grid Solar and Storage 31 B OX 1 3 Lighting Global: Developing the off-grid solar industry To support growth of the off-grid solar industry, IFC Quality Assurance framework. This standard ensures charts the industry’s development (the Market launched Lighting Global. This program supports performance for buyers, users, and investors in the Trends Report), and convenes a biannual meeting market development by reducing risk for businesses sector, reducing risk and catalyzing competition for the industry (the Global Off-Grid Solar Forum in this sector and encouraging private sector and innovation. The International Electric Technical and Expo). These publications and events have investment through quality assurance, market Commission has adopted these standards, and made IFC an authority on the sector, and investors, intelligence, and business support. It has teams in 10 country governments are now adopting it as a new company entrants, donors, and established countries: Afghanistan, Bangladesh, Ethiopia, India, minimum standard to import products. More than 23 companies in the sector rely on Lighting Global Kenya, Myanmar, Nigeria, Pakistan, Papua New million Lighting Global quality-verified products have products to inform investment and strategy. Guinea, and Tanzania. been sold since 2008, eliminating over 25 million www.lightingglobal.org metric tons of greenhouse-gas emissions. The program created an internationally recognized quality assurance standard for solar systems and Lighting Global is the primary information source for products up to 350 watts—the Lighting Global the sector. It produces industry sales information, 32 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Off-Grid Solar and Storage 33 2.4 Initiatives, tools, and resources Scaling Solar brings together a suite of World Bank Group The Global Solar Council (GSC) is an international organization services under a single engagement aimed at creating viable founded in 2015 to coordinate the efforts of the world’s solar markets for solar power. The “one-stop shop” program aims to energy associations. make privately funded grid-connected solar projects operational www.globalsolarcouncil.org within two years and at competitive tariffs. www.scalingsolar.org The Energy Sector Management Assistance Program (ESMAP) is administered by the World Bank Group, and focuses Lighting Global is the World Bank Group’s platform to support on increasing the knowledge and technical capacity of low- and development of commercial markets for modern energy services middle-income countries to achieve a sustainable energy solution. for the more than 1.2 billion people in the world without access to www.esmap.org electricity. www.lightingglobal.org The Global Lighting and Energy Access Partnership (Global LEAP) is the Clean Energy Ministerial’s energy access initiative, The International Energy Agency (IEA) works to ensure reliable, and is led by the U.S. Department of Energy.  affordable and clean energy for its 29 member countries and www.globalleap.org beyond, and has a wealth of data, policy perspectives, technology roadmaps and outlook reports on renewable energy. SIDSDOCK is an initiative of the Alliance of Small Island States www.iea.org to provide the small island developing states with a collective institutional mechanism to assist them transform their national Sustainable Energy for All (SE4ALL) is a global initiative led by energy sectors. the former Secretary-General of the United Nations, Ban Ki-moon www.sidsdock.org to achieve universal energy access, improve energy efficiency, and increase the use of renewable energy. The Global Network on Energy for Sustainable Development www.se4all.org (GNESD) is a United Nations Environment-facilitated network of Centers of Excellence dedicated to improving energy access for The International Renewable Energy Agency (IRENA) is the poor in developing countries. an intergovernmental organisation that supports countries in www.gnesd.org their transition to a sustainable energy future, and serves as the principal platform for international cooperation, a centre of The Regulatory Indicators for Renewable Energy (RISE) is excellence, and a repository of policy, technology, resource and a global policy scorecard that assesses policy and regulatory financial knowledge on renewable energy. frameworks for energy access, energy efficiency and renewable www.irena.org energy. http://www.worldbank.org/en/topic/energy/publication/rise--- The Global Off-Grid Lighting Association (GOGLA) is a neutral, regulatory-indicators-for-sustainable-energy independent, not-for-profit association created to promote clean, quality off-grid lighting solutions that benefit society and The Islands Energy Program is an initiative of the Rocky businesses in developing and emerging markets. Mountain Institute supporting the development of more than 20 www.gogla.org off-grid projects in the Caribbean islands. www.rmi.org/our-work/global-energy-transitions/islands- energy-program/ 34 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Agriculture 35 Key indicators Food demand is We have seen a expected to increase doubling of meat 20% over the next 15 consumption over the years, driven by the past 40 years. developing world. This will require increasing food production 70%. Over one third of all 148 NDCs include food that is grown is agriculture in their wasted. targets. 36 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Agriculture 37 Climate-Smart Agriculture 3.1 Summary productivity in livestock agriculture—generating more meat and milk per animal—through a combination of genetics, feed substitutes and The agriculture sector drives many economies, but must evolve to meet supplements, and improved farm operations. This leads to lower growing food demand while adapting to a changing climate. The global methane emissions per animal. The second focus area involves helping population is expected to reach 9 billion by 2050, and food demand is farmers to grow more food with fewer inputs through innovative estimated to increase by 20 percent globally over the next 15 years, with practices such as precision agriculture, efficient irrigation, and the greatest increases projected in Sub-Saharan Africa, South Asia, and optimizing the amount of fertilizer used. The third focus area involves East Asia.132 In addition, the sector will be negatively affected by climate helping clients to reduce post-harvest food losses, improve food security, change—with floods, droughts, heat waves, wild fires, and rising sea and boost incomes by investing in improved warehouses and silos, levels threatening farmers and businesses along the entire supply chain. cold storage facilities, better logistics and distribution, and consumer Food and agriculture are a $5 trillion global industry that represents education programs. 10 percent of consumer spending and 30 percent of greenhouse-gas Companies, communities, and governments share an interest in creating emissions.133 Since 2004, global investments in the sector have grown markets for climate-smart agriculture. Governments are incorporating threefold to more than $100 billion in 2013.134 Agriculture supports climate-smart policies and support measures into broader public policy, about 500 million smallholder farmers. In developing countries, it expenditure, and planning frameworks at all levels of government. is the largest source of incomes and jobs.135 Therefore, boosting the Climate-smart agriculture requires coordination between agencies across productivity, profitability, and sustainability of agriculture is essential for different sectors (agriculture, energy, infrastructure, environment, and fighting hunger, increasing jobs, and ensuring climate-resilient growth.136 finance), and close partnerships with farmers’ groups and the private Climate-smart agriculture is a set of practices and business models that sector. Securing land rights also provides an enabling environment for can help reduce emissions and build resilience. It aims to address both investments in sustainable water and land management. For the private food insecurity and climate change by improving resilience against sector, an integrated approach to providing incentives has shown climate impacts, reducing greenhouse-gas emissions, and increasing promise, as have financial innovations like warehouse receipts and productivity in farming. The private sector is increasingly investing in weather-based, or index, insurance. Through the World Bank Group’s climate-smart practices and new business models. IFC has defined three Making Climate Finance Work in Agriculture initiative, investors strategic focus areas. The first involves helping companies to enhance and financial institutions are learning how to invest in climate-smart 38 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 3 : N U M B E R O F C O U N T R I E S W I T H S U B S E C T O R I N C L U D E D I N T H E I R N D C Agriculture: Agricultural agriculture Fertilizers Irrigation Livestock Climate- General waste smart Crops Region East Asia and Pacific 11 5 4 4 2 5 2 Europe and Central Asia 12 2 3 3 3 1 1 Latin America and Caribbean 19 6 4 7 4 3 2 Middle East and North Africa 8 11 4 3 5 2 North America 1 Oceania 1 South Asia 3 5 1 5 4 3 2 Sub-Saharan Africa 22 32 8 24 18 23 5 Western Europe 3 Total 79 61 24 46 36 35 15 (Source: World Bank, INDC Database; see indc.worldbank.org) agriculture using new business models and finance mechanisms.137 to farmers. Some of these solutions are likely to come, as countries Companies, communities, and governments share an interest in creating implement their NDCs (see Table 3). markets for climate-smart agriculture. To provide a common framework and provide incentives, governments are incorporating climate-smart 3.2 Market snapshot and growth potential policies and support measures into broader public policy, expenditure, and planning frameworks at all levels of government. One risk is a lack Food demand is growing. The world’s population is expected to reach of coordination between agencies across different sectors (agriculture, 9 billion people by 2050, with most growth occurring in developing energy, infrastructure, environment, and finance), farmers’ groups countries. This will lead to higher food demand. Rising income and the private sector. Climate-smart agriculture creates a platform to levels will also raise demand for protein, processed food and other encourage this cooperation. There are also risks related to securing land agricultural products. Together, these trends might require raising rights. Appropriate financing is also needed to deliver working capital overall gross agricultural output by 50 percent by 2050 (Figure 6); in select countries, production may need to nearly double.138 The Food and Agriculture Organization projects that under a moderate 2050 Climate-Smart Agriculture 39 FIGURE 6: Global agricultural output growth and $100 billion.142 Successful private investment in agriculture requires demand projections a strong understanding of crops and geographies, as well as complex local value chains that include agricultural machinery, seeds, fertilizer, 400 data providers, transport and logistics, food production and processing, and retailing. There is a growing number of climate-smart agricultural practices and technologies that range in effectiveness in emerging 300 markets; the successful scaling up of solutions will require knowledge of the technical feasibility and economic viability of specific measures, as well as identifying and addressing the risks associated with investment. Percent 200 Agriculture contributes to—and is affected by—climate change. Agriculture and forestry are major drivers of climate change, accounting for up to 30 percent of global greenhouse-gas emissions.143 Most of these emissions come from meat and milk production and the expansion 100 of agriculture into forested areas. Farmers across the globe are experiencing more droughts, floods, and heat waves that are increasing production variability and pushing already vulnerable populations into 0 poverty and potential climate migration, as farmers seek new sources of WORLD HIGH INCOME LOW & MIDDLE SOUTH ASIA & LATIN income. Climate change also increases food price volatility, which drives COUNTIRES INCOME SUB SAHARAN AMERICA & COUNTIRES AFRICA CARRIBEAN up food prices and increases the risk of food insecurity. 1961–2012 2012–2050 The World Bank Group describes climate-smart agriculture as an Source: Based on FAO (2017).139 integrated approach to managing landscapes—cropland, livestock, forests, and fisheries—that addresses the interlinked challenges of economic growth scenario, global annual cereal production may need food security and climate change.144 Climate-smart agriculture aims to to grow by 1 billion metric tons compared to 2005-07, while meat achieve three outcomes: production may need to grow 200 million metric tons to a total of Increased productivity: Produce more from existing farms to improve 1. around 460 million metric tons.140 food and nutrition security and boost the incomes of 75 percent of the A thriving agricultural sector has been the basis for successful economic world’s poor, many of whom rely on agriculture for their livelihoods. growth in many countries. Investment in agriculture creates food Enhanced resilience: Reduce vulnerability to drought, pests, disease, and 2. surpluses, keeps food prices low, and creates jobs for rural communities. other shocks; and improve capacity to adapt and grow in the face of Europe, North America, and China have successfully followed this longer-term stresses like shortened seasons and erratic weather patterns. development path. More recently, Vietnam, Latin America, and Sub- Reduced emissions: Pursue lower emissions for each calorie or 3. Saharan African countries have focused on agriculture to grow their kilogram of food produced, avoid deforestation from agriculture, and economies.141 However, satisfying the world’s food needs requires identify ways to store carbon. much greater private investment. Global investments in the food and agribusiness sector tripled between 2004 and 2013 to more than 40 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 4 A growing number of companies are concerned that the effects of climate change will disrupt their supply chains and their ability to grow sustainably and profitably. In addition, more companies are making commitments to reduce their impact on the environment by, for example, integrating climate-smart agriculture into their business models, or pledging to use only renewable energy. Agriculture input providers are developing innovative technologies to increase production efficiency, resilience, and yield. These technologies include precision agriculture (such as use of drones, soil testing, sensors, efficient irrigation, and GPS- enabled machinery) as well as improved animal nutrition and breeding methods. Companies are also becoming more fully integrated with local IFC’s approach to climate-smart farmers by providing advice and solutions rather than inputs only. In agriculture addition, some investors and large commercial banks are beginning to establish strict criteria on what they can invest in.145 IFC provides investments and advice that contribute to the three pillars of climate-smart agriculture. It has E F F I C I E N T A N I M A L P ROT E I N identified the following focus areas: Livestock consumes a large and growing volume of global natural • Helping animal protein producers to increase their resources. The world’s 20 billion farm animals graze on roughly productivity (reduce greenhouse-gas emissions per 30 percent of all terrestrial land, and one-third of cropland is devoted kilogram of meat or liter of milk) through a wide to producing animal feed. Roughly one-third of the world’s freshwater range of measures, including manure management, resources are used for livestock production and processing. Global improved nutrition and animal health, better genetics, meat consumption has doubled over the past 40 years, and further and other feed-to-food conversion efficiencies in growth in meat and dairy consumption is expected as incomes rise and livestock and aquaculture. urbanization accelerates, especially in developing regions. 146 • Precision agriculture through integrated agriculture Methane from digestion is the main source of emissions from livestock, input suppliers (reduce greenhouse gases per unit and is especially high in developing countries. Emissions are influenced of land or food produced) as a platform to promote by the quality of feed as well as the age and weight of livestock at precision farming technologies (such as soil testing, slaughter. These differences lead to a vast range of emissions between water solutions, appropriate use of fertilizers, and regions. South Asian beef produces ten times more methane than pest control) and financing to increase farmers’ Eastern European beef on average, and methane emissions from milk productivity and resilience. production in Sub-Saharan Africa are about ten times larger than • Helping producers, traders, and processors to reduce in Western European milk production, according to the Food and post-harvest waste and losses of food by, for example, Agriculture Organization.147 optimizing food transport logistics and developing Improving animal productivity and health can reduce emissions while cold chain and storage infrastructure (including green creating attractive investment opportunities. The projected surge or EDGE-certified warehouses). in demand for meat in emerging markets creates opportunities for www.ifc.org/climatebusiness Climate-Smart Agriculture 41 BOX 15 Kingenta: An integrated solutions provider In 2015, China indicated that it is targeting “zero thereby improving crop productivity and reducing growth” in consumption of nitrogen and phosphate input waste. These investments will help promote fertilizers by 2020. In response, Kingenta, a leading appropriate use of fertilizer to mitigate nitrogen producer of nitrogenous and specialty fertilizer in and phosphate overuse, reducing related impacts China, started transforming its business model from on soil quality, groundwater, and greenhouse-gas a pure manufacturer of fertilizer to an integrated emissions. solutions provider that supports farmers with high- The project expects to increase crop productivity quality and locally tailored fertilizers, and advice. across 3.8 million hectares of land farmed by 3 million IFC is investing $200 million to help Kingenta farmer families. Yields are expected to improve implement a $1 billion program that will upgrade by between 10 percent and 40 percent as farmers 10 conventional single-nutrient fertilizer plants to gain direct access to quality inputs, training, and produce higher efficiency/specialty fertilizers and climate-smart farming practices. In addition, these establish a platform of 300 crop-production service investments may reduce 377,000 tons of equivalent centers across eight Chinese provinces. These carbon dioxide per year through appropriate service centers will provide agronomic services and fertilizer. farmer training, as well as increase the adoption www.ifc.org of soil testing and precision farming practices, 42 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report companies in meat production and supporting industries such as growth and depleted oxygen levels. The likely explanations for excessive livestock, feed, and vaccines. Making feed conversion more efficient and use of fertilizer include a lack of knowledge and training, subsidized climate-smart, so that animals produce more meat while consuming the fertilizer prices, and poverty-driven risk aversion. same amount of feed, is a profitable opportunity for companies that Precision agriculture aims to improve productivity and address specialize in genetics, feeding, fertility, and farm management. emissions from fertilizer and energy use by observing, measuring, and responding to site-specific conditions. It may involve: INCREASING FOOD PRODUCTIVITY • Precision application of fertilizers (for example, using data from Depleting natural resources, climate change, and reduced agricultural sensors, soil tests, and satellite measurements to inform which type, productivity are negatively affecting growth in the global food supply. how much and where fertilizer should be applied). For example, by 2030, the gap between anticipated water withdrawals and existing supply may reach 40 percent.148 This puts pressure on • Use of waste biomass for energy (for example, rice husk gasification) governments and business to innovate, by expanding to new locations and as cover crops. and applying tools and practices that lead to “precision agriculture.” • Improved energy efficiency (for example, reducing diesel use by Emissions from agricultural soils have been growing rapidly, particularly tractors/pumps/equipment). Solar pumps, when combined with drip in developing countries. Manure is a valuable agricultural input, irrigation systems, offer a low-carbon way to access water. However, especially in developing countries, where the cost of synthetic fertilizers the uptake has been slow. To expand the use of solar pumps, the is relatively high. Spreading manure on cropland helps to increase initial investment cost needs to be reduced and subsidies for electricity soil fertility and stabilization, increase water retention capacity, addressed.152 reduce erosion, and increase microbial density. However, manure also • Improved water efficiency (through, for example, drip or precision contributes to greenhouse-gas emissions: methane is produced when irrigation, or laser leveling of soil). The adoption of modern micro- manure is stored, and nitrous oxide is released when manure is spread irrigation technologies like drip irrigation not only reduces the on croplands. Strategies to reduce emissions from manure include amount of water needed per unit of food produced, but also decreases capturing and using methane as biogas, and preventing methane- a farm’s reliance on chemical fertilizers and facilitates low- or no-till producing conditions. Sealing manure and collecting and burning farming. methane for heat or electricity is another effective option. Composting • Drought-, salt-, and heat-tolerant seeds can help reduce the effects of manure also reduces greenhouse-gas emissions.149 climate change on farmers. Fertilizer has significantly increased agricultural productivity and helped reduce the pressure on forests, but over-application of fertilizer R E D U C I N G F O O D LO S S E S is wasteful, polluting, and emissions-intensive. Fertilizer demand was Global food losses are enormous. The Food and Agriculture roughly 187 million metric tons in 2016, up by 30 million metric Organization estimates that about a third of all food that is grown tons from 20 years ago, and is projected to grow at about 1 percent is lost due to infestation, spoilage, waste, ineffective processing and per year to 2030.150,151 Appropriate application of fertilizer leads to transport, inefficient logistics, and consumer preferences/waste.153 improved yields, especially on irrigated land. But over-application This is equal to 1.3 billion metric tons of wasted food, which results results in excessive greenhouse-gas emissions and other environmental in emissions of more than 4 metric gigatons of equivalent carbon consequences like eutrophication, where water runoff from fields causes an excessive build-up of nutrients in water bodies, leading to dense plant Climate-Smart Agriculture 43 B OX 1 6 dioxide—an amount greater than all countries, other than the United States and China, emit annually.155 Improved transport and storage are greatly reducing food losses.156 Reducing food waste in emerging markets is a large investment opportunity, particularly in logistics and transport. In China alone, the cold storage and transportation market generates $12 billion to $18 billion in revenues; this market is expected to grow by between 10 percent and 15 percent annually to meet the country’s expanding food demand.157 Given that most food loss and waste in developing countries occurs during production and after it is harvested, the greatest potential for reduction is investment in infrastructure related to storage, transport, cold chains, and distribution, together with Policies and practices to reduce post- skills development.158 Commercial farms are increasingly replacing harvest food loss traditional storage spaces made from locally available resources like • Evaluate opportunities to reduce food waste along the mud bricks, wood, or straw with modern storage facilities, which tend value chain, taking into account infrastructure needs to be illuminated, ventilated, and equipped with screens and moisture and bottlenecks and the need to invest in new storage barriers.159 Opportunities to extend food shelf life and improve facilities. packaging to reduce downstream waste also exist. • Set a standard for reduction in food waste; establish Investment in cold storage and warehouses is growing rapidly, driven targets and plans of action to achieve them. by China and India. The total capacity of refrigerated warehouses was 600 million cubic meters in 2016, an increase of 8.6 percent since • Provide appropriate technologies (such as storage 2014. According to the Global Cold Chain Alliance, this was driven containers and sealed bags). by considerable new construction in emerging markets, especially • Introduce training programs for value chain actors China (30 million cubic meters) and India (10 million cubic meters).160 for packaging, processing, post-harvest handling, and Globally, the cold chain market is projected to reach $271 billion by distribution. 2022, with an annual growth rate of 7 percent.161 Technology advances in cold storage are helping to phase out hydrofluorocarbons—a potent • Raise consumer awareness via food labeling (sell greenhouse gas—and reduce energy consumption. Technology advances by/use by dates) and introduce social awareness are also allowing use of cold storage in warmer climates.162 campaigns to promote consumer reduction in food waste. • Provide incentives for investments in systems to redistribute food and reuse discarded food. • Improve data collection and knowledge sharing on food waste among value chain actors. Source: World Bank154 44 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 7: Steps to create markets for climate-smart agriculture 1 2 3 4 MAINSTREAM CSA DEVELOP AN INTO NATIONAL ADDRESS AGRICULTURE PROMOTE FARMER POLICIES INEFFICIENT PRICE DEVELOPMENT PLAN OUTREACH AND AND SECTOR AND SUBSIDY THAT INCLUDES TRAINING DEVELOPMENT REGIMES INFRASTRUCTURE PLANS • Use the NDCs as a • Price support and • Infrastructure build-out • Establish agribusiness platform for integrating energy subsidies should should be strategic—via centers to provide climate change in be directed to practices targeted investment farmers with agricultural sector that recognize and in a specific crop’s appropriate planning reward climate-smart value chain, in a technologies, peer agriculture “breadbasket” region, exchange and extension • Secure land/property or in an infrastructure services rights, export-ready • Fertilizer subsidies can corridor food standards and be climate-smart if they • Actively engage the extension services are increase yield • Consider climate private sector through key enablers resilience up creation of partnerships • Water pricing, front to mitigate and dedicated outreach technology support and potential weather- efforts awareness raising can related damage to address water waste • Work with international infrastructure and local agribusiness and banks on access to finance Climate-Smart Agriculture 45 B OX 1 7 3.3 Creating markets for climate-smart agriculture The majority of agricultural investments are not yet climate-smart, and Kenya: Integrating climate change data on private investments in agriculture and information on their sustainability are lacking.164 Accelerating investment in climate-smart into agricultural sector planning agriculture will require agreement across government, the private sector, Several lessons can be drawn from Kenya’s farmers’ groups, and agricultural scientists. National policies create mainstreaming of climate change into its national enabling conditions for agricultural investment. Key policy actions planning and development strategies during a 2012 include removing inefficient public subsidies and food pricing programs; update to its National Development Plan. It used establishing rural credit, land tenure rules, and property rights; the most up-to-date socioeconomic, geographic, supporting research and extension services; offering innovative financing and climatological information to assess risks and models like warehouse receipts; and fostering new insurance models like vulnerabilities to develop mitigation and adaptation weather-based crop (index) insurance. scenarios. “Champions” were identified in key ministries, including the Ministry of Planning, the Ministry of Energy, S T E P 1 : M A I N S T R E A M C L I M AT E - S M A R T and the Ministry of Environment. A cost-benefit analysis A G R I C U LT U R E I N T O N AT I O N A L P O L I C I E S A N D and other tools were used to prioritize actions, and S E C TO R D E V E LO P M E N T P L A N S . existing initiatives were reviewed to determine how This requires engaging ministries of finance, planning and energy to they could incorporate climate considerations. This built work with their agricultural and environmental counterparts. The on practitioners’ familiarity with the subject matter NDCs provide an important platform for integrating climate change and minimized learning costs. It also framed climate into agricultural sector planning. The commitments made in NDCs can change as a cross-cutting issue, rather than exclusively promote climate-compatible development and reduce poverty in the an environmental one, which built a constituency of agriculture sector. They can also provide an opportunity for groups of support for climate-smart activities. Finally, it monitored countries to develop regional climate-smart policies, recognizing the results and outcomes so that lessons could be used when common challenges that they face. new opportunities for climate mainstreaming arose. The Different levels of government will need to play distinctive roles to roll result was a more integrated approach to mitigation out climate-smart agriculture investments. While the national government and adaptation, which may serve as a model for other usually serves as regulator, funder, and provider of scientific information, countries. local govern¬ments need to help promote climate-smart agriculture by Source: McFetridge & Murphy, 2012; Mitchell & Maxwell, 2010163 mobilizing and supporting farmers and adapting regulations to align with local circumstances. Setting up learning platforms and extension programs—rather than ad hoc consulta¬tions—is important for delivering and refining climate-smart programs over time.165 Enabling factors that encourage climate-smart agriculture include secure land/property rights, good transport infrastructure, regulations and fiscal 46 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 8 policies that incentivize climate-smart investment, adoption of food laws and standards that allow for export, and agricultural extension practices to train farmers on climate-smart methods. STEP 2: ADDRESS INEFFICIENT GOVERNMENT P R I C E A N D S U B S I DY R E G I M E S . Governments often maintain prices through subsidies for inputs such as fertilizer, energy, water, and seeds. The Food and Agriculture Organization recommends that price support and energy subsidies recognize and reward climate-smart practices, and enable value addition, commercialization, and trade. For example, input subsidies designed to support a more efficient and timely use of fertilizers.166 Fertilizer subsidies can be climate-smart if they increase yield and enhance plant growth and the storing of carbon in the soil. However, to ensure precision fertilizer application, the price support should be accompanied Uruguay: More efficient agriculture by training and improved access to reliable information on rainfall.167 production at a rapid pace Subsidizing energy use in farms may lead to negative climate impacts, by Uruguay has long been at the forefront of managing contributing to overuse of water in water-scarce areas. Inadequate water and conserving natural resources, particularly soils. regulation and pricing lead to water waste, contributing to drainage and Uruguayan producers, supported by public policies and salinity problems in irrigation-dependent countries. These issues can research, use many climate-smart practices. For dairy be addressed through water pricing (where appropriate), support for production, the majority of practices are focused on technologies, and awareness raising.168 water distribution throughout the property and the use of supplementary irrigation in strategic areas of the dairy S T E P 3 : D E V E L O P A F O C U S E D A G R I C U LT U R A L S E C T O R D E V E L O P M E N T P L A N T H AT A D D R E S S E S farm (on about 10 percent of the total area). In the case INFRASTRUCTURE. of rain-fed agriculture (soybean, maize, wheat), given that more than 70 percent of the area is cultivated by In many countries, poor infrastructure limits investment in climate-smart medium and large companies, climate-smart practices agriculture.169 Governments can address this obstacle by concentrating such as direct seeding and land-use management investment on infrastructure in a “breadbasket” region (a major cereal- plans have higher levels of adoption. Integrated crop producing region), or in a particular infrastructure corridor. Mali, for management is the most common climate-smart example, is considering a pilot breadbasket program for its Sikasso practice for intensive vegetable production (citrus, region. The initiative aims to raise cereal production by 60 percent deciduous plants, horticulture). It includes techniques through a combination of yield increases and limited expansion onto for soil, pests, and disease management that help new land. There will also be strong support for export development, stabilize and/or increase production and reduce use of new roads and warehouses, and measures for climate mitigation and agrochemicals. adaptation (such as water harvesting and locally adapted drought- Source: World Bank170 Climate-Smart Agriculture 47 resistant seed).171,172 Another approach is an agricultural development middlemen perform important roles in linking small-scale farmers corridor, in which commercial farms and facilities for storage and to markets or providing inputs appropriate for local crop and soil processing are concentrated around a major infrastructure project.173 conditions. Governments and donors rarely have the local knowledge or capacity for these jobs. International trading companies can contribute Agriculture depends heavily on infrastructure: road, rail, ports, technologies and management skills, while also buying commodities. equipment, and buildings. However, any infrastructure investment needs to be made climate-resilient. To reduce the impact of extreme I N N O VAT I V E F I N A N C I N G M O D E L S weather events on infrastructure, governments have successfully developed preventative actions and instruments tailored to the region. Access to sufficient financing is vital to create markets for climate- This includes long-term plans that consider the redesign, relocation, and smart agriculture, as farmers often do not have access to credit because rebuilding of major agricultural transportation routes, while landscape financial institutions see them as high risk. Implementing climate-smart planning considers integrating irrigation systems with natural wetlands agriculture often involves upfront investments that take time to result and waterways that act as buffers against climate shocks. 174 in productivity gains, and market premiums for sustainable produce rarely provide sufficient margins to fund climate-smart programs.175 S T E P 4 : P RO M OT E O U T R E AC H , T R A I N I N G , A N D Improved access to long-term finance is especially important in tree crop CENTERS OF EXCELLENCE. cultivation, where replacing older trees with newer, higher-yield varieties Establish agribusiness centers to provide farmers with appropriate may lead to short-term revenue losses. A range of publicly supported technologies, training, and information. These centers of excellence can incentives, regulations, extension programs, and market access can be part of existing government agriculture extension services, or new unlock investment. entities established to help farmers to learn practices from one another, International investors also have concerns about foreign exchange rate and can also create economies of scale by aggregating, for example, risk when considering agribusiness investments in emerging markets. collection and storage from multiple farms. They also allow for the The Climate Finance Lab is piloting the Long-Term Foreign Exchange rapid spread of new ideas, technologies, and business models related Risk Management instrument, which will provide tools to address to climate-smart agriculture. The centers can partner with financial currency and interest rate risk for climate-smart agriculture projects in institutions to offer farmers inventory credit. In addition, governments developing countries.176 can facilitate climate information services—often via mobile phones— Warehouse receipts systems—whereby inventory credits can be written to help smallholder farmers and agribusiness better manage weather for inventory or products held in storage—are an effective way to enhance variability, particularly rainfall changes. To foster improved on-farm agricultural livelihoods and reduce post-harvest losses. When backed weather monitoring and reduce risk, governments can provide timely by appropriate policy frameworks,177 they allow stored produce to be weather information. used as collateral, and inventory credits can then be sold, traded, and Governments are attracting investment in climate-smart agriculture by used as financial instruments. This mobilizes credit to farmers, smooths engaging the private sector through partnerships and outreach efforts. out market prices, increases the market power of farmers (who can sell Private sector groups to be consulted include smallholder farmers, produce when they want), reduces agricultural risk, and reduces post- input suppliers, warehouse operators, buyers, traders, and international harvest losses as farmers seek out better storage conditions.178 IFC’s trading companies. In addition, domestic financial institutions can Global Warehouse Finance Program is extending this concept (Box 20). be educated on the business models for climate-smart agriculture to identify opportunities to increase investment. Dealers and other 48 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 1 9 Governments creating positive environments for investment in climate-smart agriculture 179 M O RO C C O ’ S P L A N V E RT C O LO M B I A ZAMBIA Morocco’s Green Plan (“Plan Vert”) is an integrated Colombia has focused on integrated landscape The Zambian government provides technological approach to providing incentives for climate-smart planning within a broader strategy for sustainable advice to farmers, supplemented by modest agriculture. It takes a dual approach to addressing agriculture and forestry. A mix of policies and support for producers to help them overcome water scarcity in its river basins. In irrigated areas, incentives has resulted in sustainable increases in the upfront costs of moving to sustainable land Plan Vert provides incentives for improving water livestock productivity by encouraging landscape- management practices in cropping and livestock. management and conservation and for integrating based mixed agriculture/forestry systems. The Five climate-smart techniques are being used: national value chains with international markets. objective is to introduce trees and improved pasture retaining crop residues; concentrating tillage and In rain-fed areas, it increases access to social in livestock grazing lands. This improves fodder and fertilizer application in a permanent grid of planting services and supports participatory natural resource shade, lowers heat stress for animals, and reduces basins or series of planting rows; completing land management initiatives. It also supports replacing soil degradation. Results have included increased preparation in the dry season; weeding aggressively arable crops with more drought-tolerant ones such meat and milk yields, improved water infiltration, to reduce plant competition; and intercropping/ as olive trees. Plan Vert is implemented through a increased bird populations, reduced methane rotating nitrogen-fixing legumes on 30 percent range of policy measures, and it receives support for emissions, and greater capture of carbon dioxide. of the cultivated area. While these practices are specific technical innovations. delivering significant benefits, barriers continue to prevent adoption—pointing to the continued need for training and institutions. Climate-Smart Agriculture 49 Climate finance innovations can also contribute to investment. Countries are working with international financial institutions and donors to explore how financiers in developing countries can partner with climate finance investors to further their investments in climate-smart agriculture. They are experimenting with blended finance (concessional or below market rates), innovative risk management tools (including credit scoring and the use of artificial intelligence), first loss and partial risk guarantees, new investment vehicles that meet the risk-return profile of different investors, and bonds.180 These efforts are helping to connect food companies, climate finance investors, and governments with domestic and international financial institutions, as many farmers and agribusinesses are willing to adopt new practices and technologies but lack the necessary capital to do so. Index-based insurance supports climate-smart agriculture by protecting lenders and providers of agricultural outreach products against weather events. Index-based, or parametric, insurance uses an independently developed index, typically weather-related for agricultural application, to predetermine payouts for clearly defined hazards. This ensures that claims are paid out quickly. Domestic policy is often needed to facilitate this type of insurance; governments can help by regulating index insurance under domestic law and supporting the needed data infrastructure (see Box 20). 50 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 0 Enabling access to finance for farmers T H E G LO B A L WA R E H O U S E F I N A N C E An early success has been in Burkina Faso. The by providing catastrophic risk transfer solutions and P RO G R A M H E L P S FA R M E R S I N A F R I C A agricultural sector employs 80 percent of Burkina index-based insurance in developing countries. It In 2017, IFC, together with the Global Agriculture and Faso’s active population, with cotton being the has facilitated more than 1.5 million contracts, with Food Security Program, invested $5 million in risk- most important crop. The sector is being negatively $151 million in sums insured, covering about 6 million sharing facilities with partner banks in Rwanda and affected by climate change, including higher average people, primarily in Sub-Saharan Africa, Asia, and Tanzania to finance farmer cooperatives. The money temperatures, more severe dry seasons, and Latin America and the Caribbean. enables farmers to buy higher-quality agricultural increased frequency of crop diseases. Recognizing Providing access to finance for the vulnerable, inputs, produce food crops, and provide working this, the government prioritized climate-smart insurance is an important tool to address poverty. capital for the aggregation and storage of harvested practices in its NDC. IFC and the World Food Unfortunately, agricultural insurance and disaster crops during the post-harvest period. Program have helped farmers to access finance to insurance are either unavailable or prohibitively increase production while conserving land by using The World Food Program arranges input supplies expensive in many developing countries. rain-fed water storage and climate-smart irrigation (including seeds, fertilizer, and crop protection) Index insurance is an innovative approach to techniques, which are expected to raise yields by and crop insurance. IFC is also providing advice to insurance provision that pays out benefits on up to 30 percent. The investment will also avoid farmers in partnership with World Food Program the basis of a predetermined index or loss of production losses through more efficient collection partners, including the Alliance for a Green assets and investments resulting from weather and storage. The project will result in a sustainable, Revolution in Africa. The project aims to benefit and catastrophic events, without requiring the more resilient supply of cotton to SOFITEX, the more than 65,000 local smallholder farmers to traditional services of insurance claims assessors. It country’s largest producer. increase their productivity through practices that also allows for the claims settlement process to be contribute to climate-smart agriculture. More quicker and more objective. Funded by the European T H E G LO B A L I N D E X I N S U R A N C E importantly, through this initiative, IFC will be Union, Germany, Japan, and the Netherlands, the FAC I L I T Y helping farmers access markets through the offtake Global Index Insurance Facility is managed by the The Global Index Insurance Facility (GIIF) is a World Bank Group as part of the Finance & Markets contracts from the World Food Program and other dedicated World Bank Group's program that Global Practice. platform partners. facilitates access to finance for smallholder farmers, www.ifc.org micro-entrepreneurs, and microfinance institutions Climate-Smart Agriculture 51 3.4 Initiatives, tools, and resources The Food and Agriculture Organization (FAO) is a specialized The Adaptation of African Agriculture (AAA) was started agency of the United Nations that leads international efforts to upstream of COP22 and aims to reduce the vulnerability of Africa defeat hunger. Climate-smart agriculture is one of the 11 corporate and its agriculture to climate change. areas for resource mobilization under the FAO’s strategic www.aaainitiative.org objectives; as such, FAO offers a variety of outlooks, data, and policy tools to countries seeking to advance solutions. The World Business Council for Sustainable Development's Low www.fao.org Carbon Technology Partnerships initiative (LCTPi) is a joint public and private initiative to accelerate low-carbon technology CGIAR is a strategic alliance of countries, international and development. CSA is one of the solutions that the WBCSD and regional organizations and private foundations that was its member companies have identified as critical to reach climate established in 1971 to disseminate the knowledge of agricultural stabilization. science to benefit developing countries. Its Research Program www.lcpti.wbcsd.org on Climate Change Agriculture and Food Security addresses the increasing challenge of global warming and declining food security Champions 12.3 is a coalition of executives from governments, on agricultural practices, policies and measures. businesses, international organizations, research institutions, www.cgiar.org farmer groups, and civil society dedicated to inspiring ambition, mobilizing action, and accelerating progress toward achieving The Global Alliance For Climate-Smart Agriculture (GACSA) Sustainable Development Goal Target 12.3 by 2030. is an inclusive, voluntary and action-oriented multi-stakeholder https://champions123.org platform on CSA hosted by the FAO. www.fao.org/gacsa/en/ The Climate-Smart Agriculture 101 guide provides a comprehensive set of recommendations, tools, and resources to The International Food Policy Research Institute (IFPRI) is help countries implement climate-smart agriculture. an international agricultural research center founded to improve https://csa.guide the understanding of national agricultural and food policies to promote the adoption of innovations in agricultural technology. The World Bank Group has developed a series of country-specific www.ifpri.org profiles and tools to advance climate-smart agriculture. http://www.worldbank.org/en/topic/climate-smart-agriculture The International Fund for Agriculture Development (IFAD) is an international financial institution and a specialized agency of The Global Cold Chain Alliance represents all major industries the United Nations dedicated to eradicating poverty and hunger in engaged in temperature-controlled logistics, and works to reduce the rural areas of the developing world. food waste and loss throughout the value chain. www.ifad.org www.gcca.org The World Food Programme is the food-assistance branch of the United Nations and the world's largest humanitarian organization addressing hunger and promoting food security. www1.wfp.org 52 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Green Buildings 53 Key indicators Green buildings Building energy investment was efficiency needs an $388 billion in 2015, additional $296 and green buildings billion a year to meet are at least a 3.4 trillion climate targets; the opportunity through biggest opportunities 2025. are in developing countries. ESCO markets were 86 countries target $24 billion globally energy-efficient in 2015. buildings in their NDCs. 54 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Green Buildings 55 Green Buildings 4.1 Summary in 2016 reached $406 billion, with an incremental investment of $133 billion, a 12 percent increase from 2015.184 Urbanization presents a large opportunity for green buildings. Today’s buildings generate 19 percent of energy-related greenhouse-gas Countries and cities must map out their own pathways. Understanding emissions and consume 40 percent of electricity globally. 181 By 2050, the local context is essential for identifying the appropriate policies, such the built environment is expected to double182 due to high population as improving building design, to create a market for green buildings. growth and urbanization trends. Most of this growth will occur A blend of regulatory, financial and voluntary interventions will address in emerging markets, particularly in middle-income countries. The risks and support greater investment. Voluntary green building rating adoption of resource-efficient “green” building practices offers a chance systems have paved the way for mandatory regulations by increasing to secure emission cuts at a low cost and lock in energy and water awareness among professionals, consumers, and policymakers. savings for decades. Examples from around the world show that financial incentives (such as Most of the growth in the global building market is expected to come low interest rate loans, tax reductions, and subsidies) and non-financial from developing countries, driven by growing populations, urbanization, incentives (such as expedited permitting and green certification) are and increased incomes. 183 The rapid growth in construction in these having a positive effect. These positive results can be reinforced by countries, along with the urgency of mitigating climate change, makes governments enforcing building codes, embedding energy-efficiency green buildings an important solution. In 2015, investment in green practices, and mandatory benchmarking of energy use. Businesses are buildings was mainly in Organisation for Economic Co-operation responding with new business models, such as green mortgages and and Development (OECD) countries—70 percent in the G7 countries energy service companies (ESCOs). As countries implement the buildings alone. But the building market is also growing in China and India, and demand-side efficiency targets in their NDCs, they can address some accounting for 19 percent and 2 percent of investment in green buildings of these issues (Table 4). respectively. IFC sees a $3.4 trillion green buildings investment opportunity through 4.2 Market snapshot and growth potential 2025 in key emerging markets, driven by policies, technology advances Resource-efficient building practices are helping economies move onto and increased awareness. Total investment in energy-efficient buildings a greener development path. Green building is the practice of creating and using more resource-efficient and environmentally friendly models 56 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 4 : N U M B E R O F C O U N T R I E S W I T H S U B S E C T O R I N C L U D E D I N T H E I R N D C Demand-side efficiency: Region Buildings Buildings East Asia and Pacific 11 3 Europe and Central Asia 8 2 Latin America and Caribbean 9 6 Middle East and North Africa 10 7 North America 1 0 South Asia 3 2 Sub-Saharan Africa 11 13 Total 53 33 (Source: World Bank, INDC Database; see indc.worldbank.org) of construction, renovation, operation, maintenance, and demolition. in building stock between 2014 and 2024; with China at over 40 Green construction offers a chance to secure emission cuts at a low cost percent of new buildings, followed by India at 8 percent. This creates and lock in energy and water savings for decades. While environmental an opportunity to create new markets for green buildings, driven by pressures are compelling reasons to build responsibly, green buildings the increased uptake of green practices, standards and technologies in create additional benefits. Operational savings quickly recover capital new construction. Among building types, the residential sector shows costs; renewable energies reduce infrastructure investment; innovative highest growth potential—this means that market creation efforts will products stimulate job creation; and reduced reliance on fossil fuels need to be tailored, given that codes and standards are easier to apply leads to energy security. to commercial buildings than more dispersed, smaller players in the residential construction market. About $388 billion of the $4.6 trillion spent on construction was invested in green buildings in 2015. Global investment in energy- M A R K E T O P P O RT U N I T I E S F O R G R E E N B U I L D I N G S efficient buildings in 2015 was $118 billion, up 9 percent from the previous year.185 Most of this investment was in developed countries, Expected growth in emerging markets creates a large opportunity as well as in China and India, which accounted for 19 percent and 2 for green buildings. The sector is expected to grow at 1.2 percent percent respectively. 186 annually, and most of this growth is expected in residential buildings in developing countries, particularly in Asia.187 IFC’s EDGE Program (See Markets for constructing buildings are expected to grow fastest in the Box 21) recently analyzed green buildings market growth and found a Asia-Pacific region, led by China. Figure 8 shows the expected growth Green Buildings 57 FIGURE 8: Medium-term market outlook for the building sector BUILDING STOCK BY GEOGRAPHY SHARE OF NEW CONSTRUCTION BY GEOGRAPHY SHARE OF NEW CONSTRUCTION BY BUILDING TYPE 4% 1% 4% 1% 172 Bn m2 5% 4% 0% 1% Total CAGR 2% Growth 3% 7% 151 Bn m 2 9% 2% (1.2%) 5% 3% 8% 5% 5% W. Europe 8% (0.4%) 14% 4% 44% 45% North 15% 4% America (0.9%) 20% 15% 21% Asia- Pacific 7% 7% (1.7%) 6% 10% Asia Pacific (46%) Asia Pacific (48%) 5% 27% 7% China 2% 8% 5% (2.1%) China Western Europe 29% Residential buildings (71%) Commercial buildings (29%) India Latin America 28% Multi-unit residential O ce Hotels & restaurants OECD (Asia Pacific) Eastern Europe Single family detached Retail Institutional/assembly Rest of Asia Pacific Middle East Education Warehouse 2014 2024 North America Africa Healthcare Transport Note: CAGR = compound annual growth rate (Source: Navigant Research (2015), Global Building Stock Database (Square Meters)188 $3.4 trillion investment opportunity through 2025 in 36 countries (see • The rest of Africa is expected to see high construction growth, Figure 9).189 Regional highlights include: particularly in residential buildings. While the green buildings market is nascent, South Africa, Kenya, and Ghana are establishing sizeable • In Latin America, green buildings markets are established in Brazil, markets. For the region, IFC found $4 billion in commercial green and are taking off in Argentina and Colombia, leading to a forecast of buildings potential and $13 billion in residential sector opportunities, $80 billion in green buildings opportunities through 2025, with for a total of $17 billion. $70 billion in residential and $10 billion in commercial construction. • South Asia is dominated by India, which is experiencing very high • In Eastern Europe, there is a contraction of the building stock, so construction rates. IFC conservatively estimates a $12 billion IFC’s analysis focused only on new buildings. Projected markets for commercial market and a $76 billion residential market through new green construction are at $42 billion through 2025, with 2025. $13 billion for commercial and $28 billion for residential buildings. • East Asia will be dominated by China, which is seeing high • In the Middle East and North Africa, IFC found $13 billion in construction growth as well as ambitious green building policies. opportunity in Egypt, Jordan and Morocco, split between the The total regional investment opportunity is over $3 trillion through commercial ($2 billion) and residential sector ($11 billion). 58 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 9: Emerging market green buildings potential Middle East Eastern Europe $13 billion opportunity in $40 billion opportunity in new 3 countries green build, more in retrofits South Asia conservative estimate of Latin America $90 billion opportunity $80 billion opportunity East Asia $3 trillion opportunity, Sub-Saharan Africa driven by Chinese market $16 billion opportunity (Source: IFC’s EDGE Program190; Map: World Bank) 2025, split between $726 billion for commercial and $2.4 trillion for International Energy Agency estimates that only 1 percent of the residential buildings. potential energy savings have been achieved in lighting.192 The United Nations Environment Programme estimates that there were still 7 billion Building envelopes make up the largest share of investments in green incandescent lights in use in 2016, providing huge growth potential for buildings. They constitute the physical barrier between the interior and energy-efficient lighting. Growing penetration of LEDs will continue to exterior of the building, where energy-efficient insulation, reflective reduce unit costs. coatings, windows, and doors can improve performance. Several cost-effective low-tech solutions and clever architectural designs are Energy-efficient heating, ventilation, and air conditioning are a $76 billion becoming increasingly popular. Examples include natural ventilation, global market. This amounted to nearly 28 percent of total investment in which reduces reliance on mechanical ventilation, and increased indoor energy-efficient buildings in 2015, with incremental investment of vegetation, which cools the building while reducing its carbon footprint. $27 billion.193 Demand in emerging markets for cooling is growing In developing countries, the biggest opportunity is in new buildings with rapidly from a small base: in India, for example, around 5 percent of green envelopes. 191 homes have air conditioning.194 District cooling195 is emerging as a way to provide centralized cooling to a large population, saving energy, reducing Falling prices of technologies like LED have resulted in a rise in costs, and improving efficiency. energy-saving lighting, but the market remains largely untapped. The Green Buildings 59 B OX 2 1 Green buildings market creation: A priority for IFC and the World Bank Group IFC’s Green Buildings Market Transformation 3. The identification of low-cost, high-return design Program helps to create a virtuous cycle of supply options through easy-to-use software that and demand for resource-efficient building design, Government encourages architects and engineers to choose construction and ownership. The aim is to set a regulations and the best design practices and solutions, combined metrics-driven definition of what constitutes a procurement with a fast, inexpensive certification system to green building, reward property developers for verify that the standard has been met. building green, increase regulatory pull, and promote 4. Direct investment in IFC’s own green buildings direct investment. Following is IFC’s strategy to portfolio, mobilization through its banking promote green building growth: partners, and support for new product 1. An enabling environment of Supporting development such as green mortgages, Investing in supportive government policies that new products green bonds and green construction raises the bar through increasingly for financial EDGE buildings and financing. EDGE can be used to streamline greener building codes. Governments materials eligibility procedures and the reporting institutions can provide the right mix of incentives needs of financial institutions as they move to the private sector and raise public towards green investment portfolios. awareness about the benefits of green building 5. A collection of evidence that building green is ownership. IFC offers expertise on government profitable for all parties in the ecosystem. This policy reform. can best be achieved through a network of global Edge 2. A metrics-driven definition through the EDGE champions and certification entities who support certification green building standard and scalable the verification, rewarding and collection of data system certification system that focuses on a minimum for proof of concept reporting. achievement of less energy, water and embodied www.edgebuildings.com energy in materials. The standard is verifiable and leads to demonstrated reductions in utility costs. 60 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 2 The energy efficiency of buildings could be improved by up to nearly 70 percent by enhancing building envelopes and using high-performance equipment.196 This requires coordination between national and local policies and across the entire value chain in the building sector. Policy measures will need to be complemented by investment in research and development and innovative business models. I N N O VAT I V E B U S I N E S S M O D E L S ESCOs have emerged as a key business model for improving energy efficiency in buildings. ESCOs improve energy efficiency in buildings through energy-savings projects. They typically invest in energy-efficient technologies for commercial buildings and earn royalties on the energy savings without owning the building. Generally, the energy savings that their interventions generate are used to pay back their investment, with the ESCO bearing the risk if energy savings do not materialize. Royalties EDGE certification in Ghana: and ownership of the energy-efficient upgrades are negotiated using energy performance contracts. The Exchange Complex ESCOs are particularly prominent in China, with Chinese ESCO Designed by Dar Al-Handasah and HOK Architects, The revenues at $13 billion, U.S. revenues at $6 billion, and European Exchange Complex was the first EDGE-certified hotel Union revenues at $3 billion in 2015. This made up the bulk of total complex in Ghana. Located close to Kotoka International global ESCO revenue, which totaled $24 billion that year. ESCO Airport, the project was financed and developed by UK revenues increased by 7 percent in both China and the United States in development finance institution CDC and private equity 2015. Income from energy performance contracts is exempt from tax fund Actis in partnership with Mabani Holdings. The 98,000 for the first three years in China, which has increased the feasibility square-meter development is currently under construction, of ESCOs. 197 In 2015, the Indian government launched Energy with an estimated completion date of July 2018. Efficiency Service Limited, the largest public ESCO in the world, The Exchange Complex features office and residential to initiate projects and help unlock the country’s energy-efficiency buildings, retail space and public outdoor space. The market, estimated at between $10 billion and $35 billion.198 The property includes an EDGE-certified Radisson Blu hotel, Una Jyoti by Affordable LEDs and Appliances for All program has underscoring the commitment of brand owner Carlson been instrumental in the growth of India’s LED market. As the ESCO Rezidor in promoting green buildings in Sub-Saharan market matures, the potential exists to expand such contracting and Africa. More than 100 of the apartments in the complex business models globally. will be EDGE-certified, with residents benefiting from a 28 percent reduction in monthly utility bills due to low-E coated glass, energy-saving lighting systems, low-flow plumbing fixtures and efficient air-conditioning systems. www.edgebuildings.com Green Buildings 61 FIGURE 10: Interventions based on type of housing TOWNSHIPS PRIVATE SECTOR LOW INCOME/SOCIAL RURAL & INFORMAL Green bonds, financial Incentives through financial PPPs, incentives/subsidies Access to low-cost support for sustainable institutions using products for green technologies (for materials, skills/capacity urban infrastructure, green such as green mortgages, example, solar heating and building, provision standards incorporated voluntary green buildings lighting), green building of power, water and in developers' guidelines, certification, regulations standards and training sewage infrastructure, policies and mandatory and green construction and capacity building for disaster protection and green building regulations finance for developers housing boards microfinance for low-cost materials/construction Number of homes Scale and type of housing (Source: IFC Analysis) 4.3 Creating markets for green buildings The sector is segmented by income and building types, and the type of players, opportunities and technology, policy, and market instruments A blend of regulatory, financial, and voluntary interventions will address needed to construct green buildings are markedly different depending barriers that prevent greater private investment in green buildings, on the location and type of building. When creating a market, it is including voluntary rating systems, building codes, tailored financial important to consider the different roles of the various stakeholders, incentives and greater action by utilities. including national and local government, utilities, and market players like builders and project developers. I M P O R TA N C E O F L O C A L C O N T E X T Countries or cities can map out their own policy pathways. The segmented nature of the building sector has hindered the Understanding the local context is essential for identifying the correct development of green buildings, especially in large developing countries. policies. For example, if the growth in new buildings is substantial, there 62 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 11: Creating a market for green buildings Markets for green buildings 1 2 3 4 CAPACITY/ ACTIONS FOR REGULATORY INCENTIVES AWARENESS UTILITIES BUILDING • Building codes • Tax incentives • Data collection • Advanced metering • Efficiency targets • Grants and rebates • Public awareness • Demand response efforts • Government • Revolving loan funds • Time-based tariffs procurement • Competition and • Tax-lien financing • Subsidies for efficiency awards • Appliance standards • Risk mitigation • Voluntary audits guarantees • Ratings and • Energy performance certification contract enablers • Workforce training • Direct technical assistance Green Buildings 63 BOX 23 IFC’s role in developing Jakarta’s building code Indonesia is one of the world’s largest greenhouse- Implementation of the code is expected to reduce gas emitters, with its building sector accounting for energy consumption in large commercial and high- more than a quarter of the country’s total energy rise residential buildings by between 17 percent and use in 2004—and this share is expected to rise to 36 percent, potentially cutting about 2.7 million nearly 40 percent in the next two decades. Jakarta’s tonnes of equivalent carbon dioxide per year by provincial government has set a target to reduce 2020. its greenhouse-gas emissions by 30 percent by To soften the impact of the increased first cost, 2020 and approached IFC to help it develop a green the government is considering financial and other building code. incentives. IFC is also setting up investment facilities The code sets energy and water-efficiency through other financial institutions to finance the requirements for large commercial and high-rise construction of new buildings meeting or exceeding residential buildings. It applies to both new and the green building code requirements. These facilities existing buildings, but with different requirements. could finance construction loans for developers as Compliance with the code is mandatory and well as “green mortgages” for buyers. integrated into the building permit application www.ifc.org process for this particular property market segment. 64 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report is greater room for policies on making new buildings green as opposed policies in place.205 Such policies have been aided by the dramatic to policies on retrofitting. Central mandates such as building codes decline in LED bulb prices.206 may be effective for offices and urban townships, but are likely to be Energy performance labels compare electricity and water use against expensive and ineffective for informal housing, where local solutions a national or local benchmark to encourage property owners to adopt could be implemented. Identifying simple, low-cost measures to promote green technologies or retrofits. Efficiency standards and labeling for green building, such as improving the design of building envelopes, appliances now operate in more than 80 countries, covering more than could be a cost-effective way to encourage growth in the market. 50 different types of appliances and equipment in the commercial, Policy and market interventions should be targeted to the local situation industrial, and residential sectors.207 India introduced energy-efficiency and reflect input from key stakeholders. Opportunities to increase labeling in 2006 for air-conditioning units. The market share of five-star “green” elements exist at each stage of a building’s life. Policies play an products increased from 1 percent in 2008 to 21 percent in 2014 as important role in aligning various stakeholders’ interests. consumers switched to more efficient products.208 S T E P 1 : D E V E L O P R E G U L AT O RY T O O L S . S T E P 2 : B U I L D C A PA C I T Y A N D A W A R E N E S S . Regulatory tools can be a mixture of building codes, efficiency Lack of reliable data and awareness about energy efficiency and green improvement targets, and minimum energy performance standards for building can hinder the design of successful policies and efforts to lighting and appliances. create a viable market. Availability and transparency of data on energy consumption in buildings can enable owners, operators, and tenants to Building codes can be an effective way to increase a building’s energy make informed energy management decisions and aid in better policy efficiency.199 Codes and standards can set minimum thresholds for and program design. Voluntary audits can identify the technologies energy performance for new or existing buildings. These often require and building structures that drive energy consumption and suggest certification or have equivalent standards to certification programs. improvements. For example, the European Union will require that all new buildings be nearly zero energy from 2021 onwards.200 In India, the adoption Development of green building benchmarks can be accelerated through of building energy codes is increasing, with 23 of 36 Indian states and ratings and certification programs. These programs help organize territories having either adopted (or are in the process of adopting) building data into a standardized format that can be used to develop the country’s Energy Conservation Building Code. 201 Building codes a building benchmarking scheme, which is crucial for differentiating can be implemented both at the national and subnational level, can be buildings in the real estate market. Competitive awards for building mandatory or voluntary, and must be tailored to local conditions. The developers could spur the development of benchmarks by rewarding national or provincial government usually sets the code, while local best performers. Singapore’s Green Market Certification Scheme and governments are responsible for adapting and implementing them. the Green Market Award have been instrumental in the Building and Construction Authority’s push to develop a benchmark and green Minimum energy performance standards can shift producer and building master plan. consumer behavior towards energy-efficient technologies. Lighting is a relatively simple product that makes up a large share of energy use, and Green building certifications positively influence decisions to buy real so is often one of the first technologies targeted, with several countries, estate. There is a high demand among buyers for green buildings as they including Brazil, the Philippines, and Venezuela, aiming to phase out may benefit from utility bills that are up to 20 percent lower. Green incandescent lightbulbs.202,203,204 By 2012, 33 countries had lighting buildings also tend to have a higher resale value. In the United States Green Buildings 65 TA B L E 6 : E X A M P L E S O F F I N A N C I A L I N C E N T I V E S Energy-efficiency loan guarantees in Bulgaria209 Green Mark incentive scheme, Singapore210 Instituted with the help of the World Bank and the Global Environment This scheme includes a cash incentive for upgrading and retrofitting that Fund, the Energy Efficiency and Renewable Sources Fund (EERSF) provides co-funds up to 50 percent (capped at $3 million) of the costs of installation loans at interest rates of between 5 to 10 percent for up to seven years. of energy-efficient equipment and professional services in existing A minimum equity investment of between 10 and 25 percent is required buildings. It also has an energy audit to determine the efficiency of the air- from project developers, depending on the proposed financing model. The conditioning plants. The Singapore Building and Construction Authority EERSF has also developed a portfolio guarantee for ESCOs that can cover funds 50 percent of the cost for conducting the energy audit. up to 5 percent of potential defaults. Tax incentives fro building energy-efficiency investment in Building retrofit program, Seoul212 Moscow211 Through the Building Retrofit Program, the Seoul Metropolitan Russian taxpayers are entitled to a three-year exemption on corporate Government provides low-interest loans to buildings and ESCOs to reduce property tax for newly introduced energy-efficient systems such as air costs. The Seoul government offers eight-year loans at an annual interest conditioners, elevators, and computer technology. For tax purposes, rate of 1.75 percent for up to $1.87 million for each project. investments in energy-efficient equipment can also qualify for accelerated depreciation at twice the standard rate. Thailand's Encon revolving loan fund213 Free energy efficiency retrofit program for low-income The Thai government introduced the Encon Revolving Loan Fund to families in Houston214 enhance investment in energy-efficiency measures buildings. It was The city partnered with electricity distribution company CenterPoint to financed by a levy of $0.001/liter on petroleum products and provides offer free energy-efficiency retrofits to low-income families. The utility low-interest loans to energy-efficiency projects, including ESCOs. hired contractors to do the work, leading to cost savings for families. Qualiverde Program in Rio de Janeiro215 Under the Qualiverde Program, projects with the certification are eligible to receive tax incentives, property tax reductions, or exemptions from some local building regulations. (Source: IFC, WRI Ross Centre for Sustainable Cities) 66 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 4 and the European Union, green certified homes can sell for between 4 percent and 9 percent more.216 Green certification can also make buildings eligible for lower interest rates and tax rebates or exemptions. Direct technical assistance can help build expertise in policy development, legal and governance frameworks, and implementation and evaluation of projects. Accreditation systems of building professionals, accredited training institutions for the construction labor force, licensing and verifying the credentials of building professionals, quality control processes for building materials, professional codes of practice, and other locally meaningful regulatory packages can help ensure compliance with building codes. For example, the National University of Singapore provides formal training in energy management through its Singapore Certified Energy Manager Program. Singapore also has an accreditation scheme for ESCOs to enhance services. Governments can use public sector construction to develop experience in green building through direct technical assistance and workforce training. Projects to construct green buildings help increase the skills of people involved in the project and, once complete, the buildings can be used to showcase green technologies to architects and the public. Governments can also use these building projects to dispel financial concerns by making the capital and operating costs publicly available. Customer preferences can also be shifted through education and Punjab National Bank Green awareness programs. Lighting can be an easy win, because energy- Construction Bond efficient technologies often have the lowest lifetime cost. China’s Green Lights Program includes disseminating information about efficient As part of its Eco-Cities Program for India, IFC invested lighting through mass media outlets and displaying their products to nearly $76 million in green bonds issued by Punjab familiarize shoppers with energy-efficient options. National Bank to help construct green residential buildings. The bank, which is one of India’s largest S T E P 3 : P R O V I D E TA R G E T E D I N C E N T I V E S . housing finance companies, uses the funds to finance residential projects based on recognized green building Low interest rate loans from government can support investment. standards, including EDGE. The bank’s green bond is the Such schemes have been introduced in Austria, Germany, Japan, the first issuance designated to green buildings in India and Netherlands, South Korea, and Switzerland.217 In Lebanon, the Central IFC is the sole investor. The investment helps the bank to Bank, supported by the European Union, provides subsidized loans to develop a committed green lending practice and grow its small businesses that want to invest in saving energy.218 A €14 million green loan portfolio. grant from the European Union unlocked $128 million in investment, www.ifc.org Green Buildings 67 the majority of which went into green buildings.219 Risk mitigation Direct financial assistance like utility public benefit funds and on-bill guarantees can help lower the cost of investing in green buildings and financing can help investment in energy efficiency in buildings. Utilities energy-efficient technologies. could include a small, additional cost to the utility bill that is used to finance energy-efficiency projects. More sophisticated programs like Grants and subsidies for green building projects, green retrofits, and on-bill financing can help individuals repay their investment in energy ESCO business models are effective in fostering investment. China offers efficiency on their utility bills. Mexico, for example, has a program that a 30,000 yuan reward for buildings with a three-star certification or a allows individuals to repay their energy-efficient refrigerator through subsidy of 45 yuan per square meter for a two-star certified building. their electricity bill. The program is set up so that households should Chinese subsidies for ESCOs have resulted in energy savings and the save more on energy each month from the refrigerator than they pay to reduction of over 130 million tons of carbon dioxide per year.220 repay the loan.223 Tax incentives continue to serve as a primary motivator for investors in Utilities can also encourage the market for ESCOs to take off through green building. In China, income from energy performance contracts is partnerships or by providing financial rebates for energy-efficiency tax exempt for the first three years and then has a reduced rate for three measures. Since 1990, ESCOs have delivered $30 billion in infrastructure years.221 In the United States, property and corporate tax reductions improvements for greater energy efficiency in the United States alone. have encouraged private investment.222 About one-third of ESCO projects in the public and institutional sectors, S T E P 4 : E N C O U R A G E U T I L I T I E S T O TA K E A C T I O N . which make up 80 percent of all projects, used utility rebates that provided roughly 16 percent of the total project cost.224 Utilities enhance the energy efficiency of buildings, especially in urban areas. As service providers for energy and water, they have direct I N N O VAT I V E F I N A N C I N G M O D E L S relationships with consumers and can collect energy and resource usage In addition to the various forms of financial incentives discussed, data, which are crucial in making buildings more efficient. They can also instruments such as green construction bonds, green mortgages, and enhance building efficiency by controlling resource use through pricing green mortgage-backed securities could be used. and tariff mechanisms. The green bond market is maturing and emerging as a potential Revenue decoupling shifts utility behavior from a focus on sales to a source of financing in the real estate market (see final section of this focus on service provision. It involves disassociating a utility’s profit report). Projects qualifying as green could range from new buildings to from its sales and instituting a variable rate of return to meet revenue retrofitting and refinancing existing buildings.225 Building rating systems targets. According to the Center for Climate and Energy Solutions, 14 such as Leadership in Energy and Environmental Design, Building states in the United States have implemented revenue decoupling for Research Establishment Environmental Assessment Method, or IFC’s electric and gas utilities. EDGE could be used to assess the eligibility of green projects. Modulating tariffs through measures like time-based tariffs can Financial instruments geared towards individuals offer promise. Possible help change consumption habits, especially for large consumers. instruments include home improvement loan instruments like the Utilities can further encourage these tariffs by investing in smart grid energy-efficient mortgage or green mortgages, green rewards, green infrastructure such as advanced metering and demand response. It building insurance, and a green building certification pricing break. could also encourage the market of ESCOs and demand response Green mortgages allow users to finance the incorporation of energy- companies to evolve. efficient technologies and designs into existing or new buildings through a reduced utility bill. 68 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report As the green debt market matures, green mortgage securities are emerging. The underlying assets are mortgages, loans, and other debt instruments. In 2016, Obvion, a wholly owned subsidiary of Rabobank in the Netherlands, issued the first green residential mortgage-backed securities, backed by residential loans on new and retrofitted energy- efficient houses.226 Financial innovations are also targeting green refurbishment and affordable housing. For example, the Low Carbon Workplace Fund finances the refurbishment of existing buildings. The fund is a partnership between the Carbon Trust, fund manager Columbia Threadneedle Investments and property developer Stanhope. The business model revolves around acquiring of commercial office buildings and refurbishing them to high energy-efficiency standards, before leasing them to commercial tenants. Further, Carbon Trust encourages the occupiers to minimize their energy consumption and carbon emissions by ensuring support for day-to-day performance. The fund has invested in eight properties valued at over £200 million.227 Another innovative financial solution targets impact investors for affordable housing. IFC client International Housing Solutions has successfully blended catalytic and commercial capital to build demand for low-cost green homes in South Africa. By including such technologies as solar PV and smart meters, it has achieved EDGE certification for thousands of its new properties, enabling the real estate investment management company to measure and market the benefits of its green residential portfolio.228 Outreach initiatives are also helping accelerate the development of a global asset class for energy-efficiency investment in buildings. The Investor Confidence Project, developed by the Environmental Defense Fund is helping to accelerate the development of a global market by standardizing the way in which energy-efficiency projects and energy savings are calculated and measured. The project develops consensus frameworks in the United States and in Europe to provide a foundation for consistent, predictable, and reliable energy-savings outcomes. Standardization is expected to increase deal flow and reduce transaction costs.229 Green Buildings 69 4.4 Initiatives, tools, and resources The World Green Building Council is a coalition of green building councils from around the world with membership from organizations in 80 countries. It also represents over 30,000 property and construction companies. www.worldgbc.org The Green Building Performance Network (GBPN) was founded in 2010 with the mandate to advance knowledge and expertise globally on building energy performance and the structure to achieve it. It works with regional research partners in the United States, Europe, China and India. www.gbpn.org The International Energy Agency (IEA) works to ensure reliable, affordable and clean energy for its 29 member countries and beyond, and has a wealth of data, policy perspectives, technology roadmaps and outlook reports on energy efficiency in buildings. www.iea.org The WRI Ross Center for Sustainable Cities is the cities and urban development research arm of the World Resources Institute. Within the Ross Center, the Building Efficiency Initiative focuses on the building sector and efficient urban development. www.wrirosscities.org The UNEP Sustainable Buildings and Climate Initiative (UNEP-SBCI) is a partnership of major public and private sector stakeholders in the building sector working to promote sustainable building policies and practices. www.staging.unep.org/sbci The Global Alliance for Buildings and Construction (Global ABC) was launched at COP21 with the aim of fostering the development of appropriate policies for sustainable energy- efficient buildings, which allows a concrete value chain transformation of the sector. www.globalabc.org 70 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Transport and Logistics 71 Key indicators The next decade will Over 200 global cities see trillions invested are using BRT systems in road, rail, port and for greener transport, airport infrastructure; operating 450 corridors the Asia-Pacific region along more than alone presents an 5,600 kilometers. $8 trillion investment opportunity. Over 750,000 EVs Over 80 countries were sold in 2016, targeted transport in making a $163 billion their NDCs. market. 72 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Transport and Logistics 73 Climate-Smart Urban Transport and Logistics 5.1 Summary more than 750,000 of them were sold in 2016 alone.233 Governments are setting up mandates to accelerate the deployment of electric vehicles. The next decade will see trillions of dollars invested in transport infrastructure. Regionally, total investment in road, rail, port, and airport Governments are adopting an avoid-shift-improve strategy to address infrastructure between 2016 and 2025 will be led by the Asia Pacific the barriers to low-carbon urban transport. Avoid measures involve (driven by China) at more than $8 trillion, with $5 trillion in roads and reducing the need for commuting through urban planning, land-use about $2.3 trillion in rail. 230 Investment in transport infrastructure is efficiency, and transit-oriented development strategies. Shift instruments expected to grow at an average annual rate of 5 percent, from improve trip efficiency and encourage a shift towards public transport, $557 billion per year in 2014 to $900 billion per year by 2025. 231 Sub- biking, and walking. Improve strategies enhance vehicle technology, fuel Saharan Africa will have the fastest average annual growth rate of over efficiency, and transport infrastructure. 11 percent, while Western Europe’s growth rate is expected to decline. Clean air, reduced traffic congestion and resilient infrastructure are a There are many private investment opportunities in transport. BRT major government focus; NDCs and local policies aim to deliver these and light rail systems require infrastructure that is often financed and solutions via investment in cleaner transport. Targeted policies are operated by the private sector. Cities and mayoral initiatives are at the encouraging climate-smart transport investments, growing markets, and forefront of greening urban transport and attracting private investment. enabling private sector involvement. This is set to continue, with over Transport accounts for about 18 percent of total human-caused 80 countries identifying the transport sector as an area of focus in their greenhouse emissions. BRT is proving to be an attractive low-carbon NDCs (see Table 7). option, especially in Latin America. Rail and light rail is also a highly efficient low-carbon way of moving people in cities. 5.2 Market snapshot and growth potential Tighter fuel efficiency standards, biofuel blending, and electric and plug- Rapid urbanization in emerging markets presents transport challenges in hybrid electric vehicles are driving decarbonization and saving money. and opportunities. By 2050, an additional 2.5 billion people are Doubling vehicle efficiency and enabling fuel switching for vehicles expected to live to in urban areas.234 According to the International with internal combustion engines could save $8 trillion cumulatively by Transport Forum’s Transport Outlook 2017, global demand for urban 2050.232 Electric vehicles already represent a $163 billion market and mobility will be 95 percent higher in 2050 than in 2015, with a 185 percent increase in non-OECD countries. Global road freight 74 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 7 : N U M B E R O F C O U N T R I E S W I T H S U B S E C T O R I N C L U D E D I N T H E I R N D C Transportation Infrastructure infrastructure Vehicle fleet Transport: Transport and roads transport transport planning General Urban Public BRT Region East Asia and Pacific 18 5 10 6 4 3 2 1 Europe and Central Asia 8 2 3 4 3 1 Latin America and Caribbean 15 1 7 12 4 1 2 Middle East and North Africa 8 4 6 2 1 2 North America 1 South Asia 6 2 3 4 3 1 1 Sub-Saharan Africa 24 2 12 9 8 9 1 6 Western Europe 2 1 Total 82 10 39 40 25 17 6 11 (Source: World Bank, INDC Database; see indc.worldbank.org) activity is also expected to more than double between 2016 and 2050. T E C H N O LO G Y T R E N D S A N D M A R K E T Emerging market countries, particularly China and India, account for O P P O RT U N I T I E S 90 percent of that increase.235 Fuel economy standards continue to drive vehicle efficiency. According Making urban transportation and logistics sustainable will require to the Global Fuel Economy Initiative, the average fuel economy of light new thinking around urban design, infrastructure investment, energy- duty vehicles entering the market between 2005 and 2015 has shown efficiency technology, and business models. Figure 12 illustrates strong improvement globally. Turkey made the most progress, followed that most developing country cities will require efficient cars and by the United Kingdom and Japan.236 These improvements have been new technologies, as well as new investment in public transport driven by fuel economy standards and technology enhancements. infrastructure. Businesses are already responding with mobility and However, new light vehicles entering emerging markets were less logistics solutions that reduce trip lengths, reduce carbon emissions, and efficient than those entering industrialized countries. This presents an enhance non-motorized transport options. opportunity to improve fleet efficiency in developing countries and drive significant new investment. Climate-Smart Urban Transport and Logistics 75 FIGURE 12: Type of cities and potential change in urban mobility HIGH Rising megacities Established megacities Walking and biking New mobility services Individual car ownership Public transit Population density High growth potential Car-dominated mature cities Mature advanced cities Strong decline potential Gradual growth Gradual decline Limited change LOW DEVELOPING ADVANCED Quality of public transport (Source: McKinsey)237 Electric vehicle sales are growing rapidly, led by China. Electric the developed world; Norway leads with a 29 percent market share, vehicle markets are growing faster than anticipated. In 2016, annual followed by the Netherlands with more than 6 percent, and Sweden sales grew by 40 percent year-on-year to reach 750,000. Today, the with over 3 percent. China, France, and the United Kingdom have a total global stock of electric vehicles exceeds 2 million. Annual sales collective market share of nearly 2 percent.240 in China reached over 330,000, followed by 160,000 in the United More countries are encouraging electrification of passenger cars. Electric States, 215,000 across Europe, and most of the remainder in Japan and vehicle markets are expected to accelerate as a result of government Canada.238 About 60 percent of these sales were battery electric vehicles, mandates, low-cost battery manufacturing, and investments in charging with plug-in hybrid electric vehicles making up the balance. China also infrastructure. Norway aims for all of its new car sales to be electric leads in the electrification of other modes, with 200 million electric by 2025, and is using a 25 percent VAT exemption to help achieve two-wheelers, up to 4 million low-speed electric vehicles, and more than this goal.241 France also recently announced that it would end sales of 300,000 electric buses.239 Market penetration remains concentrated in gasoline-based vehicles by 2040. But electric vehicle ambitions are not 76 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 5 limited to advanced economies. India recently announced that it will only sell electric vehicles by 2030, and is working on a plan to achieve this target. Auto manufacturers are responding to these goals. Volvo expects to build only electric or hybrid cars by 2019.242 The top 10 manufacturers with electric car ambitions aim to sell between 9 million and 20 million units by 2020. The International Energy Agency243 estimates that there could be between 40 million and 70 million electric vehicles on the road by 2025. Accelerating electric vehicle production at this rate will require significant new battery manufacturing capacity, equivalent to about 10 new Tesla-style “gigafactories.”244 Batteries have historically been a cost- limiting factor for electric vehicles, but investment in battery technology has led to a 65 percent drop in the cost of lithium-ion batteries since 2010.245 The rapid growth in public charging stations—increasing by 72 percent in 2016 to 320,000 globally—is helping address concerns regarding the distances electric vehicles can travel.246 As a result, cities The city of Buenos Aires is creating are increasingly investing in buses and other electric transit solutions. markets for climate-smart transport Electric vehicles also have a role to play in freight transport. Last-mile and buildings freight transport tends to be the most inefficient leg of the journey, but, especially with the rise of online shopping, demand is growing Buenos Aires accounts for nearly half of Argentina’s significantly. Electric light duty trucks can significantly reduce air GDP and hosts six million passengers traveling through and noise pollution, which could enable night-time deliveries and the city each business day. The city has embarked on decongest streets.247 an ambitious $400 million transportation plan to boost urban connectivity, decrease congestion, and ease BRT is a popular way to rapidly decarbonize intra-city public transport. pollution by reducing the use of cars. With support from BRT has the largest ridership in Latin America, with more than 20 million a $50 million IFC loan, the city is building a new passengers a day, followed by Asia at about 9 million passengers a day.248 3.5 kilometer BRT line connecting Paseo Colon to Avenida Europe’s BRT systems carry about 2 million passengers a day, with Alem, one of the busiest traffic corridors in Buenos Aires, Oceania and Africa each carrying about 420,000 people daily. Brazilians as well as bus interconnection terminals. IFC funds are use BRT the most, with nearly 12 million passengers per day across 33 also being used to create 88 new bike-sharing stations cities using 124 BRT corridors. In total, 205 cities have a BRT system, and add 33 kilometers of dedicated bike lanes. IFC is also operating 450 corridors along more than 5,600 kilometers of road. advising the city to promote green buildings standards Light rail transit has growing private sector interest. Light rail transit and improve solid waste management, transport systems includes light rail, tram, monorail, metrorail, subway, airport rail links, and energy efficiency in public buildings. and other forms of passenger trains. It can be the backbone of a city’s www.ifc.org Climate-Smart Urban Transport and Logistics 77 B OX 2 6 public transit system, facilitate radial access to a city’s downtown center, and complement other modes of public and private transport to manage high-capacity routes. Globally, light rail systems carry up to 45 million passengers daily. Many systems are being planned and built in the Middle East, North Africa, and Asia, and are being considered in Latin America as a complement to the BRT system. Nearly 400 cities around the world have a light rail system, operating 2,300 lines along 15,600 kilometers. In 2015, 850 kilometers of new track were under construction, with a further 2,350 kilometers in planning.249 Green logistics can help reduce emissions from trucks, which generate over 40 percent of transport sector emissions in Africa, China, India, and Latin America.250 The global logistics market is projected to reach $2.2 trillion by 2022, with the Asia-Pacific region accounting for 34 percent of revenue.251 Creating markets for light rail in Beyond fuel efficiency standards, green logistics can reduce emissions significantly by restructuring supply chains, replacing a mode of transport Izmir, Turkey with another to make the first less congested, improving vehicle use and Izmir, Turkey’s third largest city and its main port on energy efficiency, and decarbonizing the energy mix.252 the Aegean Sea, is a vibrant city with nearly 4 million inhabitants. In 2015, IFC and the Multilateral Investment I N N O VAT I V E B U S I N E S S M O D E L S Guarantee Agency helped finance an extension of Izmir’s Ride-sharing platforms like Uber and Lyft have dramatically changed light rail network. IFC provided a €12 million loan and personal transport. Ride sharing has a large market in major developing mobilized another €23.5 million through the Multilateral countries. Didi-Chuxing in China and Ola in India are among the Investment Guarantee Agency’s role as guarantor of a top five ride-sharing companies in the world. Car-sharing business parallel loan provided by ING Bank. Other lenders include models are attracting interest from car manufacturers and technology the French Agency for Development and the European companies. BMW’s DriveNow and Daimler’s Car2Go are helping reduce Bank for Reconstruction and Development. the need for vehicle ownership. The finance package, nearly €72 million in total, will Smart new forms of transport, such as shared mobility and autonomous support Izmir Metropolitan Municipality’s work to vehicles, are potentially revolutionary investment markets. Self-driving increase metro ridership through the acquisition of vehicles provided a market worth $30 billion in revenue in 2014. This 85 light rail transit vehicles, adding capacity as new is set to swell to $250 billion by 2030.253 Autonomous vehicles are stations are opened. IFC previously invested €55 million likely to be particularly compatible with another innovative trend: and coordinated a further €110 million for two urban the use of shared taxis and taxi buses (either manned or autonomous) tram lines in March 2014. The Multilateral Investment offering door-to-door shared transport.254 These systems, led by the Guarantee Agency issued more than €66 million in private sector, could significantly reduce emissions at a low cost, even guarantees to the commercial lenders on this project. with the current reliance on internal combustion engine vehicles, and www.ifc.org are compatible with low-emissions alternatives such as electric vehicles. 78 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 7 But bringing this technology to emerging markets could be hindered by infrastructural and regulatory constraints. The sharing economy is now being used to improve the fleet efficiency of freight transport. Uber started a freight business recently and is already drawing competitor start-ups like Doft and Convoy. In emerging markets, where freight efficiency improvement has huge potential, start-ups like Huochebang in China and BlackBuck in India are leading the way in streamlining and maximizing fleet efficiency (see Box 27). As fewer vehicles are needed with these smart shared mobility systems, investment opportunities are likely to shift to smaller-scale, specialized vehicle manufacturing and services and enabling infrastructure.255 5.3 Creating markets for climate-smart urban transport Policymakers are approaching climate-smart urban transport through a variety of means. At regional and national levels, the electric vehicle market is being driven by mandates, initiatives, and related policies. Municipal transit plans help policymakers evaluate and compare Uber for trucks: IFC’s investment in public transit modes such as BRT and light rail. Their development, Huochebang and BlackBuck construction, and operation are being cost-effectively delivered through IFC Venture Capital recently invested in two start-ups in PPPs that unlock commercial finance and expertise. e-logistics—Huochebang in China in 2016 and BlackBuck in Given the expected growth in vehicle ownership, technology alone will India in 2017. Huochebang has developed an online platform not address the expected growth in greenhouse-gas emissions from that connects and coordinates truckers, shippers, and transport. Investment in road infrastructure is needed and continues service centers. It reduces empty miles and waiting times to attract private investment through PPPs (see Box 28). Continued between loads, making shipping more environmentally reliance on traditional modes of mobility will exacerbate congestion and friendly. At the end of 2016, it was working with 2.3 million urban sprawl, despite growth in road access. As a result, NDC targets truckers and 350,000 shippers across about 1,000 service are less focused on road infrastructure and more on vehicle fleets, public centers in more than 360 Chinese cities. A China Daily transport, and fuel. article reported that the Huochebang handles as much as To address risks and barriers preventing greater private investment in 100,000 orders and processes up to $120 million in shipping low-carbon transport, policymakers can adopt an avoid-shift-improve fees every day.256 Similarly, BlackBuck in India operates an strategy—a holistic and system-wide urban mobility solution. They can online marketplace to connect shippers to truckers seeking also invest in PPPs and use tailored financing solutions. work, while maximizing the load carried by the trucks. It works with more than 100,000 trucks across 300 locations. www.ifc.org Climate-Smart Urban Transport and Logistics 79 FIGURE 13: Creating markets for climate-smart urban transport SHIFT IMPROVE AVOID (Shift to more (Improve efficiency (Reduce or avoid the environmentally and vehicle need to travel) friendly modes) technology) PASSENGER VEHICLES PASSENGER VEHICLES PASSENGER VEHICLES • Urban design • BRT and metro PPPs • Progressive fuel economy/ emissions standards • Bike and walking lanes • Travel demand management • Differentiated taxes or • PPPs rebates • Fiscal measures— congestion and parking • Electric vehicles pricing • Investment in research and • Regulated zero-emission development zones • Automation • Removal of fossil-fuel subsidies FREIGHT FREIGHT FREIGHT • Urban consolidation • Rail development • Fuel economy standards centers • Electrification for rail • Optimized routing • High-capacity vehicles • Improved vehicle use • Differentiated taxes • Backhauling • Last-mile efficiency 80 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 2 8 S T E P 1 : “A V O I D ” — R E D U C E T H E N E E D F O R U R B A N COMMUTING. Focus on system efficiency and reduce the need for urban commuting through smart urban planning, land-use efficiency, and transport demand management. Transport investments and metropolitan land-use management that lead to concentrated development around mass transit corridors is not easy to accomplish but is very much in the interest of cities. City planners and designers in newer, evolving cities in emerging markets can develop compact, transit-oriented cities that encourage people to walk (see Box 29). Other measures could include enabling increased access to information and communications technology for teleworking. In the context of freight, the avoid strategy can take the form of urban consolidation centers, which are logistics facilities relatively close to the geographical area of consumption. Governments can incentivize the creation of these centers through tax rebates or by subsidizing their operational costs. Urban consolidation centers have had mixed results and a careful study of underlying market realities is needed before Transport PPPs: encouraging such investments. Manila Light Rail Extension STEP 2: SHIFT—MOVE FROM PERSONAL Manila’s Light Rail Transit Line 1 has been an integral part V E H I C L E S T O O T H E R M O D E S O F T R A N S P O R T. of the urban transport system for 30 years. However, Improve trip efficiency by moving from personal vehicles to public transport, years of underspending on maintenance has deteriorated biking, and walking. Paris, for example, adopted an urban mobility plan the system, reduced the available train fleet, and raised in 1998 that included mass transit, parking, and traffic management. The safety concerns. Population growth and urban sprawl plan later included dedicated bus lanes, a bike-sharing program (Vélib’), and also meant that the line needed to be extended to an electric-car-sharing program (Autolib’). Driving in Paris fell 24 percent new communities to help more people commute to between 2001 and 2010, while regional rail into the city increased by nearly jobs in the city and remove cars from the road. With 30 percent, metro trips rose by 18 percent, and bus travel increased by IFC advisory assistance, the Philippine government has 10 percent.257 IFC’s engagement with Buenos Aires is taking a similar secured a PPP for the operation and maintenance of Line system-wide approach to improving urban transit (see Box 25). 1 and the construction and operation of the 12-kilometer Cavite extension. Once complete, the project is expected Encouraging ride sharing to complement public transit can reduce to benefit more than one million daily passengers, yield vehicle ownership. Ride sharing is mostly initiated by entrepreneurs, over $310 million in fiscal benefits, and reduce carbon but governments can encourage these initiatives through monetary dioxide emissions by 40,000 tons per year (equivalent to and non-monetary incentives. Monetary support for the initial and taking 8,500 cars off the road). operational stages, which can take the form of direct aid or tax relief, www.ifc.org Climate-Smart Urban Transport and Logistics 81 B OX 2 9 can help address some of the early-stage risks involved. Government can also directly fund pilot projects.259 For example, Hangzhou in China initiated a successful system of public bike sharing in 2008, which helped demonstrate the viability of the model for other Chinese cities. Non-monetary measures could include integrated transport planning, conducive parking policies, incentives for sharing rather than owning cars, and raising political and public awareness. Government action can take the form of direct investment in infrastructure like the public metro, BRT, or light rail through public funding or PPPs. Removing fossil-fuel subsidies, implementing a congestion tax, and introducing zero-emission zones could encourage people to change the way they commute. Building biking and walking lanes could also help in this regard. STEP 3: IMPROVE—UPGRADE AND OPTIMIZE T E C H N O LO G Y A N D I N F R A S T R U C T U R E . Enable vehicle .technology, improve fuel efficiency and optimize transport infrastructure. Policymakers can encourage people and vehicle manufacturers to improve vehicle efficiency and technologies, by, for example, promoting alternative fuel vehicles with incentives, improving fuel economy standards, and reducing speed limits. As the developed world moves to electrification, automation, and shared mobility for A city for pedestrians in Tianfu transport, developing countries have the opportunity to adopt new technologies and business models too. While vehicle automation remains District Great City, China challenging, electrification has emerged as a viable option for cities in Transit-oriented development creates compact, developing countries. walkable mixed-use areas around high-quality public Fuel standards can directly improve efficiency and reduce costs, transport. Tianfu District Great City in southwest China especially for urban freight, where fuel remains the largest contributor has used this model to reduce greenhouse emissions to trucking costs. In Ethiopia, the use of Euro II fuels excludes the and congestion, and enhance livability. It is building a possibility of importing older trucks from Europe or the United States, new satellite city near Chengdu for 80,000 people. The which means it has a newer and more fuel-efficient fleet than some streets are designed so that any location can be reached of its neighboring countries.260 Fuel-blending mandates and targets, in 15 minutes on foot. Motorized vehicles will be allowed particularly for biodiesel, are an effective way to encourage freight on half the roads; the rest are for walkers and cyclists. efficiency. Fuel standards need to be combined with fleet modernization Source: McKinsey 2015258 programs, including financial incentives, tax reductions, or scrappage programs promoting the replacement of old vehicles. 82 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 3 0 To promote the electric vehicle market, governments have developed mandates and supporting regulations and increased research and development spending.261 Research and development efforts have prioritized improving lithium-ion battery performance, decreasing battery costs, and enabling large-scale battery manufacturing. Stronger ambition in the electric vehicle market needs to be complemented by national and subnational government mandates. For example, California’s 2016 Zero Emissions Vehicles Action Plan aims to have 1.5 million such vehicles on the road by 2025.262 Regulations like CAFÉ standards in the United States tighten maximum emissions from fleets, encouraging the use of electric vehicles. Mandates around charging infrastructure also play a crucial role in enabling large-scale use of electric vehicles. For example, according to a China Daily article, China intends to deploy 100,000 charging stations in 2017.263 Support electric vehicle markets through consumer incentives. These can take the form of rebates, tax breaks, or exemptions, based on the technology used or emission levels. Other instruments, typically offered by municipalities, include exemptions from city-center congestion charges, free parking, or access to priority lanes. Emission standards and fleet I N N O VAT I V E F I N A N C I N G M O D E L S modernization in India PPPs for transport can offer a safe and stable long-term investment opportunity, with reasonable returns for private investors if projects India has been implementing an ambitious fuel emission are well planned and risks are appropriately managed. 264 Developing a standards program since 2009. The latest norms have national policy and regulatory framework for PPPs is an important step been in effect since April 2017 and new vehicles must in mobilizing private sector investment in transport infrastructure. comply with this standard. Based on European standards, its Bharat stage emission program has progressively Transport PPPs offer secure and stable long-term revenue. For example, become more stringent. India recently decided to skip the in 2012, local government’s 70 percent share in the port of Rotterdam fifth stage in its program and implement the sixth stage paid out €65 million in dividends.265 PPPs need not be funded with by 2020. In addition, the country is discussing a draft tolls, but they offer an opportunity to make tolls politically acceptable. of the Voluntary Fleet Modernization Program, which Because free-flow tolling is now feasible, tolls can reduce congestion, includes tax benefits and discounts to owners to replace ensure an adequate mix of public and private transport, and help their older heavy-duty vehicles. The program aims to finance maintenance and new infrastructure.266 Transit-oriented retire all vehicles bought before 2005—those below the development strategies also create opportunities for municipalities to emission standards currently in place. address financing challenges by using profits from urban development to subsidize transport investment. Source: GIZ 2016267 and International Council on Clean Transportation 2016268 Climate-Smart Urban Transport and Logistics 83 B OX 3 1 A PPP plan comes together in Santiago, Chile Between 2000 and 2008, a 225-kilometer system authority over streets and highways across several into a polycentric city covering a substantial, of urban highways was built in Santiago, Chile’s municipalities. The program began in the early 1990s, expanding area. It was crucial to plan and build capital. The system was divided among eight PPP along with studies on building urban highways. A law streets connecting metropolitan subcenters and concessions. Most of the funding to pay for the was passed to regulate concessions in 1996, and PPPs municipalities, avoiding trips passing through the city $3 billion investment will come from electronic toll were put to tender between 2000 and 2005. center. The plan anticipated the necessary transport collections over the next 20 to 30 years. investments, reserved strips of land for roads, and But the system’s origin dates as far back as the gradually executed the investments to put the plan Santiago built this system in less than a decade late 1950s and early 1960s. Planners anticipated to work. through a PPP program planned and executed by a that Santiago’s rapid growth, which had begun division in the Ministry of Public Works, which has in the 1940s, would eventually transform it Source: World Bank 2014269 84 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Transport and Logistics 85 5.4 Initiatives, tools, and resources The International Energy Agency (IEA) conducts a broad range The Institute for Transportation and Development Policy of transport research and analysis, focusing on ways in which (ITDP) is a global nonprofit that provides technical expertise countries can improve energy efficiency in their transport sectors to accelerate the growth of sustainable transport and urban and shift to lower-carbon fuels. development around the world. www.iea.org ww.itdp.org The International Transport Forum (ITF) at the OECD is an The International Council on Clean Transportation (ICCT) is intergovernmental organization with 59 member countries that a research nonprofit with a focus on environmental performance acts as a think tank for transport policy and organizes an annual and energy efficiency of transportation. summit of transport ministers. www.theicct.org www.itf-oecd.org The Partnership on Sustainable Low Carbon Transport The Global Fuel Economy Initiative (GFEI) involves multiple (SLoCaT) is a multi-stakeholder partnership of over 90 organizations working together to secure real improvements in organizations established in 2009 to provide a global voice on fuel economy, and maximize the use of existing fuel economy sustainable transport. technologies in vehicles across the world. www.slocat.net www.globalfueleconomy.org The Sustainable Mobility for All (SuM4All) is a World Bank led Union Internationale des Transports Publics (UITP) is the global, multi-stakeholder proposed in 2016 at the United Nations International Association of Public Transport and it brings together (UN) Climate Action Summit and established in 2017 with the all public transport stakeholders and all sustainable transport purpose of realizing a future where mobility is sustainable. modes. sum4all.org www.uitp.org The WRI Ross Center for Sustainable Cities is the cities and urban development research arm of the World Resources Institute. Within the Ross Center, the EMBARQ initiative focuses on sustainable urban mobility. www.wrirosscities.org 86 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Water Infrastructure 87 Key indicators Investment in urban In 2015, private sector water infrastructure water investment could exceed totaled $5.3 billion. $13 trillion to 2030. The global market More than for water recycling 100 countries technologies was mention the water $23 billion investment sector in their NDCs. in 2013, and is growing. 88 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Water Infrastructure 89 Climate-Smart Urban Water Infrastructure 6.1 Summary Commercial finance in the water sector faces challenges and risks. Investments in water efficiency (including in waste-to-resource or Water and wastewater infrastructure demand in cities is large and desalination systems) should be available and attractive to all water growing due to rapid urbanization. The OECD270 estimates that the service providers, irrespective of ownership. To attract commercial required investment for water supply and sanitation could be more than finance, governments can provide predictable regulatory frameworks $13 trillion between 2016 and 2030. The Asian Development Bank and help foster innovative business models. Water pricing at predictable (2017) estimates an investment need of almost $8 trillion in the Asia- and sustainable levels can enhance cost recovery and increase the Pacific region alone during the same period.271 creditworthiness of utilities. PPPs, including the use of performance- Urban water infrastructure is critical for climate mitigation and based contracts, are helping to finance urban water management and adaptation. A carbon-neutral water sector could deliver up to efficiency improvement projects. Blended finance solutions can also 20 percent of the mitigation pledged under existing NDCs.272 Water help share risks efficiently, and address equity and affordability issues. savings and recycling can mitigate climate change by reducing the Increasingly, there will be more opportunities to mobilize commercial energy used by water systems and using waste-to-energy systems. The finance simply through borrowing in domestic markets. More than sector can also help ensure that people are resilient to the increasing 100 countries mention water in their NDCs (Table 8); offering an frequency and severity of climate change events, such as droughts and opportunity to address many of these issues. floods. Water efficiency is becoming increasingly important due to the gap between supply and demand. 6.2 Market snapshot and growth potential Governments are increasingly looking to the private sector to invest in climate-friendly water supply and treatment technologies. Historically, T E C H N O LO G Y T R E N D S A N D M A R K E T the share of investment from commercial sources has been low. Given O P P O RT U N I T I E S the investment required, however, governments are expected to source a Water infrastructure investment will need to grow rapidly to meet larger share of commercial financing. In many middle-income markets demand. Planned global investment in water infrastructure is $10 trillion this shift is already taking place. In 2015 alone, private sector water by 2030.274 This will need to grow substantially to ensure adequate and investment totaled more than $5 billion.273 sanitary water supply in line with countries’ growth ambitions and the effects of climate change. Water is becoming increasingly scarce. Based 90 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 8 : N U M B E R O F C O U N T R I E S W I T H S U B S E C T O R I N C L U D E D I N T H E I R N D C infrastructure management Water supply conservation Wastewater treatment sanitation and reuse efficiency Water Water Water Water Water Water Region East Asia and Pacific 6 8 2 4 1 Europe and Central Asia 3 1 1 2 2 1 1 Latin America and Caribbean 13 6 8 3 6 2 2 Middle East and North Africa 9 4 8 6 2 3 3 North America 3 3 3 3 2 1 1 South Asia 29 13 11 8 9 4 4 Sub-Saharan Africa 2 Western Europe Total 63 35 33 26 22 11 10 3 (Source: World Bank, INDC Database; see indc.worldbank.org) on trends in population, climate, and urbanization, water demand could Wastewater offers strong opportunities for private sector investment. exceed supply by 40 percent in 2030. 275 Public financing is unlikely Wastewater treatment and recycling encompasses a range of processes to be available at the scale necessary to meet these needs, creating an used to reuse wastewater or allow it to be safely returned to the opportunity for private investment. The private sector could provide up environment. It includes technologies that extract energy from to half of the investment required for water supply.276 wastewater streams, such as biogas generation, which can be used to generate electricity. Climate-related wastewater treatment opportunities Water equipment and technology suppliers are growing, especially in include energy efficiency, waste-to-energy, and water recycling solutions. large emerging markets. All major segments of the supply chain are Wastewater treatment and recycling usually results in sewage sludge as expected to grow by more than 2 percent per year globally, with these a by-product. Businesses are finding innovative, profitable uses for this annual growth rates potentially reaching up to 25 percent in emerging sludge (see Box 32), including as soil conditioner and for compost. markets such as China and India (Figure 14).277 Climate-Smart Urban Water Infrastructure 91 B OX 3 2 FIGURE 14: Growth in water market segments 30 Organica Water: Developing 25 26 24 innovative wastewater solutions 20 20 20 20 20 Market growth rate (%) Organica Water has designed and manufactured a sludge biological wastewater treatment system that 15 15 16 16 15 15 13.5 allows treated effluent to be reused in a cost-effective 12 11 manner.278 The system has lower infrastructure and 10 capital costs than conventional wastewater treatment 7 6.2 systems, with a low physical and environmental 5 footprint.279 The U.S.-based company has been in 2.4 2.4 operation since 1988 and began raising investment in 0 2008. In 2013, it raised over $12.6 million from a range PUMPS, PIPES WATER DESALINATION WATER TESTING IRRIGATION WATER, AND VALVES TREATMENT MEMBRANES EQUIPMENT WASTEWATER of financers. In 2015, it raised more than $9 million from EQUIPMENT PROJECT MARKET Global China India a consortium including IFC, XPV Capital Corporation, Idinvest Partners (through their Electranova fund), and (Source: Impax (2013), Investing in Water: Global Oppurtunities in a Growth Sector, London, UK) Gamma Capital Partners. The latest round of funding will be used to develop an online project that will allow The water recycling and reuse market has recently doubled, and this is Organica to further spread its cost-effective, low- set to continue. BCC Research280 estimated the global market for water emissions wastewater treatment systems. recycling technologies at $23 billion in 2013, more than double the 2012 market size. Industrial water reuse and desalination technologies www.ifc.org (Source: Impax, 2013) are expected to reach a total market value of $12 billion by 2025.281 Improving water efficiency through new technologies is also an $8 billion market and is growing—the 2017 Global Opportunity Report282 ranked smart water technologies, such as smart meters and pipes, as the top innovative business opportunity. The need for water-efficient infrastructure is growing and offers a significant opportunity for private investment with quick payback rates. Up to 40 percent of potable water is estimated to be lost in existing water systems.283 Water efficiency covers improving the productivity of water treatment plants and distribution systems, as well as water- intensive industrial users. Better management of the water supply network by optimizing pumping, pressure, and distribution systems can significantly reduce water losses in the short term, but ultimately some renovation or replacement of supply pipes may be required. Improved 92 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 3 3 eMalahleni Water Reclamation Plant At Anglo American Coal South Africa, water by-products, which are used in the manufacture treatment plants are used extensively to treat of cement and fertilizer industries. Gypsum is also mine-affected water. The flagship eMalahleni used for making building materials—it is mixed Water Reclamation plant, built by Anglo American with cement, clay and water and baked to produce in partnership with BHP Billiton and the eMalahleni bricks, blocks and panels for building homes. Anglo Municipal Council in 2007, treats around 25,000 American has built 60 houses from the gypsum- cubic meters of mine-affected water every day based building materials. to meet the potable water needs of nearby mines https://unfccc.int/files/secretariat/momentum_for_ while providing drinking water for 80,000 people. change/application/pdf/3_water_reclammation.pdf The treatment process produces gypsum-based Climate-Smart Urban Water Infrastructure 93 B OX 3 4 pricing schemes will also encourage efficient water allocation and use. The costs and market growth rates of water-efficiency technologies vary significantly across equipment, region, and application, but most Renewable desalination offers investments in water efficiency create positive returns within three years, climate-friendly water supply contingent on cost-reflective water pricing regimes.289 Desalination technologies turn saline water into potable Improving water efficiency through new technologies is a growing water by extracting minerals. It is a rapidly growing market. The 2017 Global Opportunity Report290 ranked smart water market in the Middle East and China: China is estimated technologies, such as smart meters and pipes, as the top innovative to have spent more than $4 billion on desalination business opportunity. The market for water-smart technologies is technologies between 2013 and 2015. 284 However, most expected to grow from more than $8 billion in 2016 to over $20 billion desalination technologies, such as seawater reverse in 2021. osmosis, are energy intensive, so they can only be considered climate smart when they are paired with 6.3 Creating markets for climate-smart renewable energy sources. Desalination of brackish urban water investment water offers opportunities to produce lower-cost water Country-specific challenges and risks need to be addressed to attract because it is less energy intensive, but it is unlikely to be commercial finance in water. Countries vary significantly in their level of a main alternative water source in the future because of water scarcity, as well as in their use of water pricing and receptiveness the limited volume of brackish water worldwide.285 to commercial finance. This highlights the need for a nuanced, locally The market for renewable-powered desalinated water is tailored approach to attract water sector investment, supported by small but growing. In 2012, IRENA estimated that, globally, strong and sustained political support. just 1 percent of desalinated water came from renewable There is a range of options available to support private investments and sources. The falling cost of both renewable energy and improve efficiency in the water sector, from full privatization of assets to desalination technologies is expected to see this share small-scale management contracts. The choice of approach will depend increase substantially. The cost of desalination has on the public sector's capacity to engage with the private sector, as decreased significantly over the last 30 years, from about well as the need to attract commercial funding. Private sector solutions $2.50 per cubic meter in 1972 to $0.65 per cubic meter can improve service and efficiency, but they need to be combined with in 2010.286 Renewable desalination systems are already the necessary regulatory and legislative safeguards required for the cost-competitive with conventional technologies in many management of a service that is normally a natural monopoly. regions due to the rapidly dropping costs of renewable energy.287 The world’s largest solar-powered desalination Involving the private sector in water infrastructure will help ensure plant is due to be constructed in the Saudi Arabian city of sustainable access to water services. A sustainability analysis should Al Khafji. The plant is estimated to cost $130 million and address health, environment, economy, socio-cultural, and technical provide 60,000 cubic meters of water daily. 288 issues across the value chain.291 Ensuring adequate availability of baseline information through data collection and surveys will lead to better-informed decisions. Sustainability and cost-benefit analysis should 94 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 15: Creating markets for climate-smart urban water infrastructure 1 2 3 4 ALIGN GOALS WITH MAKE PUBLIC- ENSURE FINANCIAL CAPACITY INSTITUTIONAL PRIVATE SUSTAINABILITY AND DEVELOPMENT & FRAMEWORK AND COOPERATION COST RECOVERY AWARENESS PUBLIC RESOURCES WORK • Establish goals for • Implement water • Use guarantees, • Empower institutions water access, cost pricing with a goal to benchmarking and via training and recovery and service achieve cost recovery project preparation knowledge transfer quality funds to reduce risk and • Remove subsidies • Develop intra-municipal improve attractiveness • Create an enabling and cross-subsidies and intra-regional co- to lenders institutional and incentivize water operation environment among efficiency • PPPs encourage private • Conduct public various government delivery of municipal • Enhance city awareness campaigns actors water services creditworthiness • Provide home and • Establish the role of the • Performance- • Invest in capacity equipment certification private sector based contracting building of local can improve water • Audit and benchmark • Foster public awareness authorities efficiency systems about water waste and efficiency Climate-Smart Urban Water Infrastructure 95 B OX 3 5 go hand in hand with identifying market opportunities for new climate- smart water solutions. Changing the way we think about S T E P 1 : A L I G N S E C TO R G OA L S W I T H water in cities INSTITUTIONAL FRAMEWORK AND PUBLIC RESOURCES. The World Bank’s integrated urban water management Regardless of public or private provision of water and sanitation approach is “a flexible, participatory and iterative process, services, governments committed to best practice establish the policy, which integrates the elements of the urban water cycle planning, and governance framework required. Major sector reforms (water supply, sanitation, stormwater management, and will be needed in most countries. It is important to secure sustained solid waste management) with both the city’s urban political support for water sector reforms that may be needed, including development and river basin management to maximize a gradual transition to sustainable water tariffs. Sector policies need economic, social and environmental benefits in an to be realistic, fully funded, and integrated with investment plans that equitable manner.”292 It is more a way of thinking than a include cost recovery and well-defined, targeted subsidies. Incentives methodology. can be used to improve performance. Policies need to encourage The approach can enhance water security and health, mobilization and efficient use of public funding from tariffs, charges, reduce environmental impacts, and improve system- and government taxes.294 wide performance. 293 Since the 1990s, the World Bank Establish goals and strategies for the sector’s growth. Clear goals and has applied the integrated urban water management targets for water and sanitation, including water access, network approach in cities in Africa, Central Asia, Europe, and Latin extension, cost recovery, and reliability of services,295 strengthen America. common understanding and alignment across government and key The local conditions in each city are an important stakeholders. Several countries have successfully adopted the integrated consideration in tailoring the approach for each urban water management approach for the efficient, equitable, and engagement. In general, the city should face multiple sustainable development and management of urban water resources water-related challenges that can be solved through an within the context of larger urban planning issues such as land use, integrated approach (water scarcity, flooding, drainage, housing, energy, industry, and transport (see Box 35).296 This approach pollution), and have strong governance and institutional can enhance capacity building and encourage greater private sector capacity to drive the process. confidence in the sector. www.worldbank.org Use challenges to drive sector goals and strategies that lead to innovative solutions. For example, in Cairo, water scarcity issues motivated the city to develop PPPs for the treatment and reuse of wastewater (see Box 36). Create an enabling institutional environment. A common challenge in countries, regardless of public or private provision of services, is the lack of an enabling institutional environment. The water sector is particularly vulnerable to political interference. Private organizations generally view 96 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 3 6 Private sector solutions for water scarcity in Cairo With only a third of Egypt’s population connected to PPP project in 2009: the New Cairo Wastewater a sewer system—and rapid urbanization straining Treatment Plant. The plant mobilized private already overburdened infrastructure—fast-growing investments of about $200 million and serves more cities likes New Cairo and 6th of October faced than 1 million residents. Treated wastewater from significant water challenges. The government sought the plant is being used to irrigate agricultural land World Bank Group support for a cost-effective and urban green areas, reducing freshwater demand. and safe wastewater treatment facility that would In addition, sludge from the plant serves as fertilizer mobilize private sector participation in both cities. to increase agricultural productivity and boost In 2006, the Public-Private Infrastructure Advisory economic growth. It also opened the market for Facility, a multi-donor technical assistance facility regional and international investors to work on other focusing on PPPs, assisted the government with PPP projects, including a wastewater treatment preparing the conceptual framework and transaction plant in the 6th of October. The Public-Private model for a new wastewater treatment facility for Infrastructure Advisory Facility provided technical New Cairo. support, helping the government define the mandate and operating environment and advising on policy With support from IFC’s PPP advisory team, the issues related to project design. government was able to structure and close its first https://ppiaf.org Climate-Smart Urban Water Infrastructure 97 BOX 37 Implementing water pricing An optimal water price should recoup the full costs users pay different prices for different “blocks” of of supply and reflect water scarcity. However, consumption—can ensure that vulnerable users most water tariffs in developing countries only are not priced out of the market while providing a recoup about 20 percent of their full cost. 297 Even reliable revenue stream for private investors.299 most water pricing instruments used in developed Subsidy use and reform is another way to make countries are insufficient and inequitable.298 water pricing feasible and socially acceptable. Appropriate water prices create a reliable revenue Subsidies, such as reduced water access fees, lump stream and change the underlying economics of sum transfers, and vouchers, can help lessen the water projects, which attracts private investment. burden of higher water prices on low-income But creating optimal water prices is a political households.300 As a first step, harmful subsidies, endeavor that often faces resistance from affected such as foregone revenue from low environmental communities. pollution charges and direct subsidies to water and There are ways to successfully address the politics sanitation providers,301 can be reformed without of water pricing. Sustainable water tariffs can incurring the same political resistance that changing be phased in over time to allow communities to water prices might. adjust. At the same time, rising block tariffs—where 98 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 3 8 water infrastructure as a low-return, high-risk investment. To address this, governments have successfully developed a predictable and reliable regulatory environment and ensure that regulators are not susceptible to political interference.302 It is also important that regulators are properly funded and can attract and retain high-quality staff. Enhancing governance and legislation, including property and contractual rights, adequate competition law, and dispute settlement mechanisms, is essential to attracting the private sector.303 Access to capital markets is also important. Avoid public funding crowding out commercial finance. Effective mobilization and allocation of public finance, through taxes, tariffs, and subsidies, is crucial for the sector. But this funding should be used prudently in a manner that does not crowd out opportunities for commercial finance.304 Ensure financial sustainability and cost recovery. Given the significant investment required for water and wastewater provision, adequate cost-recovery mechanisms need to be in place to ensure financial sustainability. Cost-reflective water pricing is critical to recover costs and stimulate private investment (see Box 37). Tariffs provide an effective Behavioral change strengthens water way to recover capital, operational, and maintenance costs from users.305 Tariffs and subsidies should incentivize consumers and service demand management in Singapore providers in a way that contributes to national objectives.306 To ensure To reduce water consumption by 10 percent for businesses water-efficient consumer behavior and price recovery, it is important for and 10 liters a day for households, Singapore embarked on water pricing to be supported by strong governance frameworks. Water a behavioral change campaign. The focus was on raising pricing is unlikely to succeed without strong institutions for monitoring awareness about the true value of water. It also introduced and enforcement, which will in turn help ensure continuity and reduce a water-efficient homes certification program (including political risk.307 mandatory installation of low-flow taps and toilets) and Include public awareness in strategies and demand management a water-efficiency fund to incentivize business to manage programs to change water-use behavior. This can include awareness- demand. The campaign was partly financed by a tariff raising campaigns targeted at homes, businesses, and municipalities; restructuring that penalized inefficient users (tax rate of equipment certification programs; auditing and benchmarking systems; 45 percent imposed on household use exceeding 40 cubic and efficiency funds (see Box 38). meters a month). The campaign was a success, reducing per capita water use from 165 liters a day to 152 liters a day, and resulting in local communities and businesses adopting more than 20 catchments and water sources. www.2030wrg.org Climate-Smart Urban Water Infrastructure 99 B OX 3 9 STEP 2: IMPROVE PERFORMANCE OF S U B N AT I O N A L B O D I E S A N D U T I L I T I E S . Improving operational and capital efficiency allows service providers to deliver better, more cost-effective services, freeing up resources to enhance or extend services that can help justify increased tariffs and transfers from government sources.309 A more efficient service delivery body also encourages private sector confidence. Incentivize efficiency. Utilities can be technically and commercially inefficient, particularly in developing countries.310 A better-performing utility mobilizes capital more efficiently, improving creditworthiness and access to commercial financing. Incentives for improving efficiency come from policymakers and trickle down through local governments and service providers, including management and technical staff. Key considerations for promoting efficiency include ensuring service standards are clear, improving the transparency of financial performance Subnational financing and water and employee levels, measuring customer satisfaction, instituting infrastructure in Brazil performance benchmarks, accounting for energy costs of water delivery systems, and identifying and mitigating risks.311 Companhia Caterinense de Aguas e Saneamento is a majority state government-owned water and Enhance creditworthiness. Only 4 percent of water and sanitation wastewater utility in Santa Catarina, Brazil. In 2010, IFC service providers in low- and middle-income countries are helped the utility with its efficiency and management creditworthy.312 Even when service providers are creditworthy, they upgrade program. It involved strengthening the do not always have access to commercial lenders if the local financial company’s commercial viability, saving energy and market is not sufficiently mature. A country's policy and market water resources, and improving subsidies for the poor. environment can help utilities become creditworthy. Beyond water Through the project, the utility installed and replaced tariffs and transparency in subsidies, fiscal guarantees and clarity on water meters, updated customer data, and purchased the relationship between national and subnational authorities enhances equipment and training. private sector confidence. Subnational financing, such as municipal bond markets and local-currency-linked loans also makes water infrastructure IFC helped the utility secure a loan of 40 million Brazilian more attractive to private investors (see Box 39). reais, linked to the inflation index and secured by tariff receivables. This prepared the company for financing from S T E P 3 : M A K E P U B L I C - P R I VAT E C O O P E R AT I O N banks and local investors at attractive terms, and helped WORK. diversify its funding sources. The project led to energy Even if service providers are efficient and well governed, lenders may and water savings, helped low-income residents, and not immediately respond to new lending opportunities when they are improved competitiveness. presented. Certain financing tools, such as guarantees, benchmarking, Source: IFC 2010308 100 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 4 0 Johannesburg Water: A PPP success story Johannesburg Water showed how performance- Water), with the municipal government as the sole based PPPs can succeed in meeting development shareholder and an annual turnover of R1.6 billion.313 and climate objectives in the water sector. The The company has expanded into energy generation. It municipality set out to establish a privately operated has installed biogas-to-electricity generation in several utility in Johannesburg, South Africa, in 2000, when wastewater facilities. Biogas scrubbing and combined city water and sanitation services were facing heat and power cogeneration projects were installed bankruptcy. Through an international tender process, in 2012 at the Northern Wastewater Treatment Works it awarded a five-year management contract and Driefontein Wastewater Treatment Works. Both to a consortium led by SUEZ Environnement of are significant facilities: the Northern plant is the France, which created the Johannesburg Water largest wastewater operation in Johannesburg. The Management utility. By the end of the contract initial installation provided more than 1 MW of clean in 2006, the utility had met 90 percent of its energy, covering 18 percent of the plant’s electricity contractual targets and had overseen marked consumption. Five biogas power plants, totaling more improvements in cost efficiency, racial diversity than 17 MW, are planned, with an expected average among employees, environmental compliance rates, payback period of about five years.314 and financial performance. It has since evolved Source: Johannesburg Water into an independent company (Johannesburg Climate-Smart Urban Water Infrastructure 101 B OX 4 1 creditworthiness assessments, and project preparation funds,315 can be used to reduce risk in the sector and make it more attractive to lenders. Provision for competent and independent regulators, transparent and competitive bidding processes, and adequate due diligence and monitoring and evaluation can help make public-private cooperation work. There are three main approaches in this context: the PPP model, the performance-based contract model, and blended finance. PPPs are an effective way to encourage private sector investment for municipal water services. The availability of a sovereign guarantee—a government’s agreement to take or refrain from certain actions affecting the project—is often pivotal in PPP arrangements. The private sector brings technical and managerial expertise, innovation and greater financing capacity. This can increase the service provider’s creditworthiness and open up further opportunities for commercial Reducing water losses through finance (see final section for more detail on PPPs). performance-based contracting in Performance-based contracting, where remuneration is based on Ho Chi Minh City outcomes achieved, can improve water utility efficiency. Many of the performance-based contracts in emerging markets are focused on Non-revenue water is water in the system that is not reducing non-revenue water (water that is “lost” before it reaches the billed because of leaks or commercial failures. Efficient consumer, through leaks, for example). Through these contracts, utilities management of non-revenue water offers significant can access the capacity and equipment that they lack. Results-based financial and environmental benefits. payments increase the incentive to reduce leaks and improve inadequate Ho Chi Minh City is the largest city in Vietnam and billing systems, reducing the risk of non-performance. However, it is its water supply is managed by the Saigon Water important that a clear benchmark to measure performance is established Corporation. The corporation set a target of reducing at the start of a contract. non-revenue water from 35 percent in 2004 to 26 percent Blended financing is useful for markets that lack commercial sector in 2010. Within this context, the city partnered with the coverage or have high risk.316 As several of donor projects in middle- World Bank to develop a performance-based contract. income countries have demonstrated, blended finance can be a useful The contract that emerged was a five-year design, tool in lowering the capital cost and correcting market failures, enabling build, and operate contract with a strong performance access to commercial finance (see final section of this report). Blended element. Payments included a fixed fee, a lump sum price finance can also be used to demonstrate the viability of a new business per district metering area, a performance fee per cubic or as once-off support to initiate self-sustaining, cost-recovering projects meter of leakage reduced, and a bill of quantities for and utilities. unforeseen works and connecting new customers. The Saigon Water Corporation monitored the project, with support from a specialist consultant. 102 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 4 2 Blended financing for As-Samra Wastewater Treatment Plant in Jordan Jordan is one of the most water-scarce countries in upgrade, and operate the treatment plant. The the world. The As-Samra Wastewater Treatment financial package included public funds provided as Plant was built in 2008 to treat wastewater for the “viability gap funding,” including contributions from 2.3 million inhabitants of Amman, while supplying the government ($20 million) and a grant from the quality irrigation water to the surrounding region. Millennium Challenge Corporation (over $90 million). However, the country’s rapid population growth The viability gap funding helped leverage an additional and influx of refugees tested the limit of the $110 million in private financing and reduced the plant’s capacity (both in terms of the volume of capital costs, while enabling the project to become wastewater received and solids processing) sooner financially viable. than anticipated. For this reason, the government The As-Samra Wastewater Treatment Plant put a blended financial package in place to finance expansion project became operational in October the expansion of the As-Samra Wastewater 2015, increasing the average daily capacity of the Treatment Plant. plant from about 260,000 cubic meters per day to The project was undertaken by the Samra more than 360,000 cubic meters per day. Wastewater Treatment Plant Company Limited, Source: World Bank 2016317 a private operator recruited in 2012 to finance, Climate-Smart Urban Water Infrastructure 103 S T E P 4 : I N V E S T I N C A PA C I T Y B U I L D I N G . Capacity building helps local authorities manage the commercial and legal processes involved in private sector participation in the water sector. It also improves efficiency. Municipal and regional cooperation should be encouraged to share knowledge and resources. Utility company management also needs the autonomy to set incentives that motivate the workforce—proper pay and incentives are vital to recruiting and retaining talent.318 National and local governments can provide the leadership required and support designated agencies, while establishing or enhancing sector performance measurement. In turn, utilities can enhance capacity building through energy and cost accounting and instituting pilot programs for improved water management. City authorities can also work with multilateral banks to enhance training and peer-to-peer learning. Finally, public awareness campaigns can help build capacity among households and water consumers along the water use chain to use water-efficient technologies and practices. I N N O VAT I V E F I N A N C I N G M O D E L S The Water Financing Facility, spearheaded by the Global Innovation Lab for Climate Finance, aims to mobilize private capital in the form of institutional investment from sources such as pension funds and insurance companies to aid national adaptation and mitigation goals in the water sector. It seeks to coordinate this finance with public funding and international impact investment to help bridge the investment, infrastructure, and sustainability gaps countries are facing.319 In April 2017, the Dutch government announced a €10 million commitment for the Water Financing Facility in Kenya. The facility will periodically issue bonds for water and sanitation projects in Kenya, with the first taking place by the end of 2017. The global facility aims to expand into two more countries, planned for 2018, contingent on raising an additional €21 million in donor funds.320 Pay for Success, also referred to as social or environmental impact bonds, provides an innovative way for water service providers to attract financing. Investors are paid back based on whether the service provider delivers an outcome (such as water savings), as measured by independent evaluators. 104 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 4 3 DC Water’s environmental impact bond Washington, D.C. has antiquated stormwater additional sewer outflow. However, halfway into the Quantified Ventures as broker, DC Water raised the infrastructure, with a combined sewer system 20-year project, green infrastructure (such as rain United States’ first environmental impact bond—a designed 150 years ago. This means both raw sewage gardens, permeable pavements, green roofs, and rain $25 million tax-exempt bond sold to the Calvert and stormwater flow through the same pipes into barrels) started emerging as a potential solution that Foundation and Goldman Sachs Urban Investment DC Water’s treatment facilities. During heavy rain could soak up precipitation and slowly release it into Group. While standard municipal bondholders or snow, the volume of water and sewage exceeds the sewer system, potentially preventing overload invest in the issuer’s ability to repay on schedule, the pipes’ capacity and, by design, bypasses the and requiring fewer tunnels. But green infrastructure DC Water’s investors bet on whether green treatment facility and is discharged directly into had never been deployed at the scale DC Water was infrastructure will produce outcomes “as expected,” local rivers. It results in 2 billion gallons of sewage planning, creating technological and financial risks. “better than expected,” or “less than expected.” overflowing directly into Chesapeake Bay every year. Investor returns are tied to project outcomes. The solution came in the form of an environmental To address this challenge, DC Water initially started impact bond, which allowed DC Water to structure Source: Quantified Ventures321 to build a $2.6 billion tunnel system to capture the the financing to transfer the risk to investors. With Climate-Smart Urban Water Infrastructure 105 6.4 Initiatives, tools, and resources The Global Water Partnership is an multi-stakeholder The United Nations Global Compact's CEO Water Mandate international network in the water sector, with a goal of fostering mobilizes companies to advance water stewardship, sanitation, an integrated approach to water resources management. and the Sustainable Development Goals—in partnership with the United Nations, governments, peers, civil society, and others. The www.gwp.org mandate offers a platform and a set of tools to share best and The International Water Association (IWA) is nonprofit emerging practices and to forge multi-stakeholder partnerships to organization and knowledge hub connecting water professionals address challenges related to water scarcity, water quality, water around the world to find solutions to global water challenges. governance, and access to water and sanitation. www.iwa-network.org http://ceowatermandate.org The 2030 Water Resources Group (WRG) is a public-private- Business Alliance for Water and Climate (BAFWAC) was jointly expert-civil society platform to help government water officials launched by CDP, the CEO Water Mandate, SUEZ, and the WBCSD. and their partners accelerate reforms to ensure sustainable BAFWAC companies commit to analyzing and sharing water- water resource management for the long-term development and related risks to implement collaborative response strategies; economic growth of their country. measuring and reporting water use data; and reducing impacts on water in operations and throughout the value chain. www.2030wrg.org https://bafwac.org An initiative of the World Resources Institute (WRI), Aqueduct measures, maps and understands water risks around the globe. www.wri.org/our-work/project/aqueduct United Nations Water (UN-Water) coordinates the efforts of United Nations entities and international organizations working on water and sanitation issues. www.unwater.org The World Bank Group's Water Scarce Cities Initiative offers a new avenue for knowledge sharing on urban water management by creating and sustaining stronger connections between cities facing water scarcity, and enabling urban water practitioners, global thought leaders and institutions to share solutions specific to that context. http://pubdocs.worldbank.org/en/588881494274482854/Water- Scarce-Cities-Initiative.pdf 106 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Waste Management 107 Key indicators The global waste sector Waste recovery and is expected to reach recycling markets $2 trillion in were around investment by 2020. $265 billion in global revenue in 2016. The global waste-to- The Asia-Pacific and Over 80 countries include energy market includes Latin American regions waste in their NDCs. 800 plants and is at will see the most growth in $7.4 billion in revenues. waste market opportunities. 108 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Climate-Smart Urban Waste Management 109 Climate-Smart Urban Waste Management 7.1 Summary and reusing waste (including e-waste recycling, composting, and sustainable packaging). Emerging technologies such as advanced thermal Waste management is a large and growing global business opportunity. conversion technologies (pyrolysis, gasification, plasma gasification) Between 2011 and 2025, levels of waste generation in cities are expected and applications for waste-to-liquid fuel may create new investment to increase from 1.3 billion metric tons to 2.2 billion metric tons opportunities in the waste sector. per year.322 Countries around the world are modernizing their waste systems, leading to formalization of the sector and safer waste disposal. There are a number of risks and challenges preventing private sector Cities allocate one of the largest budgets to municipal solid waste, investment in climate-smart urban waste. Cities can attract private which is also one of the largest employers. The global services market sector participation by extracting value (and energy) from recoverable for municipal solid waste was estimated at $160 billion in 2013 and materials, selecting appropriate technologies, and working more could be worth $300 billion by 2020, with most growth coming from closely with the informal waste collection sector. Local and national emerging markets.323 governments can also put in place regulatory and enforcement frameworks, establish economic incentives and cost-recovery The Asia-Pacific and Latin American regions will see the biggest growth mechanisms such as feed-in tariffs, and help drive waste-conscious in opportunities in the waste sector as a result of rapid urbanization.324 consumer behavior. Governments can also foster innovative new Between 2009 and 2013, waste generation increased by 15 percent business approaches, such as PPPs, microfinancing and micro- each year in Brazil and 16 percent in China.325 The World Bank expects privatization. China to produce twice as much urban solid waste as the United States in 2030.326 Realizing the potential of climate-smart technologies to reduce greenhouse-gas emissions, over 80 countries have targeted solid waste Climate-smart solid waste management encourages innovation in management in their NDCs (see Table 9). technologies. Local governments and the private sector are innovating to reduce the greenhouse-gas emissions associated with solid waste management, while also providing energy and other resources. Climate- 7.2 Market snapshot and growth potential smart options include energy generation via the capture and use of The volume of solid waste being generated in cities is growing rapidly as landfill gas for energy, refuse-derived fuel, climate-smart transport of a result of urbanization and rising household income levels.327 Collecting waste via route optimization and low-carbon fuel use, and recycling and disposing of solid waste safely is important to ensure public health. 110 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report TA B L E 9 : N D C S TA R G E T I N G W A S T E M A N A G E M E N T Region Waste: General Solid waste Waste-to-energy Recycle, reuse, reduce East Asia and Pacific 16 5 6 4 Europe and Central Asia 12 4 1 1 Latin America and Caribbean 13 6 3 3 Middle East and North Africa 9 6 3 4 South Asia 3 3 4 4 Sub-Saharan Africa 27 15 14 8 Western Europe 4 1 Total 84 39 32 24 (Source : World Bank, INDC Database; see indc.worldbank.org) While many middle-income countries have made significant progress in Municipal solid waste services were worth $160 billion in 2013 and modernizing solid waste management, collection is still about 50 percent could be worth nearly $300 billion by 2020.331 in low-income countries, with much lower rates in some countries. Markets for climate-smart urban waste management will grow as Waste collection is particularly difficult in rural areas and informal countries and cities implement their climate goals. Methane emissions settlements in large urban centers. It is estimated that at least 2 billion from municipal solid waste management contribute 12 percent of people worldwide still lack access to solid waste collection.328 global methane emissions and 5 percent of global greenhouse-gas Globally, waste management—including waste-to-energy, municipal emissions.332 Solid waste management is one of the most important solid waste, industrial waste, and sustainable packaging—is almost a services a city provides; in low-income countries as well as many $1.5 trillion market that could grow to $2 trillion by 2020.329 In 2011, middle-income countries, it is the largest single budget item for cities cities across the world generated about 1.3 billion metric tons of solid and one of the largest employers.333 To address methane emissions from waste. Driven by rapid population growth and economic development, waste, initiatives like the C40 Waste to Resources Network are working solid waste levels are expected to increase to 2.2 billion metric tons by with cities like Auckland in New Zealand and Guangzhou in China to 2025 and more than 4 billion metric tons by 2100.330 As the waste sector manage waste as a resource by reducing waste generation, enhancing matures in most advanced countries, the largest investment opportunities recycling, and reusing valuable materials.334 will be in emerging economies with increasing waste flows, such as India. Climate-Smart Urban Waste Management 111 B OX 4 4 FIGURE 16: Total municipal solid waste generation by region 3,500 3,000 Total MSW generation (Tonnes/day) 2,500 2,000 1,500 1,000 500 Western Cape Industrial Symbiosis 0 Programme: Connecting companies for waste reuse Sub-Saharan Africa Middle East and North Africa Latin America and the Caribbean Europe and Central Asia The Western Cape Industrial Symbiosis Programme is South Asia High-income and OECD a free service that connects companies in South Africa East Asia and Pacific so that they can realize new business opportunities by (Source: Global Waste Management Outlook, 2015) reusing residual materials, energy, water, assets, logistics and expertise. The program is funded by the Western Cape Department of Economic Development and Tourism T E C H N O LO G Y T R E N D S A N D M A R K E T under its green economy portfolio and is delivered by O P P O RT U N I T I E S GreenCape, the province’s sector development agency Resources are recovered from waste to use for other purposes, such as for the green economy. the program works with a broad recycling, composting, and energy generation. Global activity in new range of industries and companies to create mutually waste processing facilities is high. Over the past two years, projects to beneficial links between member companies. To date, process waste worth more than $300 billion have been initiated, with the Programme has diverted over 1,750 tonnes of waste $85 billion directed to processing municipal solid waste. Most of this from landfill, saving nearly 5,000 tonnes of carbon dioxide investment activity is in industrialized countries, including biomass-to- and 5.1 million South African rands ($373,000) while energy projects.335 generating an additional 7 million South African rands ($512,000) of revenue. The pilot’s success has served as a WA S T E -TO - E N E RG Y foundation for a national industrial symbiosis program, Strong investment in waste-to-energy is forecast as policymakers work and has helped inspire similar programs in KwaZulu-Natal with businesses to unlock the environmental and energy benefits. and Gauteng in South Africa. The global waste-to-energy market was worth $7.4 billion in 2013, http://greencape.co.za/wisp/about-us/about-us/ with about 800 waste-to-energy facilities combusting 130 million 112 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 4 5 metric tons of municipal solid waste.336,337 It is forecast to grow to more than $80 billion by 2022.338 Estimates suggest waste-to-energy could produce over 470 terawatt-hours of electricity, equivalent to the electricity consumption of Brazil, by 2022.339 New technologies are also emerging. Thermal combustion and non-thermal combustion (anaerobic digestion and fermentation) are most commonly used, but the costs of advanced thermal (plasma arc gasification, plasma gasification, pyrolysis, and thermal depolymerization) are decreasing.340 REFUSE-DERIVED FUEL Refuse-derived fuels are increasingly being used for commercial purposes. These solid fuels made from processed waste are used as an alternative fuel in industrial plants (including the cement industry and coal plants), or directly in a waste-to-energy facility. Co-processing of waste in cement kilns is already widely employed across the European Union, but there is large potential for further uptake in other regions.341 For example, in Poland, the cement industry consumes about one-third of refuse-derived fuels produced.342 Companies are also exploring ways to convert refuse-derived fuels into aviation fuel, offering the sector a low-carbon fuel option.343 Supporting private players in the waste-to-energy sector in China M AT E R I A L R E C Y C L I N G A N D R E C O V E RY Canvest is the 11th largest waste-to-energy company Waste recovery and recycling markets represent $265 billion in global in China, with a daily processing capacity of nearly revenue.344 Recycling provides income, conserves resources, and reduces 20,000 metric tons of municipal solid waste as of August waste management costs. Driven by regulations and incentives, recycling 2017.347 In April 2016, IFC provided a five-year convertible rates in countries belonging to the OECD have increased over the past loan of about $60 million to help the company expand 30 years. In lower-income countries, the informal sector can achieve its waste-to-energy business in a sector dominated good recycling rates for solid waste.345 Market share and growth by state-owned enterprises. The investment helped rates vary substantially across material types. The global market for Canvest to reduce methane emissions, identify an energy post-consumer scrap metal is estimated to be 400 million metric tons source, and develop ways to dispose of the waste. annually; the market for recycling cardboard and paper is 175 million Demonstrating further confidence in the company, in metric tons. Their combined market value is $30 billion a year.346 The April 2017, IFC exercised its conversion rights to convert attractiveness of recycling solid waste differs depending on the type its outstanding loan into shares, translating into a of material. Metals, high-grade paper, and in some places high-quality 4.9 percent shareholding of Canvest.348 plastic (PET) pay for themselves (see Box 46), while recycling lower- www.ifc.org grade paper, plastics, glass, wood, and textiles often represents a net Climate-Smart Urban Waste Management 113 B OX 4 6 IFC invests in recycling plastic PetStar was formed in June 2006 to establish a bottle recycling facility in Toluca, Mexico. The facility converts post-consumer polyethylene terephthalate bottles into food-grade, recycled PET resin, which is then sold to the Mexican soft drinks bottling industry. Key elements of the project included: • Developing a social responsibility program to improve access to education for waste collectors and their children. • Using a suitable financing structure to enable limited recourse project financing. • Entering into contracts with equipment suppliers and product off-takers. • Accessing long-term funding that mobilized other suitable lenders. www.ifc.org 114 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 4 7 cost.349 Some municipalities invest in recycling mainly to reduce the net cost of waste management. Electronic waste recycling and reuse is a growing market. “E-waste” is discarded electronic waste. The global market for e-waste recycling and reuse was nearly $10 billion in 2012 and is expected to exceed $40 billion in 2019.350 This growth is driven by increasing e-waste streams and reuse and recycling rates in emerging markets, particularly China. S M A R T T E C H N O L O G I E S A N D S U S TA I N A B L E PA C K A G I N G By 2014, sustainable packaging became a $27 billion market, growing at nearly 4 percent annually across three distinct segments: reusables, recyclables, and degradables.351 The trend is expected to accelerate, driven by consumer demand and producer and regulatory push for more sustainable packaging. The food and beverage sector constitutes the largest source of demand for sustainable packaging. Smart technology is emerging in the solid waste sector, with products including solar power trash compactors, integrated waste management Promoting e-waste recycling in India systems, and GPS-based route optimization solutions for trash Established in 2008, Attero Recycling Private Limited collection. One example is the Bigbelly solar power trash compactor, is a pioneer in the nascent domestic e-waste recycling which allows for up to six times the quantity of trash to fit into the same market in India. It uses a proprietary technology to volume as a traditional disposal unit. It also has an integrated device extract various metals from e-waste. IFC helped the that alerts municipalities when the container is full, enabling more company integrate the informal sector into its supply efficient waste collection. Based on these models, the global market for chain. The project focuses on collection centers and smart waste collection technology is expected to grow from $58 million public awareness campaigns about proper disposal of in 2016 to over $224 million in 2025.352 electronic and electrical assets. In 2010, IFC’s Venture Capital group invested $5 million in equity to further BUSINESS MODELS expand the company’s capacity to collect and recycle Innovative business models are attracting private investment in waste. e-waste.353 Waste falls under the mandate of municipal governments, which are www.ifc.org the dominant investors in the sector. However, as with the water sector, municipal governments can face fiscal constraints and technical capacity shortages, particularly in developing countries. PPPs and micro- privatization efforts can help mobilize the private sector to invest in waste management. Climate-Smart Urban Waste Management 115 B OX 4 8 WA S T E P P P S PPPs can help local governments access expertise, financing, and services. New approaches in PPPs in the waste sector combine public sector leadership, private sector skill and efficiencies, community involvement, and innovative financing methods (see final section of this report). Successful PPPs in municipal solid waste start by quantifying the content and volume of the existing waste stream, and then examine appropriate technologies, environmental standards, community engagement, and the availability of experienced private partners. Local governments have established special agencies to help them acquire the skills needed to establish PPPs, such as the China Public Private Partnerships Center.355 To assist governments in China that seek to establish PPPs in the waste sector, the center provides screening, training, and technical support, as well as financial assistance through loans and grants, and operational and contract guidelines.356 M I C R O - P R I VAT I Z AT I O N Micro-privatization is a new option for providing community waste Sysav: A PPP in waste-to-energy services. It involves community-based enterprises providing waste Sysav is a good example of a successful and long-running services to neighborhood zones consisting of a few hundred households. waste PPP. It is a public-private company established in This approach has been successful in East Africa, where collection rates 1974 by 14 municipalities in Malmö, Sweden. Supported and institutional capacity are low: the city of Dar es Salaam in Tanzania by a municipal charge of €200 per household for waste uses more than 55 micro-enterprises to provide waste collection.357 management services, Sysav’s investments include more Other East African cities are working to replicate this success.358 than €2 billion in waste-to-energy from 2003 to 2008, €10 million for a food waste pre-treatment plant, and 7.3 Creating markets for climate-smart about €30 million for 15 new recycling centers. Sysav waste investment succeeded because of close municipal government cooperation, sufficiently high household waste charges, To efficiently manage growing amounts of waste in a climate-smart and adequate waste streams. These are all factors that way, the private sector can contribute technical skills, organizational emerging markets can try to emulate to promote PPPs in capabilities, and flexibility. But private sector involvement alone will the waste sector.354 not solve all the problems. National and local governments can help by aiming for economies of scale and using an integrated solid waste management approach. They can also focus on cost recovery and pricing by using targeted incentives. Finally, consumer and household outreach 116 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 17: Steps to create markets for climate-smart waste management 1 2 3 4 5 USE AN INTEGRATED ACHIEVE PUT INCENTIVES SOLID WASTE GET THE PRICES RAISE CONSUMER ECONOMIES OF IN PLACE TO DRIVE MANAGEMENT RIGHT AWARENESS SCALE DESIRED OUTCOMES APPROACH • Aggregate waste flows • Integrate municipality • Focus on cost recovery • For waste-to-energy, • Ensure that consumers into high volumes goals, objectives and via taxes, volume-based establish appropriate are empowered and policies into a coherent fees or other fiscal tools pricing and tipping fees motivated to reduce • Develop regional waste plan and reuse waste management plans • Establish “pay as you • For compost, use streams • This helps to create throw” systems if incentives and • Partner with regulatory certainty for appropriate mandates neighboring cities and investment and create regional governments • Supplement these schedules for needed approaches with infrastructure financing mechanisms and sector policies Climate-Smart Urban Waste Management 117 BOX 49 Integrated solid waste management Integrated solid waste management provides a should be identified and, where practical, involved comprehensive approach to managing waste, and in creating a solid waste management program. is based on the hierarchy of waste management: • Elements (process): The technical aspects of reduce, reuse, recycle—often adding a fourth “R” for solid waste management. All stakeholders affect recovery. These waste diversion options are followed one or more of the elements. The elements need by incineration and landfilling. It acknowledges the to be considered when creating an solid waste critical role that the community, employees, and management program to ensure it is efficient and local (and increasingly global) ecosystems play in effective. ensuring effective waste management. • Aspects (policies and impacts): The regulatory, Integrated solid waste management consists of three environmental, and financial context in which the interdependent and interconnected dimensions, waste management system operates. Specific which need to be addressed simultaneously when aspects can be changeable, for example, a designing a solid waste management system: community increases influence or environmental stakeholders, elements, and aspects. regulations are tightened. Measures and priorities • Stakeholders: Individuals or groups that have are created based on these various local, national, an interest or roles in the sector. All stakeholders and global aspects. Source: World Bank 2012: What a Waste359 118 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 5 0 and education is vital to reduce waste streams and maximize recovery of useful resources. STEP 1: ACHIEVE ECONOMIES OF SCALE. Ensuring adequate waste volume is crucial to justify investment in infrastructure and technology. Economies of scale and well-managed reverse supply chains are needed. Aggregating waste flows into high volumes will ensure more value can be recovered. Developing regional solid waste management plans and working in partnership with neighboring cities and regional governments helps to share costs and risks, and makes the investment more attractive to the private sector. S T E P 2 : U S E A N I N T E G R AT E D S O L I D W A S T E M A N AG E M E N T A P P ROAC H . This helps to create regulatory certainty for investment and schedules for needed infrastructure. The plan should be financially robust and review all potential options. It can also provide an assessment of the potential to reduce greenhouse-gas emissions. The plan should be Policies are helping foster waste-to- underlined by transparent and reliable data and forecasting for its energy markets in China duration. It should include an outline of the detailed plan and schedule China has implemented various policies to encourage of public consultations.360 private investment in waste-to-energy. The government S T E P 3 : G E T T H E P R I C E S R I G H T. grants concessions to private partners to build, finance, and operate waste-to-energy plants.363 China’s 12th Various cost-recovery strategies can be used to pay for waste five-year plan targets more than $12 billion worth of management services. Landfill taxes have proven to be effective in investment for waste-to-energy—about half of the regions like Western Europe, but need to be managed in developing country’s total investment in municipal solid waste.364 countries to avoid illegal dumping.361 In South Korea, volume-based Furthermore, waste-to-energy plants benefit from a tax waste fees have resulted in lower waste generation and increased waste exemption of 5 percent, a feed-in tariff of $0.04/kWh, reuse.362 Municipalities have successfully used direct billing, property and tipping fees ranging from $9.30/metric ton to $14.30/ taxes, and sales taxes to support municipal solid waste management, as metric ton.365 These policies make China an attractive well as “pay as you throw” systems that make polluters pay for disposal. waste-to-energy market for the private sector. For example, backed with a funding package from the Asian S T E P 4 : P U T I N C E N T I V E S I N P L AC E TO AC H I E V E Development Bank that is based on PPPs with municipal T H E D E S I R E D O U TC O M E S . governments and agreements with 10 commercial banks, For waste-to-energy solutions, establish appropriate pricing and tipping Dynagreen Environmental Protection Group is set to fees. Pricing support can come from feed-in tariffs, renewable energy build nine new plants by the end of 2018. Climate-Smart Urban Waste Management 119 B OX 5 1 auctions, renewable energy certificates, access to qualified end users, preferential grid access, and wheeling fees. The European Union is the leading marketplace for waste-to-energy due to its Waste Framework Directive. This directive, combined with a price on carbon under the European Union’s Emissions Trading System and national renewable energy support mechanisms, provides profitability and predictability for waste-to-energy providers in countries such as Germany and Sweden.367 China provides an example of a national market that uses a combination of financing, economic instruments, PPPs, and feed-in tariffs to drive growth in waste-to-energy plants (see Box 50). The World Bank Group is also innovating new financial tools to help finance methane emissions reductions in the waste sector via the Pilot Auction Facility (see Box 51). Financial and contractual approaches help secure private sector investment in waste. Governments can encourage private sector investment in climate-smart waste infrastructure and services through subsidies, tax credits, grants, funds, and compensation for facility hosting. Incentives can be paired with long-term contracts to provide Pilot Auction Facility: Innovative private partners and investors with predictable waste and revenue climate finance for urban waste flows. For example, in Quebec, Enerkem, a firm that generates cellulosic bioethanol from non-recyclable household waste, invested 115 million solutions Canadian dollars in a methanol-to-ethanol unit at its production facility In May 2016, 21 companies took part in a pilot online in Edmonton. This private equity investment is driven by a guarantee auction managed by the World Bank Group. The nine from the city to provide a consistent waste supply for the next 25 winners received $20 million in financing to reduce years and a payment of 75 Canadian dollars per metric ton of waste methane emissions from waste management. The used.368 The long-term contract and reliability provided by the city has auction was the second in a series of pilots by the provided the certainty for Enerkem to undertake significant, long-term Pilot Auction Facility for Methane and Climate Change investments in refuse-derived fuel production. Mitigation, which tests multiple auction formats that are intended to attract private sector investment while S T E P 5 : R A I S E C O N S U M E R AWA R E N E S S . efficiently reducing emissions. 366 This is key to ensuring that consumer behavior supports waste reduction, recycling, and reuse of easily converted waste streams. For example, the success of the Waste Electrical and Electronic Equipment Centre in Kenya hinges on outreach campaigns that collect and encourage recycling of e-waste (see Box 52). 120 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 5 2 Changing consumer behavior in Kenya The Waste Electrical and Electronic Equipment Centre shows how social education can help ensure business profitability. In Kenya, an average of 3,000 tons of e-waste is generated each year with little capacity for proper management. In response, in 2002 the center was established. It is run by local entrepreneurs and supported by various national and international sponsors. It sources e-waste through local campaigns aimed at households and then separates waste into two streams: repair and refurbishment and recycling and dismantling. Worldloop provided seed capital, which is tied to meeting the center’s collection targets. The center is now 73 percent self-sustaining.369 Climate-Smart Urban Waste Management 121 7.4 Initiatives, tools, and resources The International Solid Waste Association (ISWA) is a nonprofit association that promotes and develops professional waste management worldwide. www.iswa.org The Climate and Clean Air Coalition’s Municipal Solid Waste Initiative aims to reduce emissions of methane and other short-lived climate pollutants from the solid waste sector. This government-led initiative runs webinars and shares information through its knowledge platform. http://www.waste.ccacoalition.org/ The C40 Cities Waste to Resources Network aims to help cities accelerate the transition from solid waste management to sustainable materials management, including resource recovery, through dialogues and resources on topics such as segregated collection, waste minimization, food waste avoidance, greenhouse-gas accounting, and vision/roadmap setting. http://www.c40.org/networks/waste-to-resources The World Economic Forum’s Platform for Accelerating the Circular Economy partners with the Ellen MacArthur Foundation to accelerate the transition to the circular economy through Project Mainstream—a CEO-led initiative to increase business- driven innovations in the sector. https://www.weforum.org/projects/circular-economy 122 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Making It Happen: Cross-Cutting Solutions for Market Creation 123 Key indicators More than two- The global green thirds of institutional bonds market was investors are planning $221 billion in 2017, to increase low-carbon and saw a 6x rise investments. between 2013 and 2016. Nearly 30 countries Over half of countries have implemented will use a carbon progressive fossil fuel price to achieve their reforms. climate targets; 1400+ companies are putting in place internal carbon pricing. 124 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Making it Happen: Cross-Cutting Solutions for Market Creation 125 Making It Happen: Cross-Cutting Solutions for Market Creation T his report has shown that markets are being successfully created to leverage more private financing for low-carbon sectors. To accelerate the creation of markets, countries can take certain steps as The issue of enabling greater private sector investment in climate adaptation and resilience measures is also quickly emerging as a top priority for governments and business (see Box 55). they begin to implement their commitments. To maximize the use of scarce public resources, governments are ensuring that public policies, PAT H W AY S T O G R O W G R E E N F I N A N C E financial regulation and investment conditions are designed to enable Recognizing the vital role of the financial sector in delivering the Paris shifting investment flows into climate business. This includes helping Agreement, policymakers are putting in place financial regulations and to grow demand for green finance, using blended finance in a way that catalyzing financial innovations to align with a greener future. Green maximizes scarce public funds, and putting in place the right policies finance has risen to the top of the G20’s political agenda and is central and incentives—such as carbon pricing—that level the playing field for to the economic development strategies of China and Europe.370 Central investors. banks, financial regulators, and other government bodies are taking When considering how to attract private finance for low-carbon a variety of actions, including standardizing what counts as “green,” investment opportunities, it is important to ensure that different mandating environmental stress tests for financial institutions, asking investment risks are identified and allocated appropriately between for improved climate risk disclosure and reporting, implementing tax private investors, public entities and consumers. Many risks, such as incentives, reducing capital requirements for green loans, and ensuring construction and operating costs, are generally better managed by fiduciary duties encompass sustainability. private investors. Other risks are better managed by governments or The market is shifting and green finance is becoming mainstream. A development banks, or transferred to consumers. If private investors are recent HSBC survey shows that more than two-thirds of institutional asked to address risks they are not well-placed to manage (e.g., policy investors are planning to increase low-carbon-related investments to and planning risks), financing costs will be much higher, or private tackle climate change and accelerate the transition to a clean energy investors may not be interested in the investment. A strategic approach economy. Growing investor appetite for low-carbon investments is to identifying and allocating risks could help to significantly reduce strongest in Europe (where 97 percent of investors have expressed the overall costs of financing clean infrastructure. In two renewable interest), the Americas (85 percent), and Asia (68 percent). The Middle generation case studies CPI-Energy Finance analyzed, they found cost East (19 percent) is the only region to experience an annual decline in savings of 10 to 40 percent (see Box 53). this trend.371 126 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 5 3 Getting the risk allocation correct is fundamental to lowering the cost of investments The right allocation of risks varies depending on the FIGURE 18: Illustration of achieving an optimal risk allocation for a solar type of investment and the country context. This investment in a developing country ideal allocation of risks can then be achieved through a blend of ownership models, policy, regulation RISK and specific finance instruments. Figure 18 shows a Development stylized example of optimal risk allocation for solar investment in a developing country. This approach Construction Construction & operational risks can be privatized to choosing ownership models and policy/finance through private ownership models Operating instruments can be applied across all types of infrastructure investments. Pure private ownership Environmental Pure public ownership For example: Decommissioning • Construction and operational cost risks, typically best managed by private investors, can be Resource privatized through private ownership models. Curtailment and utilization Price & curtailment risks can be socialised through • Price and curtailment risks are more difficult fixed-price FiTs/PPAs, paid on “take or pay” basis Price for private investors to manage. Risk exposure here has a major impact on the private cost of Policy Some policy risk can be socialized through MDB insurance capital with little offsetting benefit in operating efficiency. Curtailment risks can sometimes be Currency Currency risks can be socialized through dollar-indexed PPAs addressed through long-term fixed price power PUBLIC RISK PRIVATE RISK purchase agreements with a state-owned utility Ideal allocation of risks Private-owned with government contract or paid on a “take or pay” basis. Policy risks can (Source: edited from Climate Policy Initiative372) also be partially transferred from private investors through development bank policy risk insurance or guarantees. Making It Happen: Cross-Cutting Solutions for Market Creation 127 B OX 5 4 The Task Force on Climate-Related Financial Disclosures: Understanding climate risk and opportunity Governance The Financial Stability Board established the Task Force There have been strong statements of support on Climate-Related Financial Disclosures to develop from market actors, including members of the recommendations for more effective climate-related World Economic Forum’s Alliance of CEO Climate disclosures that “promote more informed investment, Strategy Leaders.374 In addition, 13 of the world’s leading credit, and insurance underwriting decisions,” that in banks, with more than $7 trillion in assets, have turn “would enable stakeholders to understand better launched a pilot program to implement the task Risk the concentrations of carbon-related assets in the Management force’s recommendations, with support from the financial sector and the financial system’s exposures United Nations Environment Programme Finance to climate-related risks.” 373 The task force developed Initiative.375 four recommendations on climate-related financial disclosures that apply to organizations across sectors Metrics and “These recommendations are very welcome. The and jurisdictions. The recommendations are structured Targets impact of climate change and the transition to a around four thematic areas that represent core lower-carbon economy deserve board-level scrutiny elements of how organizations operate: and governance. Independent research commissioned • Governance— The organization’s governance of by HSBC shows that less than a quarter of companies • Metrics and targets—The metrics and targets climate-related risks and opportunities. currently disclose their environmental impact. This used to assess and manage relevant climate- makes it very difficult for analysts and investors to • Strategy—The actual and potential effects of related risks and opportunities. assess and compare how sustainable these companies climate-related risks and opportunities on the The Task Force also encouraged forward-looking are. These recommendations are a practical and organization’s business, strategy, and financial information through scenario analysis, including a two pragmatic response to the need for consistent and planning. degree Celsius or lower scenario, to help investors comparable climate-related financial disclosure.” • Risk management—The processes used by and other stakeholders understand how resilient ——Stuart Gulliver, Chief Executive Officer, HSBC376 the organization to identify, assess and manage organizations’ strategies are to climate-related risks. climate risks. www.fsb-tcfd.org 128 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Making It Happen: Cross-Cutting Solutions for Market Creation 129 B OX 5 5 Knowledge is power: Building private sector climate resilience Events like heatwaves, droughts, storms, and floods information in their business decisions. Bodegas climate resilience and adaptation interventions in the are becoming stronger and more frequent. The Torres, a Spanish winemaker that produces wine in private sector. For example, in addition to providing global costs of extreme weather and climate events Spain, Chile and the United States and distributes financing, IFC is developing sectoral climate risk are already on the order of tens of billions of dollars its products to over 140 countries, is using models management tools that help companies assess the annually—in the United States alone in 2016 they to examine the impacts of increased frequency and effects of climate change on their operations, and amounted to more than $50 billion.377 These dramatic intensity of heatwaves and droughts in the future. informational tools that identify adaptation options changes can have significant effects on companies’ Having that information allows the company to and investments for specific sectors. These tools operations and market conditions in general. address risks, by investing in grape varieties that begin to respond to the private sector’s need for Given that information is central to operations and are better adapted to changing conditions and locally relevant climate change data. investments, the ability to anticipate and manage by introducing new management practices. The For example, a tool for the forestry and pulp and the direct and indirect effects of climate change is an company is also acquiring land where climate paper industry evaluates events that can be expected increasing concern for business. conditions today do not allow proper grape ripening in the near future at specific locations, such as forest but where, the models show, conditions will be A recent report 378 done by the National Business fires, drought, the spread of pests and diseases, and optimal in the near future. Initiative in South Africa surveyed businesses on changes in precipitation and floods. It also shows emerging climate adaptation practices, challenges Better climate information can also help insurance the geographical change in the optimal growing and needs. Companies asked for locally relevant companies structure and offer products that can zones for commercial species, allowing companies climate data and tools to help them better protect against the new weather extremes. While to identify new regions where species may be understand impacts on a facility and operational businesses are adapting their operations to the successfully grown. Similar tools are available for level. This reinforces findings of an earlier adaptation new climate normals, financial impacts of the new other sectors, such as ports and waterways, roads, market study379 done in Turkey by IFC, which found extremes—weather events that have low probability and airports. The African Development Bank is that companies want information about changing of happening even when accounting for the current developing a new adaptation benefit mechanism380 climate conditions that are relevant for their effects of climate change—can be mitigated by using that seeks to help private clients identify adaptation operations and investments. such insurance products. investments by communicating a price signal that spurs developers to adopt resilient technologies. Many companies are becoming more climate Some multilateral development banks are developing resilient by incorporating improved climate informational tools and products to help improve 130 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Making It Happen: Cross-Cutting Solutions for Market Creation 131 B OX 5 6 Pathways that governments can take to catalyze green finance flows include: leveraging green lending through the commercial bank market, China leads the way to greener finance supporting the green bonds market, or establishing a green investment China needs to mobilize private capital on a massive bank (as well as blended finance, see section below). Regardless of which scale to finance the carbon-emission reduction it has pathway is taken, there are three basic principles that apply:383 pledged to achieve. China introduced Green Credits in • Establish green finance typologies and standards consistent with 2012381 and is, to date, the only country to have introduced policy targets and green finance needs. standardized mandatory reporting on green loans for • Set clear guidelines for evaluating and selecting green projects, and its largest banks. It has established the world’s biggest managing money flows. green credit market, with more than $1 trillion in green credits.382 The loans cover energy saving, green transport, • Ensure transparency and reporting to track progress and avoid pollution treatment, and resource recycling. China has “greenwashing” (when an entity claims to be more environmentally also created guidelines to encourage private capital friendly than it really is), which could undermine confidence in green to invest in green sectors while restricting investment finance. in polluting industries. It plans to use public funds to improve the returns on green projects, through interest GREEN LENDING subsidies, for example, while reducing perverse subsidies Green lending practices are at various stages of development in different and raising taxes on pollution. countries. A bank’s response to environmental challenges depends on its size and capacity, as well as the market and regulatory context in which “There is a strong momentum globally to use green it operates. Challenges include: finance solutions to drive private investment needed to • No universally accepted framework for green lending. address environmental and climate challenges. China has developed definitions and disclosure rules for several green • A maturity mismatch for lending: Short-term funding of long-term finance products, including green loans and green bonds, assets. and is aggressively pushing for new instruments such • Lack of environmental, social and governance information. as green investment funds, green insurance and carbon • The inability of the banking sector to fully assess the highly complex finance. The central and local governments will introduce and evolving risks associated with climate change (see Box 54). additional incentives to unlock private capital at the scale for green and sustainable investment.” A survey of IFC’s financial clients in 2016 revealed that 61 percent of the responding institutions provided climate-related or green financing, but ——Dr. Ma Jun, Chairman of Green Finance Committee of the China Society for Finance and Banking and Co-chair only a small percentage of bank lending is explicitly classified as green of G20 Green Finance Study Group because of a lack of consistent, easily accessible definitions.384 Banks’ lending capacity is also constrained by capital requirements—depending on the state of capital markets, banks can consider selling or securitizing their loan books to address this issue. To address green finance 132 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 5 7 challenges, G20 members—and China and Germany in particular—have prioritized green finance (see Box 56). The market is innovating. Dutch Bank ING recently launched a new type of green loan for general corporate expenditures. The loan does not have conditions for the green use of proceeds; instead, a company’s overall sustainability performance and rating determine the interest to be paid on the loan. If the rating goes up, the interest rate goes down— and vice versa. For example, in April 2017, electronics giant Philips entered a revolving credit facility of €1 billion with ING using this approach. The deal is the first in the syndicated loan market where the pricing is linked to the lender’s sustainability rating. It is supported by a consortium of 16 banks, including Goldman Sachs, HSBC, and Morgan Stanley. This innovation recognizes that sustainable companies are better credit risks and provides an additional incentive for companies to improve their sustainability performance. ING funded more than €27 billion to clients aiming to green their operations in the first two Colombian banks: creating markets quarters of 2016 and the market is growing.385 for climate business via green bonds GREEN BONDS The Colombian banking sector has taken the lead in Latin A green bond is distinguished from a regular bond by its proclaimed America in addressing climate change by deploying green commitment to exclusively use the funds raised to finance projects with bonds to scale up climate finance. Bancolombia and clear environmental benefits. Green bonds can provide long-term sources Davivienda were the first private banks Latin America to of debt capital to match the funding required for long-term green issue green bonds, mobilizing private finance that will help infrastructure projects, helping countries achieve their climate targets. Colombia achieve its NDC pledge of reducing emissions by While there are currently no global standards for green bonds nor a 20 percent. Bancolombia is using the funding to step up its definition of “green” in the context of eligible assets, there are several lending to green buildings that reduce water and energy initiatives that underpin the generally used nomenclature. The Green consumption by as much as 40 percent, while Davivienda Bond Principles, 386 Climate Bond Standards, 387 assurance providers and will finance projects that address flooding risk, improved benchmark indices all play an important role in promoting transparency water management and the production of cleaner energy. and integrity in the development of the green bond market through IFC fully acquired both issuances, opening the door for various frameworks, taxonomies and qualifying criteria on bond issues institutional investors to invest in these instruments in the and categories of eligible projects. Green bonds can directly finance region, and helped the banks to follow the Green Bond or refinance investments that could allow for “recycling” of lending Principles, helping establish this standard as the reference capacity, leading to increased lending. Green bonds are increasingly for new issuances. Other banks in the region are expected attracting a much more diverse base of investors, pooling in new capital to follow this example. into climate business. As project sponsors learn more about green bonds, www.ifc.org Making It Happen: Cross-Cutting Solutions for Market Creation 133 B OX 5 8 Green finance innovations continue to create new markets IFC recently partnered with the asset management The company could have met its mandate sooner, economic opportunities for communities in Kenya. company Amundi to launch the world’s largest green but part of the objective was to help the market The bond gives investors the option of getting bond fund dedicated to emerging markets—the grow and develop. Zurich has invested in more than repaid in either carbon credits or cash, and raised Green Cornerstone Bond Fund. The $2 billion fund 120 green bonds from 75 issuers in seven currencies. $152 million—with $12 million targeted directly at will buy green bonds issued by banks in developing reforestation efforts.389 countries, which in turn will encourage more “The next stage of the evolution of the market is Financial institutions are also collaborating as never local financial institutions to issue green bonds by probably one in which there’s much more clarity and before to open up new markets for climate business increasing global demand and building local markets. objectivity in the assessment of greenness.” for climate business, including via the Catalytic ——Urban Angehrn, Group Chief Investment Officer, Finance Initiative. “This innovative partnership with IFC is a major Zurich Insurance Group achievement for Amundi, the leading European "We launched the Catalytic Finance Initiative in asset manager. This project highlights the strong The market is also testing new green bond models, 2014 to accelerate investments into high-impact capabilities in green financial innovation of Credit including the green sukuk388 and green coupon clean energy and other sustainable opportunities. Agricole Group. I consider this project as a game bonds like IFC’s Forest Bond. The first green sukuk Financial innovation and capital play a critical changer: it is both an investment opportunity for was recently issued in Malaysia by Tadau Energy, role in the transition to a low-carbon economy. institutional investors and it will have an impact on a renewables company. The proceeds of the 250 Together with our partners, including IFC, we have society by accelerating the shift of emerging markets million Malaysian ringgit ($58 million) bond will be already succeeded in raising more than $8 billion toward a green economy.” used to finance a 50 MW solar power project. The for investments. This is demonstrating the power green sukuk could encourage green finance growth ——Xavier Musca, Amundi SA of partners working together on innovative green in Islamic regions in the Middle East, Asia, and Africa. finance to achieve a greater collective impact.” Zurich Insurance Company recently fulfilled its In October 2016, IFC issued a Forest Bond, a first of its kind, to reduce emissions from deforestation and ——Anne Finucane, Vice Chairman, Bank of America pledge to buy $2 billion of green bonds—about three-and-a-half years after announcing the target. forest degradation (REDD) and develop sustainable 134 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report projects are structured in a manner to attract green bond financing which should in time increase project pipelines. The growth in green bonds and investor demand indicates that the market could significantly help increase green capital flows. The size of the global green bond market stands at $221 billion in 2017, and saw a six fold rise between 2013 and 2016.390 While this is impressive, there is ample room for growth. Initially, the market was driven by multilateral institutions, but now there is a range of issuers, with an increasing number of corporations, banks, municipalities, and governments issuing green bonds. The European Investment Bank, German development bank KfW and the World Bank are still the largest issuers, but Chinese SPD Bank is in fourth place, and among corporates, Iberdrola, TenneT Holding, and French energy companies EDF and Engie round out the top 10.391 The geographic base is also expanding. Since 2016, about 35 percent of green bonds were issued in emerging markets.392 The first sovereign green bond was issued by Poland in December 2016, followed by France in January 2017. Sovereign issuance is expected to grow; in October 2017, Fiji became the first emerging market to issue a sovereign green bond, raising 100 million Fijian dollars, or $50 million, to support climate change mitigation and adaptation.393 Green sovereign bonds allow governments to raise capital to implement infrastructure plans in line with their NDCs. A sovereign green bond can provide liquidity and scale to a market, attracting other corporate issuers and new investors. It can also improve collaboration between ministries and improve policy certainty in the country. Green bonds are playing an increasing role in helping cities to finance climate-smart urban infrastructure. Green bonds issued to fund climate-smart cities grew to $10 billion in the first half of 2017, up by 61 percent from the previous year.394 However, few cities in emerging markets have issued green bonds, largely as a result of their low credit standing. Johannesburg in South Africa issued a 1.5 billion rand green bond in 2014 and Cape Town issued a 1 billion rand green bond in 2017. These bonds fund renewable energy, water, and sanitation projects. Making It Happen: Cross-Cutting Solutions for Market Creation 135 The green bond market faces several challenges, including an insufficient government appropriations and programs, revenue from carbon taxes, pipeline of bankable projects, a lack of commonly accepted standards emissions trading schemes, utility bill charges, and bonds. and definitions, underdeveloped local bond markets, and a scale Green investment banks use a range of financial instruments, including mismatch between projects, bonds, and institutional investors. To senior and subordinate loans and equity. They also use various risk address these issues, policymakers can develop green bond guidelines management strategies such as loan loss reserves, guarantees, or and build market capacity through dedicated green bond market insurance alongside warehousing, securitization, co-investing, on-bill programs. These programs may focus on enhancing credit to improve financing and leasing. These banks typically have a mandate to avoid the rating of the bond, introducing tax incentives for investors or “crowding-out” private investment and often finance riskier projects, issuers, and reducing the cost of bond issuance and reporting. such as new technologies with less attractive risk-return profiles. Banks All green finance approaches—green banking, green investment can demonstrate accountability and validate performance by using banks, and green bonds—send a positive signal to the marketplace metrics to measure and track their performance, including emissions and other countries that a country or region is seeking to become a reductions, the private investment mobilized per unit of bank spending, leader in private low-carbon investments. It is important to note that and rates of return. they complement, but do not replace, the need for progressive climate When setting up a green investment bank, it is important to consider:396 policies that create the conditions to stimulate low-carbon investments. • Administration, mandate, and independence. Will the bank be a new GREEN INVESTMENT BANKS entity, or can existing entities be adapted? Governments can establish dedicated green investment entities to • Capitalization and financial sustainability. How much capital is overcome investment barriers and leverage public finance. Green needed? How will the bank be funded? Will there be a profit or other investment banks are entities that are established to facilitate private leverage target established? investment in low-carbon and climate-resilient infrastructure. They • Leadership and staffing. Green investment banks require strong catalyze investment by decreasing risks, increasing market transparency, private sector expertise in transacting business, building a financially and improving investor and lender understanding of low-carbon sound portfolio, and mobilizing private capital. The staff should be investments. Many green investment banks take on risks that other independent of the political decision-making process. financial actors would avoid by providing some type of concessionality, • Oversight, transparency, and accountability. How will success be such as longer loan tenors. There is a similarity between these entities tracked and reported? What are the most important targets? and blended finance approaches (see below). In emerging markets, green investment banks should ideally be set up Thirteen governments (national, provincial/state, and local) have tested as public-private partnerships that can combine public resources with different models for green investment banks—nearly all in OECD private sector expertise and investment rigor. One example of this countries.395 They have successfully mainstreamed new technologies and approach is Tata Cleantech Capital Limited, a joint venture between business models, and brought in private capital. While green investment Tata Capital and IFC. Tata Cleantech has worked with over 40 clients banks differ in scope and approach, they have similar mandates, have to identify, evaluate and fund renewable energy, energy-efficiency and the independence to design and implement interventions, and share water treatment investments.397 This model can be repeated to scale up a focus on cost-effectiveness and performance. Governments have investments in other regions. capitalized these banks using a variety of funding sources, including 136 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 5 9 Mocuba Solar: Blended finance for mitigation and adaptation in Mozambique Mozambique’s electrical grid infrastructure has not by diversifying Mozambique’s electricity generation from the Emerging Africa Infrastructure Fund. The kept pace with domestic demand for accessible and mix and reducing dependence on the country’s project also received a $7 million viability gap funding reliable modern energy supply. 398 Only 40 percent of isolated northern grid. The project, operated grant from the Private Infrastructure Development Mozambican households have access to electricity— under a 25-year power purchase agreement with Group. The remaining $14 million in project costs with rural electricity access at 27 percent.399 Electricidade de Moçambique, will also produce was raised by selling of equity in the project electricity more affordably than fossil-fuel-based company, Central Solar de Mocuba S.A. While recent Responding to these challenges, Norway-based alternatives. macroeconomic instability has shaken investor independent power producer Scatec Solar partnered confidence in Mozambique, projects like Mocuba are with Mozambique’s electricity utility (Electricidade Representing its first engagement in Mozambique’s demonstrating how Mozambican renewable energy de Moçambique) and Nortec, Norway’s development renewable energy sector and first solar PV project in projects remain a viable and attractive opportunity finance agency, to develop the country’s first utility- Sub-Saharan Africa, IFC arranged a $55 million debt for commercial financing. scale solar PV plant in Mocuba. The $76 million finance package for the Mocuba Solar project. This project will help deliver power to a rural area in one includes a $19 million loan from IFC, $19 million from www.ifc.org of the least-developed regions. Mocuba Solar will the Climate Investment Fund's Pilot Program for also contribute to climate resilience and adaptation Climate Resilience, and a $17 million syndicated loan Making It Happen: Cross-Cutting Solutions for Market Creation 137 HOW CAN BLENDED FINANCE HELP DELIVER NDC According to a report released by the World Bank Group, Building I N V E S T M E N T G OA L S ? Competitive Green Industries, up to 25 percent of climate investments Blended finance—combining concessional funds and commercial in developing countries are available for local small and medium financing—can help create markets in climate-smart industries and enterprises.400 Innovation is taking place in many emerging markets as contribute to a country’s transition to a low-carbon economy. Private clean technology is transformed into commercial business opportunities. sector investors and financiers generally look for a track record Another World Bank Group report, Innovations for Scaling Green before making investment decisions, but emerging sectors and new Sectors, outlines how advances in renewable energy, climate-smart companies have limited or no history of operational and financial agriculture, and clean water create opportunities for companies to performance, which makes them a high risk for investors. Blended address development challenges with cleaner, more climate-friendly finance demonstrates to private developers and financiers that these technologies and practices.401 sectors can be profitable, which in turn can stimulate a series of follow- There are many opportunities to grow on investments, often on fully commercial terms. Most, if not all, green enterprises in a range of selected NDCs will require new and additional investments in climate-friendly climate markets, including solar home technologies and projects, particularly from the private sector. Blended systems, community water purification, finance can play an important part to catalyze these investments. and drip irrigation. When done well, blended finance serves as a highly effective catalyst The first factor to consider is how for high-risk, nascent markets in developing countries. Since 2010, climate-related sectors differ from other IFC has blended $442 million in concessional climate finance from sectors. Green sectors are different from donors to support climate mitigation and adaptation investments. These other sectors in that the majority of green concessional funds leverage about $1.4 billion in IFC cofinancing and enterprises deliver physical products to roughly $4 billion in third-party financing. These investments have market and are highly dependent on the supported pioneering projects, including innovative energy-efficiency quality of regulatory regimes and the financing in Turkey, solar PV facilities in Thailand, and a solar PV plant public sector in general. Green businesses in Mozambique. can have high upfront capital needs and commonly take longer to reach Poor use of concessional climate finance in private sector investments profitability than enterprises in more well-established sectors. can lead to market distortions, such as over-subsidization, windfall Emerging models offer lessons for how governments can create markets gains, and inappropriate risk allocation, that undermine market creation that drive climate innovation with successful local private sector and transformation. Proper use of blended finance requires a careful participation. World Bank Group initiatives like Climate Competitive understanding and navigation of these potential pitfalls, by promoting Industries402 and the Climate Technology Program403 help local private adherence to high standards of governance by private sector clients and sector actors take advantage of opportunities for climate innovation. entities that undertake blended finance operations. These and other efforts provide a blueprint for actions that governments can take to foster private sector-led innovation in this area. C R E AT I N G M A R K E T S F O R G R E E N I N N O VAT I O N Although experimentation and iteration are needed to encourage new The investment needs in green sectors for developing countries are green markets to grow, there are a few specific actions that stakeholders, expected to be immense, with huge opportunities for local firms. including governments, development finance institutions, entrepreneurial 138 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report FIGURE 19: Projected fiscal benefit of removing fossil-fuel subsidies and reforming the price of energy $ billions (nominal) , , , , , , World Latin America and the Caribbean Advanced US$ billions Emerging Europe E.D. Asia Com. of Ind. States Sub-Saharan Africa Middle East and North Africa World Latin America and the Caribbean Percent of revenue Advanced Emerging Europe E.D. Asia Com. of Ind. States Sub-Saharan Africa Middle East and North Africa World Latin America and the Caribbean Advanced Percent of GDP Emerging Europe E.D. Asia Com. of Ind. States Sub-Saharan Africa Middle East and North Africa Percent Coal Petroleum Natural Gas Electricity (Source: Coady et al., 2015) support organizations, and impact investors, can take to encourage play a central role in achieving national climate targets. They can green sectors in developing countries. integrate cost-effective climate policies into national development strategies and budget processes, eliminate fossil-fuel subsidies, reflect the G E T T I N G T H E P R I C E S R I G H T: F O S S I L- F U E L cost of externalities in energy prices, address equity and competitiveness S U B S I D Y R E M O VA L A N D C A R B O N P R I C I N G in mitigation policies, and put in place fiscal buffers and contingency An important tool to attract private finance for the low-carbon plans to ensure fiscal sustainability. Recognizing this pivotal role, the transition is to get the prices right—eliminating counterproductive World Bank Group has created the Climate Action Peer Exchange, a subsidies and putting a price on carbon pollution. Finance ministries forum for peer exchange for finance ministers. The initiative brings Making It Happen: Cross-Cutting Solutions for Market Creation 139 together finance ministers, senior technical staff, and other relevant • Creating new institutions or strengthening existing ones to support stakeholders to design climate-smart macroeconomic policies, discuss reform. fiscal policy measures for mitigating the impact of climate change, and • Using the fiscal space created for wider public goods. develop financing strategies for implementing NDCs.404 • Reallocating the resources saved to those groups most affected by S U B S I DY R E F O R M reform by adopting complementary measures. Countries pay enormous subsidies to fossil-fuel producers and consumers. • Setting credible and predetermined timeframes for phasing out These payments frustrate progress toward NDC implementation, and subsidies, staggering the elimination of different subsidies, and deprive governments and industry of funds that could be used to finance ideally undertaking reform as part of broader sector- or economy- a transition towards a more sustainable future. Subsidies also decrease wide reforms. the competitiveness of low-carbon businesses by discouraging investment in renewable energy and energy efficiency. Fossil-fuel subsidies amounted CARBON PRICING to about $5.3 trillion in 2015, or 6.5 percent of global GDP.405 The Complementing subsidy removal, governments can use carbon pricing to International Monetary Fund estimates that eliminating subsidies in 2013 level the playing field for private investment in cleaner solutions, while would have reduced global carbon emissions by 21 percent and fossil- generating revenue that can be used to help transition away from fossil fuel-related air pollution deaths by 55 percent, while raising revenue of fuel and other industries. There has been a strong resurgence in interest 4 percent of global GDP.406 Subsidy removal will also provide a significant in carbon pricing in recent years, with 81 NDCs mentinoing carbon portion of the $90 trillion needed to finance the sustainable infrastructure pricing as a strategy to achieve their targets. Over 42 national and 25 the world needs by 2050. subnational governments are pricing carbon today, covering 15 percent Many countries have made progress in reforming subsidies for fossil of global emissions. Progressive companies are taking note and pricing fuels across a range of sectors. For example, Egypt raised fuel prices by carbon internally, while supporting government pricing policies through 78 percent in 2014 and is doubling electricity prices over the next five initiatives like the Carbon Pricing Leadership Coalition.409 More years; Indonesia raised gasoline and diesel prices by an average of than 1,400 companies, including more than 100 Fortune Global 500 33 percent in 2013 and by another 34 percent in 2014; India eliminated companies with collective annual revenues of about $7 trillion, are using diesel subsidies in October 2014 after incremental increases over the an internal carbon price or plan to do so soon.410 preceding two years; Iran raised gasoline prices by 75 percent in April The Carbon Pricing Leadership Coalition, OECD, and International 2015; and Malaysia raised fuel prices by between 10 percent and Monetary Fund developed the FASTER Principles for Successful Carbon 20 percent in 2013, and again in 2014.407 Pricing, which capture the elements of a well-designed carbon pricing The New Climate Economy recently collected a series of case studies system:411 on fossil-fuel subsidy reform, and found the following key elements of • Fairness: Reflect the “polluter pays” principle and contribute to successful government approaches:408 distributing costs and benefits equitably, avoiding disproportionate • Mobilizing resources to support a robust reform process. burdens on vulnerable groups. • Providing clear, open, and honest information on the scale of • Alignment of policies and objectives: Use carbon pricing as one of a subsidies, their costs and effects, who pays and who benefits, plans for range of measures that facilitate competition and openness, ensure reform, and complementary measures to be adopted. 140 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report equal opportunities for low-carbon alternatives, and interact with a broader set of climate and non-climate policies. • Stability and predictability: Implement carbon prices, within a stable policy framework, that give a consistent, credible, and strong investment signal. • Transparency: Be clear in design and implementation. • Efficiency and cost-effectiveness: Ensure that design promotes economic efficiency and reduces the costs of emission reduction. • Reliability and environmental integrity: Allow for a measurable reduction in environmentally harmful behavior. Carbon pricing is attractive to business because it generates new revenue streams that can be used to enhance and support the creation of new low-carbon markets. In addition to supporting low-income households, the Carbon Pricing Leadership Coalition reports that revenues have been used to support low-carbon energy, energy efficiency, research and innovation, climate-friendly infrastructure, and international commitments.412 For example, between 2009 and 2012, the states in the Regional Greenhouse Gas Initiative in the Northeastern United States directed more than 70 percent of revenues from their cap-and-trade program to energy efficiency and renewable energy projects that are estimated to save consumers more than $2 billion in energy use and deliver 8 million tons of carbon reductions.413 “Carbon pricing is a key instrument to anchor addressing climate change into our economic system. Putting a price on carbon will create an economic incentive to speed up the transition to a low-carbon economy and will unlock the private innovation— and capital—needed to make the transition from fossil fuels to the renewable century. In anticipation of this inevitable policy opportunity, over 1,200 businesses—including Royal DSM—are already working to ‘future proof’ their companies, by applying an internal carbon price, for example to their investment decisions.” —— Feike Sijbesma, Chief Executive Officer, Royal DSM Making It Happen: Cross-Cutting Solutions for Market Creation 141 P U B L I C - P R I VAT E PA R T N E R S H I P S C I T Y C R E D I T WO RT H I N E SS As local governments move to build the low-carbon, resilient waste, To attract funds from private investors for climate-smart urban water and transport infrastructure that they need to meet the demands infrastructure, cities need to be creditworthy. This includes having of their citizens, they are increasingly looking to the private sector for credible accounting mechanisms, sound financial management systems, solutions. One tool municipalities are employing is PPPs. Many of independent auditing of local government finance and performance today’s climate-related infrastructure projects are PPPs by definition, evaluation for local government services. Estimates reveal that only even if the partnership is not explicit. The government needs the infusion 4 percent of the 500 largest cities in developing countries are of capital, and the innovation, smart technology, and cost-effectiveness creditworthy in international financial markets and 20 percent in their that comes with it, and the private sector is looking for healthy returns domestic context. Creditworthiness is a key requirement for cities and a clear business model that is driven by predictable regulations, to unlock the long-term resources they need to finance their capital permits and incentives. PPPs are an important vehicle to promote investments. By reaching investment-grade creditworthiness, local cost-effective infrastructure projects that spur innovation. PPPs can governments will be able to tap into capital markets and other sources contractually set minimum performance standards that reduce emissions of sub-national borrowing. from the business-as-usual infrastructure investment—for example, To address this need, the World Bank Group launched the City deploying energy-efficient LED streetlights with specific energy- Creditworthiness Initiative. This effort includes City Creditworthiness savings targets, transforming hundreds of tons of municipal waste into Academies with hands-on learning programs that teach city leaders renewable power, or minimum loss reduction targets for water supply. the fundamentals of creditworthiness and municipal finance. Using Other possibilities include contractual incentives for utilization of a preliminary online self-assessment toolkit, participants develop renewable energy, including access to a power purchase agreement or a customized preliminary action plan of specific institutional to concessional financing. Governments can use incentives in a PPP to reforms, capacity building, and other actions that will improve drive technology innovation, such as via advanced scheduling/logistics their creditworthiness and their ability to plan, finance and deliver software for urban transport systems. The competitive bidding feature infrastructure services. Complementing the Academies, City of PPPs also ensures that developers maximize cost efficiency to have the Creditworthiness Implementation Programs provide in-depth, multi- least-cost bid, saving money for the government and consumers. PPPs year, on-the-job, customized technical assistance programs to help local can also serve to pilot new approaches, and simultaneously contribute to governments strengthen their financial management and performance, the preparation of applicable regulations and contractual frameworks— and, wherever possible, pursue market-based financing transactions for this develops a model and a framework that can pave the way to create climate-smart infrastructure projects. So far, 261 local authorities across new markets. Finally, PPPs allow local governments to address climate 30 different countries have participated in the Academy training.414 resilience in public infrastructure investments, given that they tend to be longer-term (25 years or more) concessions, thereby allowing S U P P O R T, T O O L S A N D R E S O U R C E S T O C R E AT E the government to require that future climate impacts like increased MARKETS floods or sealevel rise be taken into account in the project’s design and As countries move to implement their climate strategies, now more than operation. ever the private sector is needed—and is ready—to provide technology solutions, financing and business models. With the right mix of enabling policies, incentives and targeted finance, the trillions of dollars that are needed to construct low-carbon infrastructure, finance climate-smart 142 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 6 0 PPP success stories B H U B A N E S WA R S T R E E T L I G H T I N G , B E L G R A D E W A S T E M A N A G E M E N T/ The city government was concerned by the I N D I A 415 WA S T E -TO - E N E RG Y P P P environmental threat posed by the city’s growing Through this PPP model, the City of Bhubaneswar The city of Belgrade signed a PPP contract with waste problem. The city’s existing landfill in Vinča sought bids that offered the highest energy Suez Groupe SAS of France and Japan's Itochu is the largest landfill in Europe. It was designed savings, with a minimum savings of 30 percent. The Environment Investment to build and operate a new in the 1970s. “Vinča” is now a 50-meter-high pile winning company committed to save 75 percent on waste treatment and disposal complex for 25 years. of untreated garbage, releasing leachate and gas current energy consumption on the existing street The project includes a waste-to-energy plant that from rotting waste, polluting the soil and air, and lighting system by retrofitting 20,000 streetlights. will produce electricity and heat for the city. causing numerous spontaneous fires. With the city The winning bidder will invest in and manage generating 500,000 tons of waste each year, this This is Serbia’s first large-scale PPP. By successfully Bhubaneswar’s street lighting system and receive needed to be fixed. With this PPP, Belgrade can closing the nation’s first PPP transaction, IFC has payments generated by realized energy savings. The begin turning its growing environmental problem helped Belgrade demonstrate the fitness of the project is expected to generate annual savings to into a renewable energy asset, making it a cleaner country’s new regulatory framework and institutions, government of $100,000 and reduce greenhouse- and more livable city and helping it comply with which are necessary for Serbia to implement PPPs gas emissions by an estimated 10,500 tons of carbon European directives on waste management and on a large scale. The success of this project will help dioxide annually. IFC has replicated this project diversion rates. the country bring more projects to the market and in Gujarat and taken it to scale in Odisha state by www.ifc.org generate greater private sector investment in its rolling it out in five cities. Bhubaneswar is part of municipal infrastructure. India’s Smart City program. Making It Happen: Cross-Cutting Solutions for Market Creation 143 BOX 61 Achieving creditworthiness: The city of Arusha, Tanzania In August 2014, the Creditworthiness Partnership up country-wide with support from the World with the Rockefeller Foundation set out to Bank and the national government. Early in 2017, support the City of Arusha—member of the 100 the government rolled out the system to all local Resilient Cities network—in facing a revenue government authorities, and currently the use of the collection challenge. The City Creditworthiness collection system has been adopted by 158 out of 168 Initiative performed an assessment of revenue municipalities. sources, a review of the legal environment, and a The analysis and recommendations are also being study on enhancing the operational design of the used to inform the design of a second additional government’s information collection on revenue financing of the World Bank-funded Tanzania sources. Strategic Cities Project, currently under preparation As a result, the city has experienced an average and have helped identify where the gaps and issues increase in its revenues of nearly 30 percent. experienced by the city are and how they can be As Arusha is the first city to operationalize this addressed. collection system, the findings are relevant for www.worldbank.org/en/topic/urbandevelopment/ other cities in Tanzania. The positive impact that brief/city-creditworthiness-initiative the system has had in the city is now being scaled 144 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report agriculture and construct green buildings can become a significant investment opportunity. A variety of platforms and initiatives are working to address the growing need for public-private collaboration that achieves NDC targets by scaling up private sector investment in climate business. These include the NDC Partnership (See Box 62), the NDC Invest initiative led by the Inter-American Development bank,416 the Low-Emissions Development Strategies Global Partnership, which recently launched the NDC Investment Accelerator,417 as well as NDCi Global, a community resource to aid implementation and investment in NDCs.418 “There’s plenty of private investment money potentially available for sustainable investing. But investors need clear market signals, and a confidence that governments are serious. This is where NDCs can help hugely, in setting the direction of travel for the coming decades. We now need to develop private-sector friendly policies, finance and partnerships that will make these goals a reality.” —— Andrew Steer, President, World Resources Institute There are many solutions that have already delivered a strong start towards achieving the promise of the Paris Agreement. By working together to create markets for these solutions, we can accelerate ambition—and investment—at the scale that is needed. Making It Happen: Cross-Cutting Solutions for Market Creation 145 B OX 6 2 NDC Partnership: Accelerating action and Mobilizing Finance The NDC Partnership is a global coalition of countries KNOWLEDGE SHARING supports governments in framing a “Partnership and international institutions working together to Plan,” to help connect stakeholders that can provide The Partnership’s Knowledge and Research mobilize support and achieve ambitious climate goals, technical assistance and mobilize investments. Services help countries implement their NDCs by while enhancing sustainable development. Launched fostering learning between countries and by making Equally important, the NDC Partnership helps at COP22 in Marrakesh, the NDC Partnership aims to information easily accessible. The Partnership countries learn about financing opportunities. The enhance cooperation so that countries have access to raises awareness of and enhances access to climate NDC Funding and Initiatives Navigator, introduced in the technical knowledge and financial support they support initiatives, best practices, analytical tools, November 2016, is a searchable database of funding, need to achieve large-scale climate and sustainable and resources. Information to address specific capacity building, and technical assistance available development targets as quickly and effectively as implementation needs is made available through to support NDC planning and implementation that possible, and increase global ambition over time. online portals, as well as communities and networks includes upcoming grants and technical support for The Partnership is guided by a steering committee that generate opportunities for knowledge sharing. which countries and organizations can apply. made up of developing and developed nations and international institutions, and co-chaired by the The NDC Toolbox Navigator, launched in May 2017, is a database of tools, resources, and advisory services “We have to do our utmost to achieve the goals governments of Germany and Morocco. to help countries implement their NDCs. It will soon of the Paris Agreement and of the 2030 Agenda. I N - C O U N T RY E N G AG E M E N T be complemented by Climate Watch, an exciting Supporting our partners quickly and effectively is key. new data platform that brings together data sets on That is why we have co-founded the global NDC The Partnership engages directly with ministries historical emissions, socio economic indicators, NDC Partnership. With its strong focus on cooperation and other stakeholders to assess needs and identify content, links to the Sustainable Development Goals, and collaboration, this coalition of developed and opportunities for collective action across sectors, and emissions scenarios. developing countries is linking the global climate regions, and international partners. Through and sustainable development agendas. We can only the Partnership, members provide targeted MOBILIZING FINANCE achieve these goals if we manage to mobilize the and coordinated assistance so that nations can private sector. The sooner our focus shifts from cost effectively develop and implement robust climate Mobilizing finance is key to successful to opportunity, the faster we will be successful.” and development plans. Leveraging the skills and implementation of the NDCs. In-country, the Partnership engages closely with finance ministers ——Dr. Gerd Müller, Federal Minister for Economic resources of multiple partners towards a common Cooperation and Development, Germany objective, and delivering with speed, is a unique value and works to bring environment and finance proposition that the Partnership brings. ministries into greater alignment. The Partnership www.ndcpartnership.org 146 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report B OX 6 3 EBRD: Combining policy support, technical assistance and finance to support the green economy Preserving and improving the environment are used in building construction with the legislation, standardized power purchase agreements, and central features of a modern, well-functioning including establishing a state registry of energy national standards for grid interconnection. In 2016, market economy. Recognizing this, the European certificates and inspection protocols, and drafting the EBRD supported the government’s passing of Bank for Reconstruction and Development (EBRD) rules and procedures for accreditation of green green economy legislation that removed several launched the Green Economy Transition approach building professionals. By creating a positive policy remaining barriers to financing renewable energy. in 2015 to support projects with meaningful environment for energy-efficiency improvements, The bank has cofinanced the installation of three environmental benefits. The initiative seeks to the Kyrgyz Republic has seen growing private renewable energy projects, including a solar power increase the bank’s annual volume of green financing investment in building energy efficiency. In 2012, the plant in Burnoye. In 2017, the Burnoye facility from an average of 24 percent over the previous 10 EBRD launched a financing facility for local banks doubled its capacity with the bank’s support, years to 40 percent by 2020. To this end, the bank to lend money to building owners and operators making it the largest renewable energy generator in uses a combination of financing, technical assistance, for energy-efficiency investments. The initial credit Central Asia. and policy dialogue to deliver sustainable climate facility of $20 million was increased to $35 million in mitigation and adaptation investments. The bank 2016 to accommodate increasing demand. “The business model of the EBRD is particularly has had notable successes using this approach in the suited to scale up climate financing by combining in a RENEWABLE ENERGY IN KAZAKHSTAN Kyrgyz Republic and Kazakhstan.419 practical manner policy dialogue, project preparation, More than 70 percent of Kazakhstan’s electricity is capacity building and investment with a focus on the BUILDING ENERGY EFFICIENCY IN KYRGYZ produced in ageing coal-fired plants. The energy private sector. Through this approach, the EBRD has REPUBLIC sector accounts for 80 percent of the country’s developed a broad range of climate mitigation and The EBRD engaged with the Kyrgyz State carbon emissions. The EBRD has worked with the adaptation activities which already account for over Agency for Construction and Architecture to government to develop a Sustainable Energy Action a third of its total annual investment. Climate action develop energy performance legislation. The law Plan and renewable energy legislation. It has also with scale and reach!” was adopted in early 2012, and included a legal facilitated a series of policy dialogues and provided ——Josué Tanaka, Managing Director of Energy responsibility for building owners and instruments technical support, resulting in the introduction of a Efficiency and Climate Change, EBRD to promote energy efficiency. The bank helped cost allocation system, draft feed-in tariff support Kyrgyz authorities harmonize technical standards for renewables, concession award procedures, www.ebrd.com Making It Happen: Cross-Cutting Solutions for Market Creation 147 Making it happen: Tools, initiatives and resources The Global Innovation Lab for Climate Finance helps to The Global Commission on the Economy and Climate identify, design and pilot the next generation of climate finance comprises former heads of government and finance ministers instruments for all sectors. and leaders in the fields of economics and business to provide authoritative and independent evidence on the relationsihp www.climatefinancelab.org between actions that strengthen economic performance and The Climate Bonds Initiative is an international organisation those that reduce the risk of climate change. working to promote investment in projects and assets necessary http://newclimateeconomy.net for a rapid transition to a low-carbon and climate-resilient economy. The Carbon Pricing Leadership Coalition is managed by the World Bank Group, and comprises over 200 governments, https://www.climatebonds.net/ business and civil society groups working together to accelerate The Green Bonds Principles are voluntary process guidelines that the uptake of successful carbon pricing around the world. recommend transparency and disclosure and promote integrity www.carbonpricingleadership.org in the development of the green bond market by clarifying the approach for issuing green bonds. The World Bank Group's Public-Private Partnerships efforts help to strengthen data, build capacity, develop tools, promote https://www.icmagroup.org/Regulatory-Policy-and-Market- disclosure and encourage stakeholder engagement around PPPs Practice/green-social-and-sustainability-bonds/green-bond- as a solution. principles-gbp http://www.worldbank.org/en/topic/publicprivatepartnerships The UNEP Inquiry into the Design of a Sustainable Financial System works to accelerate the transition to a green economy by The World Bank Group's City Creditworthiness Initiative identifying best practice, and exploring financial market policy and provides cities with hands-on learning programs that teach regulatory innovations. leaders the fundamentals of creditworthiness and municipal finance. www.unep.org/inquiry http://www.worldbank.org/en/topic/urbandevelopment/brief/ The World Bank Group's InfoDev Climate Technology city-creditworthiness-initiative Program helps high-growth, clean-tech firms commercialize and scale the most innovative private sector solutions to climate The NDC Partnership is a global coalition of countries and change, and hosts the Climate Innovation Network, which international institutions working together to mobilize support convenes a global conversation that spreads the diffusion of and achieve ambitious climate goals, while enhancing sustainable innovative business models across borders and attracts public and development. private finance. www.ndcpartnership.org www.infodev.org/climate Climate Action in Financial Institutions is a coalition of public The UN Global Compact Climate Action Platform is designed and private financial institutions around the globe aiming to to help business and investors to contribute to enhancing and adopt a pathway to systematically integrate climate change accelerating NDC and sustainable development goals action and considerations across their strategies, programs and operations. implementation. The Platform is led by the UN Global Compact www.mainstreamingclimate.org together with UNEP, UNFCCC, PRI and WRI. www.unglobalcompact.org/sdgs/action-platforms 148 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report Making It Happen: Cross-Cutting Solutions for Market Creation 149 Endnotes 1 World Bank Group (2014), Turn Down the Heat: Confronting the New Climate Normal, available at http://www. 33 NDC Partnership website, see http://ndcpartnership.org/country/morocco. worldbank.org/en/topic/climatechange/publication/turn-down-the-heat. 34 See http://newsroom.unfccc.int/unfccc-newsroom/sweden-plans-to-be-carbon-neutral-by-2045/. 2 IFC (2016), Climate Investment Opportunities in Emerging Markets, available at http://www.ifc.org/wps/wcm/ 35 See http://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external corporate site/news+and+events/news/ connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/new+ifc+report+points+to+%242 scaling+solar+delivers+low+cost+clean+energy+for+zambia for more information. 3+trillion+of+climate-smart+investment+opportunities+in+emerging+markets+by+2030. 36 Bloomberg New Energy Finance (2017), 2Q 2017 Clean Energy Investment Trends. 3 The New Climate Economy (2016), Driving Low-Carbon Growth Through Business and Investor Action, available at www.newclimateeconomy.net. 37 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 4 Climate Policy Initiative (2015), Landscape of Climate Finance, available at https://climatepolicyinitiative.org/ 38 Bloomberg New Energy Finance (2017), McCrone: Companies Buying Green Power—How Big a Trend?, available at publication/global-landscape-of-climate-finance-2015/. http://bit.ly/2oUih3J. 5 The Global Commission on the Economy and Climate (2016), The Sustainable Infrastructure Imperative: Financing 39 International Energy Agency (2016), World Energy Investment Outlook 2016, available at http://dx.doi.org/10.1787/ for Better Growth and Development, available at http://newclimateeconomy.report/2016/. weo-2016-en. 6 The Global Commission on the Economy and Climate (2014), Better Growth, Better Climate: The New Climate 40 See http://spappssecext.worldbank.org/sites/indc/Pages/INDCHome.aspx. Economy Report, available at http://newclimateeconomy.report/2014/. 41 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 7 PBL Netherlands Environmental Assessment Agency (2015), Trends in Global CO2 Emissions: 2015 Report, available at 42 Ibid. http://edgar.jrc.ec.europa.eu/news_docs/jrc-2015-trends-in-global-CO2-emissions-2015-report-98184.pdf. 43 International Energy Agency (2017), World Energy Investment 2017, available at http://dx.doi. 8 Ibid. org/10.1787/9789264277854-en. 9 Business and Sustainable Development Commission (2016), Valuing the SDG Prize in Cities: Unlocking Business 44 Ibid. Opportunities to Accelerate Sustainable and Inclusive Growth, available at http://businesscommission.org/news/ 45 International Energy Agency (2016), Medium-Term Renewable Energy Market Report 2016, available at http://dx.doi. press-release-companies-pushing-sustainable-urban-infrastructure-could-create-3-7-trillion-annual-windfall- org/10.1787/renewmar-2016-en. in-2030. 46 Lazard (2016), Lazard’s Levelized Cost of Energy Analysis—Version 10.0, available at https://www.lazard.com/ 10 See http://www.ifc.org/wps/wcm/connect/Industry_EXT_Content/IFC_External_Corporate_Site/PPP/Priorities/ media/438038/levelized-cost-of-energy-v100.pdf. Cities/. 47 Ibid. 11 Clark, P., Financial Times (May 18, 2017), The Big Green Bang: How Renewable Energy Became Unstoppable, available 48 Note that the level of cost reduction is not homogenous across countries. Renewable power generation costs are at https://www.ft.com/content/44ed7e90-3960-11e7-ac89-b01cc67cfeec. site specific—see http://www.irena.org/DocumentDownloads/Publications/IRENA_Power_to_Change_2016.pdf ) 12 Okonjo-Iweala, N., Financial Times (July 25, 2017), Acting on Climate Change is Africa’s Opportunity, available at for more information. https://www.ft.com/content/48e7ca40-712e-11e7-aca6-c6bd07df1a3c. 49 Bloomberg New Energy Finance (2017), Long-Term Electric Vehicle Outlook 2017. 13 Clark, P., Financial Times (May 18, 2017), The Big Green Bang: How Renewable Energy Became Unstoppable, available 50 Clean Technica (2016), Global Grid-Connected Energy Storage Capacity to Double in 2016, Skyrocket by 2025, at https://www.ft.com/content/44ed7e90-3960-11e7-ac89-b01cc67cfeec. available at http://bit.ly/2aBHUQy. 14 Bloomberg New Energy Finance (2016), New Energy Outlook, available at https://about.newenergyfinance.com/ 51 Lazard (2016), Lazard’s Levelized Cost of Energy Analysis—Version 10.0, available at https://www.lazard.com/ international/china/new-energy-outlook/. media/438038/levelized-cost-of-energy-v100.pdf. 15 Ibid. 52 Ibid. 16 Ibid. 53 Ibid. 17 See http://energyandmines.com/2016/05/realizing-energy-savings-sustainable-power-and-enabling-community- 54 REN21 (2017), Renewables Global Futures Report: Great Debates Towards 100% Renewable Energy, available at engagement-with-renewables-for-mines/. http://www.ren21.net/wp-content/uploads/2017/03/GFR-Full-Report-2017.pdf. 18 Bloomberg New Energy Finance (2016), New Energy Outlook, available at https://about.newenergyfinance.com/ 55 International Energy Agency (2016), Medium-Term Renewable Energy Market Report 2016, available at http://dx.doi. international/china/new-energy-outlook/. org/10.1787/renewmar-2016-en. 19 Ibid. 56 Frankfurt School-UNEP Centre/ Bloomberg New Energy Finance (2017), Global Trends in Renewable Energy 20 International Energy Agency (2016), Energy Efficiency Market Report 2016, available at https://www.iea.org/eemr16/ Investment 2017, available at http://bit.ly/2ntIJnq. files/medium-term-energy-efficiency-2016_WEB.PDF. 57 MAKE (2017), Q1/2017—Global Wind Power Market Outlook Update. 21 Ibid. 58 International Energy Agency (2016), Medium-Term Renewable Energy Market Report 2016, available at http://dx.doi. 22 Grantham Institute (2017), Global Trends in Climate Change Legislation and Litigation, available at http://www.lse. org/10.1787/renewmar-2016-en. ac.uk/GranthamInstitute/publication/global-trends-in-climate-change-legislation-and-litigation-2017-update/. 59 MAKE (2017), Q1/2017—Global Wind Power Market Outlook Update. 23 See https://www.nytimes.com/2017/08/12/world/americas/chile-green-energy-geothermal.html. 60 Bloomberg New Energy Finance (2017). 24 See http://climateobserver.org/chile-launches-new-national-action-plan-climate-change/. 61 Lazard (2016), Lazard’s Levelized Cost of Energy Analysis—Version 10.0, available at https://www.lazard.com/ 25 See http://es.presidencia.gov.co/noticia/170214-Fondo-Colombia-Sostenible-maximiza-dividendos-ambientales-de- media/438038/levelized-cost-of-energy-v100.pdf. la-paz. 62 Clean Technica (2016), Global Grid-Connected Energy Storage Capacity to Double in 2016, Skyrocket by 2025, 26 NDC Partnership website, see http://ndcpartnership.org/country/colombia. available at http://bit.ly/2aBHUQy. 27 See http://www.worldbank.org/en/news/press-release/2017/09/28/finance-ministers-for-climate-action. 63 Ibid. 28 NDC Partnership website, see http://ndcpartnership.org/country/costa-rica. 64 International Renewable Energy Agency (2016). Data & Statistics, available at http://resourceirena.irena.org/ 29 To view Cote d’Ivoire’s NDC, see http://www4.unfccc.int/Submissions/INDC/Published%20Documents/ gateway/dashboard/. C%C3%B4te%20d'Ivoire/1/Document_INDC_CI_22092015.pdf. 65 International Renewable Energy Agency (2015), Renewable Energy Target Setting, download at http://www.irena. 30 Download Plan Climat at http://www.diplomatie.gouv.fr/fr/politique-etrangere-de-la-france/climat/actualites- org/DocumentDownloads/Publications/IRENA_RE_Target_Setting_2015.pdf. liees-au-dereglement-climatique/actualites-2017-liees-au-dereglement-climatique/article/plan-climat-faire-de-l- 66 Cozzi, P. (2012), Assessing Reverse Auctions as a Policy Tool for Renewable Energy Deployment, 7, available at accord-de-paris-une-realite-pour-les-francais-pour-l. https://pdfs.semanticscholar.org/2e24/ed2d70df0cd9480b087156d88a647bb67011.pdf. 31 See http://www.mospi.nic.in/sites/default/files/publication_reports/Energy_Statistics_2017r.pdf.pdf. 32 See https://renewablesnow.com/news/renewables-slice-35-of-power-generation-mix-in-morocco-510884/. 150 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report 67 Shrimali, G., Konda, C., Farooquee, A. A., & Nelson, D. (2015), Reaching India’s Renewable Energy Targets : Effective 104 Ibid. Project Allocation Mechanisms, Climate Policy Innitiative, available at https://climatepolicyinitiative.org/wp- 105 Ibid. content/uploads/2015/05/150512_Auctions_FINAL.pdf. 106 Ibid. 68 International Renewable Energy Agency (2015), Renewable Energy Target Setting, available at http://bit.ly/1RGq90i. 107 Ibid. 69 Colthorpe, A. (2017), High Interest in India’s First Utility-Scale Solar-Plus-Storage Tender, available at https://www. pv-tech.org/news/high-interest-in-indias-first-utility-scale-solar-plus-storage-tender. 108 ESMAP (2015), SIDS Dock Support Program, available at http://bit.ly/2gLoH1v. 70 Dalby, C. (2017), China Needs to Priotize Westward Grid Expansion, available at http://www.globaltimes.cn/ 109 Bardouille, P. & Shepherd, D. (2016), Emergence of a Commercial Market for Mini-Grids in Africa. ESI Africa. content/1035727.shtml. 110 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 71 Government of India (2014), Draft Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects— 111 Eller, A. & Gauntlett, D. (2017), Energy Storage Trends and Opportunities in Emerging Markets, IFC, available at circulation for comments reg, available at http://bit.ly/1AsWWvQ. http://bit.ly/2pZrubx. 72 Government of India (2014), Pilot-Cum-Demonstration Project for Development of Grid Connected Solar PV Power 112 Ibid. Plants on Canal Banks and Canal Tops, available at http://bit.ly/2fuVAms. 113 Ibid. 73 Mercom Capital Group (n.d.), Mercom Exclusive: Pent Up Demand for Projects Results in Record Low Bid of Rs.3.15/ 114 REN21 (2017), Renewables Global Futures Report: Great Debates Towards 100% Renewable Energy, available at kWh at the Kadapa Solar Auction in India, available at http://bit.ly/2hrfcIP. http://www.ren21.net/wp-content/uploads/2017/03/GFR-Full-Report-2017.pdf. 74 Deutsches Institut für Entwicklungshilfe (n.d.), German Technology to Boost India’s RE Sector, available at https:// 115 Bloomberg New Energy Finance/Lighting Global (2016), Off-Grid Solar Market Trends Report 2016, available at www.giz.de/en/worldwide/26502.html. http://bit.ly/2yp8Lcu. 75 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 116 Hill, J. S. (2016), Global Grid-Connected Energy Storage Capacity to Double in 2016, Skyrocket by 2025, Clean 76 See International Energy Agency (2017), Getting Wind and Sun onto the Grid: A Manual for Policy Makers, www.iea. Technica, available at http://bit.ly/2aBHUQy. org. 117 Sustainable Energy for All (2017), Energizing Finance: Scaling and Refining Finance in Countries with Large Energy 77 International Energy Agency (2017), Getting Wind and Sun onto the Grid: A Manual for Policy Makers, available at Access Gaps, available at http://www.se4all.org/EnergizingFinance. https://www.iea.org/publications/insights/insightpublications/Getting_Wind_and_Sun.pdf. 118 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA . 78 Ibid. 119 Ibid. 79 Ofgem (n.d.), Electricity Market Reform, available at http://bit.ly/2fuiryz. 120 Bardouille, P. & Shepherd, D. (2016), Emergence of a Commercial Market for Mini-Grids in Africa. ESI Africa. 80 The State of California of the United States of America (2010), AB-2514 Energy Storage Systems, see http://www. 121 World Bank Group (n.d.), Regulatory Indicators for Sustainable Energy, available at http://rise.esmap.org/. energy.ca.gov/assessments/ab2514_energy_storage.html 122 Africa Progress Panel (2017), Lights Power Action, available at http://bit.ly/2nxj5Kd. 81 GTM (2017), The Long-Awaited Massachusetts Energy Storage Target Has Arrived, available at http://bit. 123 World Bank Group (n.d.), Regulatory Indicators for Sustainable Energy, available at http://rise.esmap.org/. ly/2u7QoaW. 124 To download this guide, see http://mnre.gov.in/file-manager/UserFiles/Best-Practices-Guide-on-State-Level-Solar- 82 NREL (2014), A Deeper Look into Yieldco Structuring, available at http://bit.ly/1EUDno3. Rooftop-Photovoltaic-Programs.pdf. 83 Baxter, R. (2016), Energy Storage Financing: A Roadmap for Accelerating Market Growth, available at http://bit. 125 Ibid. ly/2h1RDlW. 126 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 84 GTM (2016), Corporate Power-Purchase Agreements: Proceed Carefully When Buying Renewable Energy, available at http://bit.ly/2wVAYL0. 127 Massachusetts Energy Storage Initiative (n.d.), State of Charge, available at http://bit.ly/2drZHtF. 85 O’Sullivan, F. M. & Warren, C. H. (2016), Solar Securitization: An Innovation in Renewable Energy Finance, available at 128 International Renewable Energy Agency (n.d.), IRENA Project Navigator, available at https://navigator.irena.org/ http://bit.ly/2w72zJo. index.html. 86 Baxter, R. (2016), Energy Storage Financing: A Roadmap for Accelerating Market Growth, available at http://bit. 129 See https://www.usicef.org/ for more information. ly/2h1RDlW. 130 Off-Grid Electric (2016), Off Grid Electric Announces $45 Million Debt Financing for Distributed Solar Leasing to 87 Macquarie Capital (2017), Macquarie Capital, Advanced Microgrid Solutions and CIT Close Industry-First Battery African Households, Raising a Total of $70 Million in Investment this Year, available at http://bit.ly/1Jg8LKE. Storage Project Financing, available at http://bit.ly/2vTx81m. 131 Bloomberg (2016), Nova Lumos Raises $90 Million for Off-Grid Solar in Africa, available at https://bloom.bg/2fIcXz9. 88 Susi Partners (2017), Energy Transition Infrastructure as Investment Field—SUSI Energy Storage Fund reaches first 132 World Bank Group (2017), Enabling the Business of Agriculture 2017, available at http://eba.worldbank.org. closing at 66 million euro, available at http://bit.ly/2jnoB4O. 133 Goedde, L., Horii, M., & Sanghvi, S. (2015), Global Agricultures, Many Opportunities, McKinsey and Company on 89 Eller, A. & Gauntlett, D. (2017), Energy Storage Trends and Opportunities in Emerging Markets, IFC, available at Investing, 2, McKinsey and Company, available at http://bit.ly/2k47dCk. http://bit.ly/2pZrubx. 134 Ibid. 90 Bloomberg New Energy Finance/Lighting Global (2016), Off-Grid Solar Market Trends Report 2016, available at 135 World Bank Group (2017), Enabling the Business of Agriculture 2017, available at http://eba.worldbank.org. http://bit.ly/2yp8Lcu. 136 Food and Agriculture Organization of the United Nations (FAO) (2012), Smallholders and Family Farmers, 91 Bloomberg New Energy Finance (2016), Off-Grid Solar Market Trends Report 2016, available at https://about.bnef. Sustainability Pathways, available at http://bit.ly/1gsC43t. com/blog/off-grid-solar-market-trends-report-2016/. 137 For more information, see http://www.worldbank.org/en/topic/agriculture/publication/making-climate-finance- 92 Ibid. work-in-agriculture. 93 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 138 Consultation with FAO Global Perspectives Studies Team, as well as FAO (2017), The Future of Food and 94 Bloomberg New Energy Finance (2017), Off-Grid and Mini-Grid: Q1 2017 Market Outlook, available at http://bit. Agriculture—Trends and challenges, Rome. ly/2ifHzW7. 139 FAO (2017), The Future of Food and Agriculture—Trends and Challenges, available at http://www.fao.org/ 95 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. publications/fofa/en/. 96 Eller, A. & Gauntlett, D. (2017), Energy Storage Trends and Opportunities in Emerging Markets, IFC, available at 140 Alexandratos, N. and J. Bruinsma (2012) World Agriculture Towards 2030/2050, the 2012 revision. ESA Working Paper http://bit.ly/2pZrubx. No 12-03. Rome FAO. 97 Ibid. 141 Ibid. 98 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 142 Goedde, L., Horii, M., & Sanghvi, S. (2015), Pursuing the Global Opportunity in Food and Agribusiness, McKinsey and 99 International Energy Agency (2016), World Energy Investment Outlook 2016, available at http://dx.doi.org/10.1787/ Company, available at http://bit.ly/2yvW0wH. weo-2016-en. 143 CGIAR website, Food Emissions, available at https://ccafs.cgiar.org/bigfacts/#theme=food-emissions. 100 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA. 144 World Bank Group (2016), Foster Climate-Smart Agriculture, available at http://bit.ly/2xzXJo6. 101 International Renewable Energy Agency (2016), The Power to Change: Solar and Wind Cost Reduction Potential to 145 See, for example, https://www.theguardian.com/sustainable-business/2017/jul/17/hsbc-investigation-palm-oil- 2025, available at http://bit.ly/1Yr4yhk. company-deforestation-allegations-noble-plantations. 102 International Energy Agency (2016), Medium-Term Renewable Energy Market Report 2016, available at http://dx.doi. 146 Herrero, M., Henderson, B., Havlík, P., Thornton, P. K., Conant, R. T., Smith, P., & Gill, M. (2016), Greenhouse Gas org/10.1787/renewmar-2016-en. Mitigation Potentials in the Livestock Sector, available at http://www.nature.com/nclimate/journal/v6/n5/full/ 103 REN21 (2017), Renewables 2017: Global Status Report, available at http://bit.ly/2ghNrlA . nclimate2925.html?foxtrotcallback=true. Endnotes 151 147 Gerber, P. J., Steinfeld, H., Henderson, B., Mottet, A., Opio, C., Dijkman, J., & Tempio, G. (2013), Tackling Climate Change 180 World Bank Group (2017), Making Climate Finance Work in Agriculture, available at http://documents.worldbank. Through Livestock: A Global Assessment of Emissions and Mitigation Opportunities, Rome: Food and Agriculture org/curated/en/986961467721999165/pdf/ACS19080-REVISED-OUO-9-Making-Climate-Finance-Work-in- Organization of The United Nations, available at http://bit.ly/1Ttez9O. Agriculture-Final-Version.pdf. 148 Goedde, L., Horii, M., & Sanghvi, S. (2015), Pursuing the Global Opportunity in Food and Agribusiness, McKinsey and 181 Lucon O., D. Ürge-Vorsatz, A. Zain Ahmed, H. Akbari, P. Bertoldi, L.F. Cabeza, N. Eyre, A. Gadgil, L.D.D. Harvey, Y. Company, available at http://bit.ly/2yvW0wH. Jiang, E. Liphoto, S. Mirasgedis, S. Murakami, J. Parikh, C. Pyke, and M.V. Vilariño, 2014: Buildings. In: Climate Change 149 Hristov, A. N., Oh, J., Lee, C., Meinen, R., Montes, F., Ott, T., & Oosting, S. (2013), Mitigation of Greenhouse Gas 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Emissions in Livestock Production: A Review of Technical Options for Non-CO2 Emissions, Rome: Food and Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, Agriculture Organization of The United Nations, available at http://www.fao.org/docrep/018/i3288e/i3288e.pdf. K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. 150 FAO (2003), World Agriculture: Towards 2015/2030: An FAO Perspective, (J. Bruinsma, Ed.), Rome: Earthscan Publications Ltd, available at http://www.fao.org/3/a-i5627e.pdf. 182 See https://globalabc.org/. 151 FAO (2016), World Fertilizer Trends and Outlook to 2019, Rome, available at http://www.fao.org/3/a-i5627e.pdf. 183 International Energy Agency (2017), Energy Technology Perspective 2017—Catalysing Technology Transformation, available at https://www.iea.org/etp2017/. 152 Aisenberg, I. (2017), How Precision Farming Can Enable Climate-Smart Agribusiness, EMCompass, IFC, Washington, D.C. 184 According to the International Energy Agency’s Energy Efficiency Market Report 2016, methodologies for estimating the incremental investment in energy efficiency are specific to each sector and subsector. The basic principle is that 153 FAO (2017), Post-Harvest Loss Management, available at http://bit.ly/2wZYvGu. incremental investment reflects money spent for additional energy efficiency over a baseline case for a product or 154 World Bank Group (2017), Food Systems for an Urbanizing World, Knowledge Product Decision Review, Washington, service within the sector. For the building sector, the incremental investment is calculated by intervention—that D.C: World Bank. is, action on the building envelope (insulation and windows) or systems (HVAC and controls)—and whether the 155 Ibid. building is existing or new (only a small portion of the spending on energy efficiency for new buildings is considered 156 Sheahan, M. & Barrett, C. B. (2017), Review: Food Loss and Waste in Sub-Saharan Africa, Food Policy, 70: 1–12, investment). available at https://doi.org/10.1016/j.foodpol.2017.03.012. 185 International Energy Agency (2016), Energy Efficiency Market Report 2016, available at https://www.iea.org/eemr16/ 157 Goedde. L, Horii, M., & Sanghvi, S. (2015), Pursuing the Global Opportunity in Food and Agribusiness, McKinsey and files/medium-term-energy-efficiency-2016_WEB.PDF Company, available at http://bit.ly/2yvW0wH. 186 Ibid. 158 World Bank Group (2017), Food Systems for an Urbanizing World, Knowledge Product Decision Review, Washington, 187 Ibid. D.C: World Bank. 188 Navigant Research (2015), Global Building Stock Database, accessible at https://www.navigantresearch.com/ 159 See FAO website: http://www.fao.org/docrep/t1838e/t1838e16.htm, for more information. research/global-building-stock-database. 160 Salin, V. (2016), Global Cold Storage Capacity Report, Global Cold Chain Alliance, available at http://www.gcca.org/ 189 To access this analysis, visit https://www.edgebuildings.com/technical/presentations/. resources/publications/white-papers-reports/global-cold-storage-capacity/. 190 Ibid. 161 Research and Markets (2017), Cold Chain Market by Type, Temperature Type, Technology, Application, and Region— 191 International Energy Agency (2016), Energy Efficiency Market Report 2016, available at https://www.iea.org/eemr16/ Global Forecast to 2022, available at https://www.researchandmarkets.com/research/m5qwph/cold_chain_market. files/medium-term-energy-efficiency-2016_WEB.PDF. 162 Sowinski, L. L. (2014), Latest Cold Storage Trends Focus on Energy Efficiency, Food Logistics, available at http://bit. 192 Ibid. ly/2xAZjWB. 193 Ibid. 163 McFatridge, S. & Murphy, D. (2012), Best Practices for Mainstreaming Climate Change in National Planning Processes: 194 See https://www.theverge.com/2017/9/14/16290934/india-air-conditioner-cooler-design-climate-change-cept- Annotated Bibliography, International Institute for Sustainable Development, available at http://bit.ly/2wmTrfU. symphony. 164 Climate Policy Initiative (2015), Three Tools to Unlock Finance for Land Use Mitigation and Adaptation, available 195 District cooling, like district heating, is used to provide centralized cooling at the district scale by delivering chilled at https://climatepolicyinitiative.org/publication/three-tools-to-unlock-finance-for-land-use-mitigation-and- water to offices and factories that need cooling through a network of pipelines. In cold countries like Finland adaptation/. and Sweden, CHP plants are used to run absorption refrigerators during summer—greatly reducing electricity 165 Ecoagriculture Partners (2015), Shades of Green: Multi-Stakeholder Initiatives to Reduce the Environmental usage, while in winter, sea water is used to cool. This greatly reduces the energy needed for cooling. In Middle Footprint of Commercial Agriculture, Greening Export Agriculture in East and Southeast Asia, Washington, D.C: Eastern countries like Qatar and Kuwait, centralized cooling also helps the governments save on the energy and World Bank, available at http://bit.ly/2wmxugR. environmental cost of large-scale air conditioning. 166 FAO (2013), Climate-Smart Agriculture Sourcebook, available at http://www.fao.org/docrep/018/i3325e/i3325e.pdf. 196 As per the International Energy Agency’s Energy Technology Perspective 2017’s 2BDS scenario. This is an annual 167 Ibid. publication highlighting technological options to help meet the two-degree scenario. The Beyond 2-degree 168 Ibid. C Scenario sets out a rapid de-carbonization pathway more ambitious than the two-degree scenario. It is an ambitious scenario where savings from green building is likely to cause a gradual decrease. 169 World Economic Forum (2016), Grow Africa: Partnering to Achieve African Agriculture Transformation, available at http://bit.ly/2xJAPKf. 197 International Energy Agency (2016), Energy Efficiency Market Report 2016, available at https://doi.org/10.1016/j. energy.2004.04.055. 170 World Bank Group (2015), Climate-Smart Agriculture in Uruguay, CSA Country Profiles for Africa, Asia, and Latin America and the Caribbean Series, Washington, D.C: World Bank Group, available at http://bit.ly/2xBo5WW. 198 Alliance for an Energy Efficient Economy (2017), Transforming the Energy Service Sector in India—Towards a Billion Dollar ESCO Market, available at http://www.aeee.in/wp-content/uploads/2017/08/esco-report.pdf. 171 Sanghvi, S., Simons, R., & Uchoa, R. (2011), Four Lessons for Transforming African Agriculture, McKinsey and Company, available at http://bit.ly/2yIPmV3. 199 WRI Ross Center for Sustainable Cities (2016), Accelerating Building Efficiency: Eight Actions for Urban Leader, available at http://publications.wri.org/buildingefficiency/. 172 Andrieu, N., Sogoba, B., Zougmore, R., Howland, F., Samake, O., Bonilla-Findji, O., Lizarazo, M., Nowak, A., Dembele, C., & Corner-Dolloff, C. (2017), Prioritizing Investments for Climate-Smart Agriculture: Lessons Learned from Mali, 200 European Union 2010 Energy Performance of Buildings Directive and the 2012 Energy Efficiency Directive. 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(2011), Four Lessons for Transforming African Agriculture, McKinsey and Company, available at http://bit.ly/2yIPmV3. 201 International Energy Agency (2016), Tracking Clean Energy Progress 2016, available at https://doi.org/10.1787/ energy_tech-2014-en. 174 For more information, see the CGIAR Research Program on Climate Change, Agriculture and Food Security website, Climate-Smart Agriculture 101, at http://bit.ly/2wYbyx5. 202 Asian Development Bank (2008), Philippines Phasing Out Incandescent Bulbs to Cut Greenhouse Gas Emissions, available at https://www.adb.org/news/philippines-phasing-out-incandescent-bulbs-cut-greenhouse-gas- 175 Dalberg Global Development Advisors (2012), Catalyzing Smallholder Agricultural Finance, available at http://bit. emissions. ly/2k78E31. 203 Soares, E. 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(2016), ZEV Action Plan 2016: An Updated Roadmap Toward 1.5 Million Zero-Emission Vehicles 225 GRESB (2016), Green Bond Guidelines for the Real Estate Sector, available at http://bit.ly/2vNrq4M. on California Roadways by 2025, available at http://bit.ly/2ep0Gzj. 226 Reuters (2016), UPDATE 1-Obvion Plans Europe’s First Green ABS Bond, available at http://reut.rs/2xPF6Kb. 263 Xinhua (2017), China to Build More Charging Points for Electric Vehicles, China Daily, available at http://www. chinadaily.com.cn/business/motoring/2017-02/10/content_28160372.htm. 227 See https://www.carbontrust.com/client-services/programmes/low-carbon-workplace/. 264 OECD (2013), Mobilising Private Investment in Sustainable Transport Infrastructure: The Case of Land-Based 228 For more information, see https://www.climatefinancelab.org/project/affordable-green-homes/ and http://www. Passenger Transport Infrastructure, available at http://dx.doi.org/10.1787/5k46hjm8jpmv-en. ihsinvestments.co.za/. 265 International Transport Forum (2017), Local Governments and Ports, International Transport Forum Policy Papers, 229 See http://www.eeperformance.org/ for more information. Paris, France, available at http://dx.doi.org/10.1787/820a7ecb-en. 230 PWC (2015), Assessing the Global Transport Infrastructure Market: Outlook to 2025, available at https://pwc. 266 Engel, E. & Galetovic, A. (2014), Urban Transport: Can Public-Private Partnerships Work?, Policy Research Working to/2exB8Nm. 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Global Government Venturing, available at http:// 239 Ibid. www.globalgovernmentventuring.com/news/ifc-helps-treat-organica-water-to-91m. 240 Ibid. 279 Organica Water (2015), Organica Water Closes Series C Financing, Organica, available at https://www. 241 Futurism (2017), Norway Says All Cars in the Country Will Be 100% Electric, available at http://bit.ly/2lIp7db. organicawater.com/organica-water-closes-series-c-financing-nw/. Endnotes 153 280 BCC Research (2013), Global Markets and Technologies for Water Recycling and Reuse, Wellesley, Massachusetts. 321 Quantified Ventures (n.d.), DC Water’s Green Infrastructure Environmental Impact Bond Overview, available at 281 GWI (2013), Industrial Desalination & Water Reuse: Ultrapure Water, Challenging Waste Streams and Improved http://bit.ly/2vHmHlq. Efficiency, Oxford, UK. 322 Hoornweg, D. & Bhada-Tata, P. (2012), What a Waste: A Global Review of Solid Waste Management. Urban 282 DNV GL AS (2017), Global Opportunity Report 2017, Oslo, Norway. Development Series Knowledge Papers, 15, World Bank, available at http://bit.ly/2rI6nNn. 283 BNP Paribas (2013), The Case for Investing in the Water Sector, Paris, France. 323 Frost & Sullivan (2014), Global Municipal Solid Waste Management Services Market: Landfill Legislation and Technology Development Drive Market, available at http://bit.ly/2ylThKq. 284 BNP Paribas (2013), The Case for Investing in the Water Sector, Paris, France. 324 Stiehler, A. (2017), Longer Term Investments: Waste Management and Recycling, UBS, available at http://bit. 285 Voutchkov, N. (2016), Desalination—Past, Present and Future, International Water Association, available at http:// ly/2frDs9. www.iwa-network.org/desalination-past-present-future/. 325 Hauke. E, Stuchtey, M., & Vanthournout, H. 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(2017), Longer Term Investments: Waste Management and Recycling, UBS, available at http://bit. ly/2frDs9. 290 DNV GL AS (2017), Global Opportunity Report 2017, Oslo, Norway. 330 Ibid. 291 OECD (2009), Private Sector Participation in Water Infrastructure: OECD Checklist for Public Action, Pairs, France. 331 Frost & Sullivan (2014), Global Municipal Solid Waste Management Services Market: Landfill Legislation and 292 World Bank (2016), Integrated Urban Water Management: A Summary Note, Washington, D.C, available at http://bit. Technology Development Drive Market, available at http://bit.ly/2ylThKq. ly/2xtE6y5. 332 Hoornweg, D. & Bhada-Tata, P. (2012), What a Waste: A Global Review of Solid Waste Management, Urban 293 World Bank (2016), Mainstreaming Water Resources Management in Urban Projects: Taking an Integrated Urban Development Series Knowledge Papers, 15, World Bank, available at http://bit.ly/2rI6nNn. Water Management Approach—A Guidance Note, Washington, D.C, available at http://bit.ly/2xSci74. 333 IFC (2014), Waste PPPs, Handshake: IFC’s Quarterly Journal on Public-Private Partnerships, 12, available at http://bit. 294 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington, ly/2xCgMeQ. D.C, available at http://bit.ly/2xT8cvx. 334 For more information, see http://www.c40.org/blog_posts/waste-to-resources-an-incredible-opportunity-to- 295 OECD (2009), Private Sector Participation in Water Infrastructure: OECD Checklist for Public Action, Pairs, France. reduce-ghg-emissions-and-transform-communities. 296 World Bank (2016), Mainstreaming Water Resources Management in Urban Projects: Taking an Integrated Urban 335 UNEP (2015), Global Waste Management Outlook, Nairobi, Kenya, available at http://bit.ly/1LhOTaa. Water Management Approach—A Guidance Note, Washington D.C, available at http://bit.ly/2xSci74. 336 Ibid. 297 IFC (2016), Blending Public and Private Finance, Washington, D.C. 337 Nahal, S., Valery, L., & Dollé, J. (2013), No Time to Waste—Global Waste Primer, Bank of America Merrill Lynch, New 298 OECD (2016), Water, Growth and Finance: Policy Perspectives, Paris, France. York, U.S., available at http://bit.ly/2woSdkx. 299 World Bank (2016), High and Dry: Climate Change, Water and the Economy, Washington, D.C, available at http://bit. 338 Ibid. ly/2pbH4lE. 339 Ibid. 300 OECD (2016), Water, Growth and Finance: Policy Perspectives, Paris, France. 340 International Solid Waste Association (2013), Alternative Waste Conversion Technologies: White Paper, available at 301 Ibid. https://www.iswa.org/index.php?eID=tx_iswaknowledgebase_download&documentUid=3155. 302 BNP Paribas (2013), The Case for Investing in the Water Sector, Paris, France. 341 Ecofys (2016), Market Opportunities for Use of Alternative Fuels in Cement Plants across the EU: Assessment of 303 OECD (2009), Private Sector Participation in Water Infrastructure: OECD Checklist for Public Action, Pairs, France. Drivers and Barriers for Increased Fossil Fuel Substitution in Three EU Member States: Greece, Poland and Germany, 304 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington, available at http://bit.ly/2xazA3k. D.C, available at http://bit.ly/2xT8cvx 342 Brown, M. (2016), Refuse Derived Fuel—A European Market Heading for Overcapacity, Recycling, 2, available at 305 Dinar, A. & Subramanian, A. (1997), Water Pricing Experiences: An International Perspective, Washington, D.C. http://bit.ly/2yE3T3A. 306 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington, 343 Frankfurt School & UNEP (2016), Global Trends in Renewable Energy, Frankfurt, Germany, available at http://bit. D.C, available at http://bit.ly/2xT8cvx. ly/1RAJA8w. 307 OECD (2016), Water, Growth and Finance: Policy Perspectives, Paris, France. 344 Frost & Sullivan (2017), Global Waste Recycling Market Outlook 2017, San Antonio, U.S., available at https://store. 308 IFC (2010), IFC Investment Helps Brazilian Water Company Improve Efficiency and Reduce Water Losses, frost.com/global-waste-recycling-market-outlook-2017.html. Washington, D.C, available at http://bit.ly/2gGfJX2. 345 Hoornweg, D. & Bhada-Tata, P. (2012), What a Waste: A Global Review of Solid Waste Management, Urban 309 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington, Development Series Knowledge Papers, No. 15, World Bank, available at http://bit.ly/2rI6nNn. D.C, available at http://bit.ly/2xT8cvx. 346 UN Habitat (2009), Solid Waste Management in the World’s Cities, New York, U.S., available at http://bit.ly/2wpj2VJ. 310 World Bank (2016), High and Dry: Climate Change, Water and the Economy, Washington, D.C, available at http://bit. 347 Canvest Environmental Protection Group Company Limited (2017), Capturing Immense Opportunity Creating ly/2pbH4lE. Sustainable Growth, Interim Report 2017, available at http://bit.ly/2ykYhio. 311 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington 348 Ibid. D.C, available at http://bit.ly/2xT8cvx. 349 UNEP (2015), Global Waste Management Outlook, Nairobi, Kenya, available at http://bit.ly/1LhOTaa. 312 Ibid. 350 Transparency Market Research (2012), E-Waste Recycling and Reuse Services Market—Global and China 313 City of Johannesburg (2017), Johannesburg Water, available at http://bit.ly/2wRt3is. Scenario, Trends, Industry Analysis, Size, Share and Forecast 2010—2017, Albany, U.S., available at https://www. 314 Johannesburg Water (2012), City of Johannesburg: Waste Water to Energy, available at http://bit.ly/2wTUQtY. transparencymarketresearch.com/e-waste-recycling-and-reuse-services.html. 315 World Bank (2017), Easing the Transition to Commercial Finance for Sustainable Water and Sanitation, Washington, 351 L.E.K. (2014), Green is Good: The Revolution in Sustainable Packaging, Executive Insights, XVI(27), available at http:// D.C, available at http://bit.ly/2xT8cvx. bit.ly/2xThFBz. 316 DFI Working Group on Blended Concessional Finance for Private Sector Projects (2017), available at https:// 352 Navigant Research (2016), Smart Waste Collection, available at http://bit.ly/2xWsdQL. ifcextapps.ifc.org/ifcext/pressroom/ifcpressroom.nsf/0/875D484A28F7A2A7852581BB006BB88B. 353 Miller, S. (2015), Challenges of Waste to Energy in Emerging Markets, IFC, available at http://bit.ly/2wtlQko. 317 World Bank (2016), Case Studies in Blended Finance for Water and Sanitation, Washington, D.C available at http:// 354 UNEP (2015), Global Waste Management Outlook. Nairobi, Kenya, available at http://bit.ly/1LhOTaa. bit.ly/2w88VV3. 355 China Public-Private Partnerships Center (2017), China Public Private Partnerships Center: About, available at http:// 318 ESMAP (2012), A Primer on Energy Efficiency for Municipal Water and Wastewater Utilities, Technical Report, 1, bit.ly/2x3cE5K. Washington, D.C, available at http://bit.ly/2yDBKu1. 356 Ibid. 319 Climate Finance Lab (2016), Water Financing Facility: Lab Instrument Analysis, available at http://bit.ly/2fceCKV. 357 Tilaye, M. & Van Dijk, M. P. (2014). Private Sector Participation in Solid Waste Collection in Addis Ababa (Ethiopia) by 320 Climate Finance Lab (2017), Netherlands Government Commits EUR 10mn to Water Financing Facility, Marking a Involving Micro-Enterprises, Waste and Management Research 32(1): 79–87. Milestone for Water Finance and Climate Adaptation, available at http://bit.ly/2jLA0LS. 154 Creating Markets for Climate Business: An IFC Climate Investment Opportunities Report 358 UNEP (2015), Global Waste Management Outlook, Nairobi, Kenya, available at http://bit.ly/1LhOTaa. 392 See https://www.climatebonds.net/2017/09/our-top-5-eu-green-finance-developments-its-all-starting-add. 359 Ibid. 393 See http://www.worldbank.org/en/news/press-release/2017/10/17/fiji-issues-first-developing-country-green- 360 Hoornweg, D. & Bhada-Tata, P. (2012), What a Waste: A Global Review of Solid Waste Management, Urban bond-raising-50-million-for-climate-resilience. Development Series Knowledge Papers, 15, World Bank, available at http://bit.ly/2rI6nNn. 394 HSBC (August 2017), Green Bonds and the City, Global Research Report, available at https://www.research.hsbc. 361 Vivid Economics (2014), Financing Green Growth, London, UK, available at http://www.vivideconomics.com/ com/R/20/JXVcJCBtzo9L. publications/financing-green-growth. 395 OECD and Bloomberg Philanthropies (2015), Green Investment Banks: Policy Perspectives, available at https://www. 362 Ibid. oecd.org/environment/cc/Green-Investment-Banks-POLICY-PERSPECTIVES-web.pdf. 363 Qiu, L. (2012), An Analysis of the Economics of Waste-to-Energy Plants in China, Columbia University, available at 396 Ibid. http://www.seas.columbia.edu/earth/wtert/sofos/Qiu_thesis.pdf. 397 See http://www.tatacleantechcapital.in/about-us/about-tata-cleantech-capital.htm for more information. 364 Zhang, D., Guangqing, H., Yimin, X., & Qinghua, G. (2015), Waste-to-Energy in China: Key Challenges and 398 Africa-EU Renewable Energy Cooperation Program, available at https://www.africa-eu-renewables.org/market- Opportunities, Energies 8: 14182–96, available at http://www.mdpi.com/1996-1073/8/12/12422. information/mozambique/energy-sector/. 365 Ibid. 399 International Energy Agency (2016), World Energy Outlook 2016 Electricity Access Database, available at http:// 366 For more information, see http://www.pilotauctionfacility.org/. www.worldenergyoutlook.org/resources/energydevelopment/energyaccessdatabase/. 367 See http://ec.europa.eu/environment/waste/framework/ for more information. 400 World Bank Group (2014), Building Competitive Green Industries: The Climate and Clean Technology Opportunity for Developing Countries, available at https://openknowledge.worldbank.org/handle/10986/20684. 368 Frankfurt School & UNEP (2016), Global Trends in Renewable Energy, Frankfurt, Germany, available at http://bit. ly/1RAJA8w. 401 World Bank Group (2017), Innovations for Scaling Green Sectors, available at https://www.infodev.org/climate/ innovations-for-scaling-green-sectors. 369 UNEP (2015), Global Waste Management Outlook, Nairobi, Kenya, available at http://bit.ly/1LhOTaa. 402 See https://openknowledge.worldbank.org/handle/10986/25852. 370 See, for example, China’s Guidelines for Establishing the Green Financial System at http://www.pbc.gov.cn/ english/130721/3133045/index.html, and Europe’s High-Level Expert Group on Sustainable Finance, information at 403 For more information, see http://www.infodev.org/climate. http://europa.eu/rapid/press-release_IP-17-2022_en.htm. 404 For more information, see http://www.worldbank.org/en/news/feature/2017/05/10/cape-a-peer-to-peer- 371 HSBC (2017), Surveying Corporate Issuer and Investor Attitudes to Sustainable Finance, available at http://www. knowledge-exchange-for-finance-ministers-to-combat-climate-change. gbm.hsbc.com/insights/sustainable-financing/attitudes-to-sustainable-finance. 405 Coady, D., Parry, I., Sears, L., & Shang, B. (2017), How Large Are Global Fossil Fuel Subsidies?, available at http://dx.doi. 372 CPI-Energy Finance (2017), Financing Clean Power: A Risk-Based Approach to Choosing Ownership Models and org/10.1016/j.worlddev.2016.10.004. Policy/Finance Instruments, available at https://climatepolicyinitiative.org/publication/financing-clean-power-risk- 406 Ibid. based-approach-choosing-ownership-models-policy-finance-instruments/. 407 Whitley, S. & Van der Burg, L. (2016), Fossil Fuel Subsidy Reform: From Rhetoric to Reality, The New Climate 373 Task Force on Climate-Related Disclosure (2017), Final Report, available at https://www.fsb-tcfd.org/wp-content/ Economy Working Paper, available at http://newclimateeconomy.report/2015/wp-content/uploads/sites/3/2015/11/ uploads/2017/06/FINAL-TCFD-Report-062817.pdf. Fossil-fuel-subsidy-reform_from-rhetoric-to-reality.pdf. 374 See https://www.weforum.org/agenda/2017/04/global-ceos-call-for-greater-disclosure-of-climate-risks-and- 408 Ibid. opportunities/. 409 See www.carbonpricingleadership.org for more information. 375 See http://www.unepfi.org/news/industries/banking/eleven-unep-fi-member-banks-representing-over-7-trillion- 410 CDP & Ecofys (2017), Carbon Pricing Unlocked, available at http://www.ecofys.com/en/news/carbon-pricing- are-first-in-industry-to-jointly-pilot-the-tcfd-recommendations/. unlocked-new-best-practice-guides-to-internal-carbon-pricing/. 376 See https://www.fsb-tcfd.org/supportive-quotes/. 411 World Bank Group & OECD (2015), FASTER Principles for Successful Carbon Pricing: An Approach Based on Initial 377 See https://www.americanprogress.org/issues/green/news/2017/01/19/296860/u-s-communities-clobbered-by-53- Experience, avilable at http://documents.worldbank.org/curated/en/901041467995665361/The-FASTER-principles- billion-in-extreme-weather-and-climate-disasters-in-2016/ for more information. for-successful-carbon-pricing-an-approach-based-on-initial-experience. 378 National Business Initiative (2017), A New Climate of Risk: How South African Businesses Are Adapting to Climate 412 Carbon Pricing Leadership Coalition (CPLC) (2016), Executive Briefing: What Are the Options for Using Carbon Change, available at www.nbi.org.za. Pricing Revenues?, available at http://pubdocs.worldbank.org/en/668851474296920877/CPLC-Use-of-Revenues- 379 IFC & European Bank for Reconstruction and Development (EBRD) (2013), Pilot Climate Change Adaptation Market Executive-Brief-09-2016.pdf. Study, available at www.ifc.org/climaterisks. 413 See https://www.rggi.org/docs/ProceedsReport/RGGI_Proceeds_Report_2014.pdf. IFC (2011) Handshake Issue #2, 380 See https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/adaptation-benefit-mechanism-abm/ for “Climate Change ppps,” available at https://library.pppknowledgelab.org/documents/1945/download. more information. 414 Ibid. 381 China Banking Regulatory Commission (2016), available at http://www.cbrc.gov.cn/EngdocView. 415 For more information, see http://www.ifc.org/wps/wcm/connect/4445388a-b1c6-4eaa-a4f6-67beee0abbba/ do?docID=3CE646AB629B46B9B533B1D8D9FF8C4A. PPPStories_India_BhubaneswarStreetLighting.pdf?MOD=AJPERES. 382 Reuters (September 2017), China Provides $1 trillion in “Green Credit” by End-June: Regulator, available at http:// 416 For more information, visit www.ndcinvest.org. www.reuters.com/article/us-china-greencard/china-provides-1-trillion-in-green-credit-by-end-june-regulator- 417 For more information, visit www.ledsgp.org. idUSKCN1180T8. 418 For more information, visit http://ndci.global/. 383 G20 Green Finance Study Group Recommendations (2015), available at http://unepinquiry.org/ g20greenfinancerepositoryeng/. See also Mainstreaming Climate Action within Financial Institutions: 419 For more information on these case studies, see http://www.ebrd.com/what-we-do/sectors-and-topics/policy- Emerging Practices (2015); access at https://www.mainstreamingclimate.org/wp-content/uploads/2017/03/ dialogue-and-sustainable-resources.html%20. fi_mainstreaming_epp_en-1.pdf. 384 IFC (2017), Green Finance: A bottom-Up Approach to Track Existing Flows, available at https://www.ifc.org/wps/ wcm/connect/70725d70-b14a-4ffd-8360-cb020258d40a/Green+Finance_Bottom+up+approach_ConsultDraft. pdf?MOD=AJPERES. 385 See https://www.edie.net/news/7/Philips-agree-EUR1bn-loan-which-couples-finance-with-sustainability- performance. 386 See https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-social-and-sustainability-bonds/ green-bond-principles-gbp/. 387 See https://www.climatebonds.net/standards. 388 “Sukuk” is the Arabic name for financial certificates, also commonly referred to as sharia-compliant bonds. 389 For more information, see https://ifcextapps.ifc.org/ifcext/pressroom/ifcpressroom. nsf/0/594A016A78A7B14E8525805D00461397. 390 Climate Bonds Initiative & HSBC (2017), Bonds and Climate Change: The State of the Market 2017, available at https://www.climatebonds.net/files/files/CBI-SotM_2017-Bonds&ClimateChange.pdf. 391 Ibid. Endnotes 155 2017 2121 Pennsylvania Ave., NW Washington, DC 20433, USA www.ifc.org