Climate Financing Drops in 2013, Driven Mainly By Falling Solar Costs

Annual global climate flows last year decreased from 2012, according to a new report from the Climate Policy Initiative. The report, titled The Global Landscape of Climate Finance 2014, found that annual  global climate finance flows in 2013 totaled $331 billion, $28 billion less than 2012. However, public actors and intermediaries contributed $137 billion, almost unchanged from 2012.

It is not necessarily a bad thing that global climate finance flows decreased. The report cites the falling price of some renewable energy technologies, namely solar photovoltaics (PV), as the the main reason. Or as the report put it, “These cost savings mean that in some cases more renewable energy is actually being deployed for less investment.”

It cost $40 billion less in 2013 to achieve the same level of solar deployment than it did in 2012. About 80 percent of the decrease in private investment came from the falling prices of renewable technologies, particularly solar PV. If investment costs of solar PV had stayed the same in 2013 as they were in 2012, then the global climate finance flows total would have increased by $12 billion, according to the report.

“Our analysis shows that global investment in a cleaner more resilient economy are decreasing and the gap between finance needed and actually delivered is growing,” said Barbara Buchner, senior director of the Climate Policy Initiative and lead author of the study. “Our numbers demonstrate that most investment is happening at the national level with investors favoring familiar environments they perceive to be less risky. This implies that domestic policy frameworks and appropriate risk coverage are critical to encourage investment.”

The report does have some bad news about renewable energy deployment: According to International Energy Agency estimates, an additional $1.1 trillion in low-carbon investments is needed every year on average between 2011 and 2050 -- in just the energy sector -- to keep global temperature rise below 2 degrees Celsius. An important part of limiting climate change to below 2 degrees Celsius is for climate finance investment to not only grow but also displace fossil fuels investment. The opposite is occurring. The IEA reported this year that investments in oil, gas and coal more than doubled since 2000, reaching $950 billion in 2013. Some experts are concerned that a 3 to 4 degrees Celsius temperature rise is more likely.

Public investment in climate finance totaled $193 billion, a decrease of $31 billion or 14 percent from 2012. While climate finance flows were split almost equally between developed and developing countries, the amount flowing from developed to developing countries decreased by $8 billion from 2012. Private investment decreased by $2 million. Almost three-quarters of total flows were invested in their country of origin, with 90 percent of private actors’ investment staying in their country of origin. What that indicates is that domestic policy frameworks are important for “unlocking scaled up climate finance flows,” the report's authors wrote.

Image credit: Chandra Marsono