utoronto.ca/2016/green-finance-synthesis.pdf (accessed on 12 September 2018). [3]. Glachant, M. and A. Dechezleprêtre (2017), “What role for climate
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EMPOWER Build low-emission and resilient urban societiesRESETReset the ˜nancial system in line with long- term climate risks and opportunitiesRETHINKRethink development ˜nance for climate INNOVATE Unleash innovation in technologies, institutions and business models BUDGETDisentangle public budgets from fossil fuel revenues PLANPlan infrastructure for a low-emission and resilient future Six transform ative areas to align ˜nancial ˚ows with low-emission, resilient infrastructure Financing Climate Futures: Rethinking Infrastructure Policy Highlights p 5p 7p 10p 13p 16p 19This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily re˜ect the of˚cial views of the member countries of the OECD or The World Bank, its Board of Executive Directors or the governments they represent or the United Nations Environment Programme. This document, as well as any data and any map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The names of countries and territories and maps used in this joint publication follow the practice of the OECD. Copyright: OECD/The World Bank/UN Environment, 2018
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1Executive Summary Infrastructure sits at the very centre of development pathways and underpins economic growth, productivity and well-being. Yet infrastructure has suffered from chronic underinvestment for decades, in both developed and developing economies. The OECD estimates that USD 6.9 trillion a year is required up to 2030 to meet climate and development objectives. Furthermore, current energy, transport, building and water infrastructure make up more than 60% of global greenhouse gas emissions. An unprecedented transformation of existing infrastructure systems is needed to achieve the world™s climate and development objectives. Aligning ˜nancial ˚ows with low-emission, resilient development pathways is now more critical than ever to meet the goals of the Paris Agreement and deliver on the 2030 Agenda for Sustainable Development. Today there is a unique opportunity to develop infrastructure systems that deliver better services while protecting the environment. Harnessing the bene˜ts of rapidly emerging technologies, new business models and ˜nancial innovations will be key in opening new pathways to low- emission, resilient futures. Mobilising public and private resources across the ˜nancial spectrum is an essential part of generating the trillions of dollars needed for sustainable infrastructure. Public ˜nance institutions, banks, institutional investors, corporations and capital markets all have a crucial role to play, both in their own right and as part of the broader ˜nancial ecosystem. Governments need to set the right incentives to mobilise ˜nance away from emissions-intensive projects, and provide investment and climate policy frameworks that support the rapid and radical transformations required. While there has been some progress, current policies continue to foster an incremental approach to climate. Existing policy frameworks, government revenues and economic interests continue to be entangled in fossil fuels and emissions-intensive activities. Deeper efforts are needed to drive systemic change, overcome institutional inertia and break away from the vested interests that are often barriers to low-emission, resilient development. Enhanced international co-operation, through the Paris Agreement or fora such as the G7 and the G20, is an essential part of the transformation. The international community has increasingly recognised the need for such transformation: almost all G20 countries con˜rmed their willingness to embark on a global energy transition in line with climate and development goals in the 2017 G20 Hamburg Climate and Energy Action Plan for Growth. There is also growing awareness that the push for greater climate action must be accompanied by a just and inclusive transition to address inequalities and provide equal opportunities for all parts of society. Governments need to ensure that the transition bene˜ts everyone and does not disproportionately affect the poor and most vulnerable. This report lays out an agenda to enable societies around the world to undertake the kind of systemic actions that the transformation towards a low-emission, resilient future will require. It highlights 6 transformative areas and 20 actions that are key to aligning ˜nancial ˚ows with climate and development goals in the areas of planning, innovation, public budgeting, ˜nancial systems, development ˜nance and cities. Ł Plan infrastructure for a low-emission and resilient future , by rethinking planning at all levels of governments to align current infrastructure project plans with long-term climate and development objectives, avoid carbon lock-in and make resilience the norm in infrastructure decisions. Ł Unleash innovation to accelerate the transition , by deploying targeted innovation policies and accelerating the deployment of existing technologies, business models and services, swiftly moving the next generation of solutions from the lab to the market, and promoting international technology diffusion to make sure innovation bene˜ts all. Ł Ensure ˜scal sustainability for a low-emission, resilient future, by diversifying sources of government revenue to reduce carbon entanglement, aligning ˜scal and budgetary incentives with climate objectives and harnessing the power of public procurement and public institutions™ spending while ensuring an inclusive transition along the way. Ł Reset the ˜nancial system in line with long-term climate risks and opportunities, by ˜xing biased incentives, capability gaps and inadequate climate risk disclosure and pricing that are hindering the allocation of ˜nance to low-emission, resilient infrastructure. Ł Rethink development ˜nance for climate, by ensuring that development ˜nance institutions have the resources , mandates and incentives to deliver transformative climate action, attract new investors and sources of ˜nance by using concessional ˜nance strategically, and help countries advance their climate agendas and build enabling environments and ficlimate marketsfl. Ł Empower city governments to build low-emission and resilient urban societies, by developing capacity to more effectively plan and ˜nance the right infrastructure, aligning national and local ˜scal regulations with investment needs, and building climate-related and project ˜nance capacity at the city level. Delivering on the transformation will be challenging. While there is encouraging momentum, governments must continue to drive systemic changes to ensure that ˜nancial ˚ows are well aligned with the infrastructure needed for low-emission, resilient pathways to the future. Moving towards a more transformative agenda will help governments deliver sustainable, balanced and inclusive growth and improve well-being within and across societies.
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21. Climate, infrastructure and finance: An agenda for transformation A fundamental transformation of existing infrastructure systems is needed A pathway compatible with the objective of the Paris Agreement to limit global temperature increase to well-below 2°C and towards 1.5°C above pre-industrial levels requires a radical change to infrastructure, technologies and behaviours. Signi˜cant greenhouse gas emissions are embedded in the vast majority of human activities and preferences. The world™s energy, transport, buildings and water infrastructure emit more than 60% of current greenhouse gases. Increased transport, agricultural, and housing pressures from a growing global middle class are all serving to drive increased emissions (NCE, 2016 [64]). The urgency and scale of the infrastructure challenge was starkly laid out in the Intergovernmental Panel on Climate Change (IPCC)™s special report on the impacts of global warming of 1.5°C above pre-industrial levels (IPCC, 2018 [1]). To limit warming to 1.5°C, CO 2 emissions would need to fall by about 45% by 2030 compared to 2010 levels, and would need to reach net-zero around 2050. The report concludes that firapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings) and industrial systemsfl are required in order to limit global warming to 1.5°C. It highlights the need for an unprecedented transition across these systems, and a signi˜cant increase in investments. Annual investment in low- carbon energy and energy ef˜ciency would need to increase by a factor of ˜ve by 2050. Recent OECD estimates indicate that around USD 6.3 trillion of infrastructure investment is needed each year to 2030 to meet development goals, increasing to USD 6.9 trillion a year to make this investment compatible with the goals of the Paris Agreement (OECD, 2017 [2]). The urgent need to address this gap presents a unique opportunity in the coming years to move the climate and development agendas forward and develop infrastructure systems that deliver better services while also achieving climate and development goals. The push for greater climate action is accompanied by a need for policies that address inequalities and provide the same opportunities for all. Across the OECD, the top 10% of the income distribution earn around 10 times more than the bottom 10%, up from just 7 times more 30 years ago. Climate change threatens to increase the effects of structural inequalities worldwide. Even though wealthier populations may have more assets at risk of climate change impacts, disadvantaged populations tend to be more vulnerable and suffer disproportionately from a changing climate. Moving beyond an incremental policy approach to climate, infrastructure and finance While there is clearly some progress in developing and implementing policies in support of sustainable infrastructure, it has proven to be challenging to move beyond relatively marginal 60% increase in CO 2 emissions from fossil fuels since 1990To limit warming to 1.5°C, CO2 emissions would need to fall by about 45% by 2030 compared to 2010 levels, and reach net-zero around 2050 STYLISED NET GLOBAL CO 2 EMISSION PATHWAYS 60504030201001980202020602100<1% of the $100tn global bond market is invested in green bonds$6.3tn is needed/year to 2030 to meet development goals $6.9tn to meet the Paris Agreement goals GREEN BOND MARKETINFRASTRUCTURE INVESTMENT NEEEDSSource: Adapted from IPCC (2018 [1])Source: OECD (2017 [2])Source: G20 Green Finance Study Group (2016 [3])Billion tonnes CO 2 per year (GtCO 2/yr)
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3or incremental changes to policies and behaviours. Since 1990, world GDP has more than doubled while CO 2 emissions from fossil fuels increased by 60% (OECD, 2017 [2]). Climate action planned or currently underway, while heading in the right direction, has proven insuf˜cient to deliver the transition required. The scale of the transformation needed is such that government budgets are insuf˜cient to generate the trillions of dollars required. Mobilising private investment towards the transition is therefore essential. Low-emission infrastructure investment remains less than 1% of the overall portfolios of institutional investors (G20 Green Finance Study Group, 2016 [3]). In the energy sector, infrastructure investment patterns fail to demonstrate the shift of capital required for the low-emission transition. Investment in the extraction and transport of fossil fuels, oil re˜ning and construction of fossil fuel power plants still represented 57.1% of global investment in energy supply in 2017 (IEA, 2018[4]). Overcoming barriers to mobilise private sector investment at scale requires action across climate and investment policies in a co-ordinated way. First, governments should make greater efforts to improve the overall business environment and investment climate. This means, amongst other things, implementing clear and predictable regulations, enforcing property rights and the rule of law, growing local ˜nancial markets, and developing options to mitigate regulatory, corruption and currency risks (Fay et al., 2015[5]). Second, developing a strong and stable climate policy framework to orient the economy away from emissions- intensive activities is essential to level the playing ˜eld with low-emission alternatives. Third, aligning the overall policy framework with climate goals is essential (OECD, 2015 [6]). But it is not enough. Current institutional settings and processes are not ˜t to achieve the transformation needed. Current infrastructure planning practices, decision-making processes and institutional settings inherited from the last century re˚ect a status quo based on conventional practices and a continued fisilo mentalityfl (Box 1). Governments need to move away from a sectoral approach to infrastructure planning and ˜nancing, and move towards a more systemic, forward- looking and whole-of-government approach to infrastructure decisions. Overcoming institutional inertia means addressing a series of barriers inherent to our processes, practices and institutions that are preventing more ambitious climate action. Governments can seek to address behavioural and data biases that encourage choices based on conventional practices rather than forward-looking potential. They can examine misaligned incentives and capacity gaps along the investment value chain, from procurement to investment decisions. Finally, political economy factors such as employment in the fossil fuel industry, government rents from fossil fuel-based activities that in˚uence policy and investment priorities, time horizons, as well as citizens and incumbent market interests must be overcome (Röttgers and Anderson, 2018 [7]; Maimbo et al., 2017 [8])An agenda for transformation Financing Climate Futures: Rethinking Infrastructure lays out the agenda for a low- emission, resilient transformation that requires action across six areas: Ł Plan infrastructure for a low-emission and resilient future Ł Unleash innovation to unlock the transition Ł Ensure ˜scal sustainability for a low-emission, resilient future Ł Reset the ˜nancial system in line with long-term climate risks and opportunitiesŁ Rethink development ˜nance for climate Ł Empower city governments to build low-emission and resilient urban societies Different country contexts, resource endowments and capabilities will determine the priority areas for individual countries. In all countries, however, it is critical that a whole-of-government and whole- of-society approach is employed, with a central role to be played by ministries of ˜nance and economy. This will help to ensure that the planning, investment and ˜nance systems in place are fi˜t for the futurefl in smoothing the path towards low- emission, resilient economies. Over 60% emitted by current energy, transport, buildings and water infrastructure GLOBAL GREENHOUSE GAS EMISSIONS5X increase required in low-carbon energy and energy ef˜ciency investment annually In the same timeframe, world GDP has more than doubled.According to the IPCC, firapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings) and industrial systemsfl are required in order to limit global warming to 1.5°C REQUIRED INVESTMENT IN LOW-CARBON ENERGY GLOBAL GDP Source: IPCC (2018 [1])Source: NCE (2016 [64])Source: OECD (2017 [2])
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4Box 1. Shifting the LensThe Shifting the Lens report is a contribution to the Financing Climate Futures initiative and explores how foresight methodologies and scenario development can better inform infrastructure investment decisions today to align ˜nancial ˚ows with a low-emission, resilient future. Infrastructure decisions today do not take adequate account of critical socio-economic and technological uncertainties that will shape future infrastructure supply and demand. Scenarios could improve current infrastructure decisions by examining them against an ‚organised™ set of uncertain, plausible futures. Through such a lens, distortions in decision making can be revealed, and adjustments made. Such distortions may arise from a combination of biases embedded in habits and norms, prevalent incentives, incumbent interests, or a lack of competencies. Shifting the Lens has used a simple analytic framework to identify a number of critical uncertainties that affect future infrastructure demand and supply. Four Tier Analytic Framework The report points to critical uncertainties that in˚uence the selection, design, procurement, deployment and related ˜nancing decisions regarding low-emission, resilient infrastructure. Seven areas of critical uncertainties have been identi˜ed that are likely to impact ˜nancing decisions in low-emission, resilient infrastructure: (1) climate change itself; (2) shifts in the economic and geopolitical features of globalisation; (3) the technological intensi˜cation of infrastructure; (4) new economic, business and ˜nancing models such as the shared and circular economy and rentalisation; (5) new forms of citizen engagement; (6) changes to the ˜nancial system; and (7) economic downturns and external shocks. These critical uncertainties can offer broader insights about policy, market practice, and citizen action, which include: Ł Long-term time horizon: long-term planning is key, and it is governments and their agents, and less so market actors, that are likely to be at the core of such long-termism. Ł Policy-guided ˜nance : signi˜cant policy guidance and support to ensure that private ˜nancial markets can ful˜l their key role in investing in low-emission, resilient infrastructure. Ł Citizen action: citizens can impact the ˜nancing of low- emission, resilient infrastructure, but are as likely going forward to constrain as enable progress given varied priorities and time horizons. Ł Resilient investment : strong government and policy- directed ˜nance will be required in the face of economic downturns and external shocks, inevitable over the period in question.Ł Shifting globalisation : the combined effects of automation, climate, business model innovation and reinforcing policy may drive us towards higher fragmentation of the global economy, reshaping the demand for infrastructure, and increasing the importance of local ˜nancing solutions. Ł International co-operation : international co-operation is key, but may require signi˜cant shocks to system to strengthen it against countervailing interests and institutional inertia.Scenarios reinforce the importance of examining institutional and behavioural norms that inform investment decisions in low-emission, resilient infrastructure, by governments, market actors and civil society. Overcoming distortions in decision making is likely to make a signi˜cant difference to the pace and form of investment in low- emission, resilient infrastructure: Ł Risk pricing: needs to be more sensitised to complex and critical uncertainties, including through the use of scenario planning rather than exclusively singular, probability analysis. Ł Capabilities: there is a need to enhance capabilities to better handle decision making under uncertainty all along the investment value chain, including investors through to procurement. Ł Incentives: there is a need to shift incentives and institutional norms to increase the rate of adoption of a new generation of technologically intensive infrastructure and associated business and ˜nancing approaches. Shifting the Lens points to the potential to unlock investment opportunities in low-emission, resilient infrastructure by taking critical uncertainties more fully into account. Source: Shifting the Lens (2018[9]), UN Environment. Factors affecting infrastructure demand: What are potential socio-economic circumstances of the future? What will infrastructure of the future look like? What are implications to business models?What are the new financing approaches and impacts to the financial economy?Factors affecting infrastructure supply: Socio-economic contextsInfrastructure technologiesBusiness modelsFinancing approaches
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6infrastructure that can respond more adequately to the risks and impacts of a changing climate. A key action for greater resilience is to ˜ll the investment gap and mobilise additional resources for projects that enhance adaptive capacity, strengthen resilience and reduce vulnerability. This can be achieved, in part, through new technologies and better data, as well as by in˚uencing the behaviour of infrastructure users and bene˜ciaries. These demand-side measures can help to reduce the likelihood of the failure of service provision or reduce the negative consequences when disruption occurs. Nature-based solutions are increasingly being used as a complement to or replacement for traditional grey (i.e. manmade) infrastructure, particularly in the area of water and coastal management (Jones, Hole and Zavaleta, 2012 [12]). These measures have the potential to be signi˜cantly cheaper: The City of Copenhagen found that the use of nature-based solutions, such as more green spaces, to cope with heavy downpours would be DKK 7 billion (EUR 940 million) cheaper than reliance upon grey infrastructure alone. Nature-based solutions, predominantly in the land-use sector, also have important and cost-effective mitigation applications through avoided deforestation and restoration of degraded lands, for instance. Use strategic foresight to improve decision making under uncertainty It is impossible to predict precisely what the future will look like in 2050 or beyond, even with the most robust, ˜nely-calibrated ADAPTATION FINANCING FROM MDBs fiBUILDING BACK BETTERfl $5.9bn in 2016$6.8bn in 20175 $173bn could be saved globally per year in well-being losses due to natural disasters, compared to business as usualSource: Hallegatte et al. (2018 [59])models. Unexpected shocks Œ such as geopolitical upheaval or sudden technological breakthroughs Œ could have unforeseen impacts and disrupt those models™ underlying assumptions. Strategic foresight can therefore be a useful tool for approaching decision making and can complement existing models by preparing for several plausible scenarios that could emerge from non-linear shocks. Building additional capacity dedicated to strategic foresight and the integration of its insights into long-term planning exercises could ensure that the pathways against which current actions are compared can adapt to emerging best available knowledge and possible future disruptions. Dedicated strategic foresight teams can analyse possible emerging trends (called ‚weak signals™) to predict how, at a larger scale, they could affect the future. Some countries already have dedicated foresight units or teams that feed their insights into decision-making: Policy Horizons Canada, the National Institution for Transforming India NITI Aayog, the National Institute of Science and Technology Policy (Japan) and the Centre for Strategic Futures (Singapore). In Finland, a more diffuse model has emerged with several actors across ministries and the private sector contributing to foresight outputs such as the Government Report on the Future, which is published once during each electoral period (Prime Minister's Of˜ce of Finland[13]). Governments have not yet employed these units to inform future iterations of long-term low-emission development strategies as the ˜rst ones were communicated to the UNFCCC only in 2016, but such capacity presents an opportunity to enhance the planning process. Box 2. Investments from the Belt and Road Initiative could present a unique opportunity for recipient countries to engage in low-emission, resilient development China™s Belt and Road Initiative (BRI), a large-scale infrastructure development strategy, will involve the world™s single largest ˚ow of infrastructure ˜nancing and build out ever. It covers more than 68 countries, including 65% of the world™s population and 40% of the global GDP. The pace and scale of investments are unprecedented, with some estimates suggesting USD 1-1.15 trillion of infrastructure commitments by 2025. Which infrastructure projects receive ˜nancing from the initiative will shape future emissions. Current infrastructure investment patterns in recipient countries are emissions- intensive. Over 50% of planned BRI investments in the power sector are coal-based. Without a major shift in the infrastructure pro˜le, especially in power and transport, aggregate emissions across recipient countries could be several times those of China itself by 2040, effectively putting the Paris Agreement™s temperature goals out of reach. Source: UN Environment (2018 [14]), Greening the Belt and Road Initiative (forthcoming).
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73. Unleash innovation to accelerate the transition Innovation Œ the creation and diffusion of new products, processes and methods Œ is fundamental to the economic transformation required to address climate change. Opportunities for climate innovations are economy-wide, and include technologies for renewable energy, electric vehicles, drought-resistant crops, vaccines to inhibit methane production by ruminants, permeable materials for pavements and roads, or technologies for carbon capture, storage and use. But innovation is just as much about institutional and organisational changes (Box 4), and new services and business models (e.g. energy-as-a- service platforms, electric car sharing, circular supply models), all of which can help drive the systemic changes needed in production and consumption for the transition towards a low- emission, resilient future. The development of technologies for climate change mitigation and adaptation has increased rapidly since the beginning of the century. Globally, the number of patented inventions related to climate change mitigation in buildings, transport and energy generation tripled between 2000 and 2010. However, the current level of innovation falls short of what is needed to reach the 2°C goal, let alone move towards 1.5°C. Of 38 clean-energy technologies included in the IEA™s Sustainable Development Scenario in their World Energy Outlook (which is consistent with a well-below 2°C goal), only four are on track to penetrate markets suf˜ciently: solar photovoltaic, lighting, data centres and networks, and electric vehicles. Governments must accelerate the deployment of existing innovations in technology, business models and services, and swiftly move the next generation of climate solutions from the lab to the market. Source: OECD (2017 [60]) CLIMATE CHANGE MITIGATION INVENTIONS The number of patented inventions related to climate change mitigation in buildings, transport and energy generation tripled between 2000 and 2010.Deploy targeted innovation policies to create and shape markets for climate innovations A sound enabling environment for innovation Œ e.g. well-aligned tax, competition, education, science, trade and investment policies Œ and a strong environmental policy framework are necessary, but not suf˜cient, conditions for the transformation. To deliver transformative change, governments must also adopt a suite of innovation policies and ˜nance measures that are tailored to the climate challenge. Governments can set the direction of innovation by adopting mission-oriented programmes. Mission-oriented programmes are government initiatives to align policies, public Research and Development (R&D) programmes and public-private collaboration towards a speci˜c time-bound objective. This in turn helps to address a broader societal challenge or fiwicked problemfl Œ one that is complex, systemic, interconnected and urgent Œ such as climate change and environmental degradation (Mazzucato, 2017 [15]). Notable examples include Germany™s Energiewende and China™s policy to promote new electric vehicles. Demand-side policies Œ such as performance standards or green public procurement Œ can help direct resources and capabilities by creating or strengthening the market pull for climate innovations. However, judicious use of more technology-speci˜c measures may be required to overcome the barriers facing low-emission technologies and drive transformative rather than incremental innovation. Feed-in-tariffs (FITs), for example, were instrumental in bringing wind power in Denmark and Germany to full commercialisation at a time when the technology was not yet competitive (OECD, 2011 [16]). National and sub-national regulations or performance standards have demonstrated their effectiveness in encouraging more innovation. These include energy-ef˜cient building codes or renewable portfolio standards that require electricity providers to include a minimum share of clean energy in their output mix. By introducing climate-related criteria in procurement decisions, governments can also use public procurement to bring low-emission solutions to the market, and trigger industrial and business model innovation through the creation of lead markets. Consumers can also catalyse and in˚uence the direction of innovation. Governments can empower consumers by deploying policies that counter inertia and scepticism about new goods and services. Monetary or price-based incentives such as demand subsidies or tax allowances can encourage risk-averse consumers to buy innovative new products.
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8Deliver and scale up support for research and development of climate solutions Realising the full potential of innovation to drive the transition to a low-emission and resilient economy will require much greater levels of public investment in R&D. While estimates of the funding gap vary, there is a broad consensus that public investment in low-carbon R&D would have to at least double to reach the goals of the Paris Agreement (Dechezleprêtre, Martin and Bassi, 2016 [17]).Governments can help scale up R&D from private ˜rms and universities through direct funding in the form of loans and grants, or through ˜scal incentives, such as tax credits. Aligning R&D subsidies for fossil fuel research with low- and net-zero emissions goals is equally important. Public research through government research institutes and laboratories plays an important role in linking basic and applied research. In addition to targeting technological progress, public research should explore socio-economic and political aspects that could help deliver systemic changes in production and consumption practices, habits and behaviour or that could in˚uence the acceptance and adoption of new technologies. International co-operation and well-designed collaborations between the public and private sectors, across ˜rms, and among academia and national laboratories can help match problem- owners with solution-providers, pool resources, bring together complementary skills and expertise, and lower technology risks and R&D costs. Overcome the financial barriers to demonstration and early-stage commercialisation Innovative technologies and solutions emerging from R&D must pass through several stages of validation and re˜nement before reaching full commercialisation, and depend on different types of investors and investment instruments along the way. Due to information asymmetry and the fragmented nature of investor networks, projects may face a discontinuity of investment and fall into a so-called funding fivalley of deathfl. Clean energy technologies, that require large-scale capital investment, have long development timelines and face high technology risks, are particularly vulnerable to funding gaps. There is a need to diversify and better align the investment vehicles and actors involved at the different stages of innovation, and to improve the allocation of investment risk. Governments can help by supporting the expansion of public and private incubators and accelerators. They could also use public money 4/38 clean-energy technologies included in the IEA™s Sustainable Development Scenario are on track to penetrate markets suf˜ciently. THE FUNDING GAPCLEAN-ENERGY TECHNOLOGIESAt least 2X public investment in low-carbon R&D is required to reach the goals of the Paris Agreement to fund risky, long-term projects that could have large social bene˜ts but are too early for private-sector investment. Low- interest loans, loan guarantees, tax incentives and quasi-equity ˜nancing can be deployed to reduce investment risk and attract private sector ˜nance. Governments can promote and facilitate new partnerships and coalitions to help align investment vehicles and actors, thereby ensuring a continued stream of investment all along the innovation chain from basic research through to deployment of new technologies. For example, the global Breakthrough Energy Coalition and its Breakthrough Energy Ventures funding mechanism, bring together patient and risk-tolerant private investors, global corporations and ˜nancial institutions with the capital necessary to ˜nance large energy infrastructure projects that emerge from the Mission Innovation initiative 1.Promote international technology diffusion at scale The adoption of strong environmental policy can drive international technology diffusion, as it helps create markets for low-emission innovations and provides ˜rms with incentives to acquire new technologies. Removing tariff and non-tariff barriers to trade in mitigation and adaptation technologies, manufacturing equipment and services is also critical. The extent and effectiveness and technology diffusion is also determined by the absorptive capacity of recipient countries. The higher the level of domestic human capital, the higher the level of technology transfer as well as the local spillovers from trade and foreign direct investment. Investing in education, technical extension services, public technology diffusion programmes and demonstrators is therefore important to enhance the ability of the public and private sectors to adopt, adapt, and employ the most appropriate technologies. It can also help to facilitate the transition of economies and workers dependent on energy- intensive industries (Box 4).International transfers of low-emission technologies have been primarily between advanced countries. The diffusion of climate change mitigation technologies to and from developing countries Œ particularly emerging economies Œ has increased signi˜cantly since 1992. In 2016, emerging economies accounted for 29% of the global imports of low-emission equipment goods and 24% of global exports (Glachant and Dechezleprêtre, 2017 [18]). While emerging economies are better integrated into international technology markets, less developed countries remain largely excluded due to their general isolation and lack of absorptive capacity. International technology transfer mechanisms and development co-operation have an important role to play in ensuring that innovation bene˜ts a larger number of countries. Source: Dechezleprêtre, Martin and Bass (2016 [17])Source: IEA (2018 [61])
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