Asian cities stand to lure climate investments worth US$20 trillion

Photo Credit: Pixnio

Around 1.2 billion more people will migrate to urban areas in Asia over the next three to four decades. If the Paris climate agreement is to be a success, it is cities that must drive green solutions.

By Preetam Kaushik

Three years ago, almost to the day, the world looked on in amazement as 195 nations signed the Paris agreement into effect. The 2015 United Nations Climate Change Conference (COP21) was a landmark moment in the fight against climate change, not just because against the odds, 195 nations had come together to pledge to limit temperature rises to no more than two degrees, but because of the ramifications it would have on sustainable investments.

The COP21 deal showed the private sector that, publicly at least, governments were serious about confronting the biggest threat to humanity’s survival the earth currently faces. It immediately unlocked US$100 billion in funding to invest in cleaner energy solutions in developing countries, and the snowball that was created on that day in December 2015 is picking up speed now.

Green building spaces remain a key attraction

A new International Finance Corporation (IFC) report indicates Asian cities will pull in more than US$20 trillion in climate investments in six important sectors by 2030. Those sectors earmarked for significant investment are sustainable construction, renewable energy, electric vehicles, public transportation, and waste and water management.

In the East Asia Pacific region, green buildings have the potential to lure investments worth US$16 trillion. Nearly 81% of this capital flow will be absorbed by China but, Indonesia, the Philippines and Vietnam are set to reap investment opportunities worth US$345 billion in the green building space.

Source: IFC

ASEAN cities are already feeling the effects of high carbon emissions

Cities account for over 65% of the world’s energy use and contribute to around 70% of global carbon dioxide emissions. The way cities are going to deal with climate change will determine the scope of efforts to prevent climate change within ASEAN and across the globe.

As urban areas are the key driver of economic growth, representing 80% of the GDP in most Asian countries, the migration of people to cities will continue unabated, exacerbating existing emissions challenges.

Rapid urbanisation has already led to deteriorating air quality and increased pollution. Hanoi now only enjoys only 38 days a year where the particle pollution levels drop to safe levels. With 85% of the city’s pollution coming from traffic, green investment in electric vehicles and public transportation are a priority for the Vietnamese capital.

Source:  aqicn

Many major cities in the region, including Bangkok, Manila and Ho Chi Minh City also have coastlines that are likely to be affected by extreme weather events such as floods, typhoons and rising sea levels arising out of growing global warming.

According to a recent report from the World Bank, an area of approximately 74,000 square kilometres in the 12 Asian countries— Cambodia, China, Indonesia, South Korea, Malaysia, Myanmar, the Philippines, Thailand and Vietnam—would risk permanent inundation by a one-meter sea level rise.

Manila, Jakarta, Bangkok, Ho Chi Minh City and Yangon are among the top 25 cities that would face devastation due to cyclones and extreme weather triggered by climate change.

ASEAN cities are innovating

Confronted with these realities, city administrations in East Asia and the Pacific have started formulating solutions to improve living conditions and push economic growth without hurting the environment.

Many cities in the region are using innovative approaches such as green bonds and public-private partnerships to attract private capital.

For example, Kuala Lumpur aims to pare emissions by 20% by 2022, primarily by enhancing the energy-efficiency of its buildings. Ho Chi Minh City will also cut carbon dioxide emissions by 19% by 2020 through the modernisation of the agricultural, construction, tourism, transport and energy sectors.

Jakarta is also looking to reduce emissions by 30% from 2005 levels and aims to source 30% of its energy from renewable sources by 2030. In the Philippines, Manila is implementing an integrated flood control and transport plan which aims to mitigate the climate impact of typhoons.

Governments in Asia are at the forefront of exploring initiatives driving growth through climate-friendly investments. For instance, with the help of a US$450 million World Bank loan, Indonesia is enhancing access to affordable housing to the bottom-of-the-pyramid population, while incorporating climate change adaptation into housing planning.

It is the region’s receptiveness to explore new industry solutions that led to the East Asia Pacific region’s emergence as a hotbed for climate-oriented investment opportunities.

There is more to be done to turn the snowball into an avalanche

The mammoth climate investment opportunity will not play out in a flash. It will materialise only through comprehensive policies, meaningful dialogues and focused, coordinated action from governments, financial institutions, non-government organisations (NGOs), businesses and local communities.

The Paris Climate Change Agreement had a catalytic effect on climate-smart investments globally. However, against the growing, and potentially catastrophic threat of global warming, governments need to quicken their efforts to unlock private finance that will help combat emissions and fuel sustainable growth.

These efforts will take a different form in different locations across ASEAN. In Singapore, a startup hub, re-allocating a significant portion of startup-focused funds to early-stage and small and medium-sized enterprises that undertake green and energy-efficient projects is one way to drive climate innovation and explore solutions.

This could take the form of government-owned venture and capital and private equity funds that will scout for and invest in start-ups and growth-stage entities focused on climate-friendly sectors including waste manage and recycling as well as waste-water treatment.

Floating climate-focused public-private-partnerships with a revenue-sharing model is another option for countries with investment-grade credit ratings. If there are adequate opportunities for urban projects to develop revenue streams, attracting private-sector investment for public projects is a way to raise rapid capital for green urban projects.

For places like Cambodia, to attract private investment in environmentally-friendly projects, the country would first benefit from increasing its credit rating. When the municipalities are able to demonstrate strong financial management and financial maturity, then more international capital will become available.

All governments would benefit from supplementing climate agenda and green policies with efforts to drive competition, such as tax incentives for private entities that help lure investments in environment-sensitive sectors and push sustainable development. ASEAN governments are yet to make a significant headway in this direction.

Given what is at stake for ASEAN if international governments cannot come together to limit the rise in global temperatures to below two degrees, the pressure is on to ensure counter-emission investments are strengthened on a war footing. The opportunities are there. The sectors are hungry for investment. Now, it is up to governments to implement policy that can make that happen.