Investing in a Low-Carbon Energy Future in the Developing World

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The need to address climate change while facilitating continued economic growth and social progress is one of the key challenges facing world leaders today. Energy is critical to continued economic growth and according to the International Energy Agency (IEA); population growth and increasing industrialization will drive demand for energy upwards by more than 50% between now and 2030.

Fossil fuels are expected to be a major contributor to meet these future energy demands. This will lead to a substantial increase in greenhouse gas (GHG) emissions unless cleaner technologies, such as carbon capture and storage (CCS), renewables, and nuclear power, emerge that are commercially competitive and can be implemented at scale.

The demand for energy will rise most rapidly in developing countries as they develop energy services to drive economic growth and social progress. Without convenient and affordable alternatives, these countries are likely to follow a high-carbon pathway, similar to that of the developed world.

In its trilogy of Energy and Climate publications, as well as Powering a Sustainable Future and Doing Business with the World, the WBCSD explores the highly political issues concerning the challenge of meeting energy needs without causing irreversible damage to the Earth’s climate.

The solutions lie in creating framework conditions with the right incentives to cause a large scale technological shift toward a lower carbon and more energy efficient economy that also delivers affordable energy solutions for the 2.4 billion people who are currently without basic energy services. This shift relies on scaling up investment flows into the development and deployment of lower carbon technologies, as well as adapting behaviors and lifestyles to favor these technologies across the developed and developing world.

The private sector is a major source of innovation, capital and capacity that, given the right framework, can deliver a low-carbon global economy. For governments to facilitate the release of private sector resources, they need to understand how capital markets and corporate investment strategies can be incentivized to deliver results consistent with sought after goals on carbon mitigation and improved access to energy.

There are however quite different mental models and perceptions among governments and policymakers of how and why a business might choose to invest in a particular project and/or country. This can result in inefficient policies that hinder rather than support the involvement of the private sector.

In the following pages we explore how governments and business can work together to solve these challenges by aligning policies, mechanisms and tools with the commercial conditions under which a business typically invests. By identifying a few of the critical issues important to business we hope to contribute to the design of efficient policy mechanisms that drive the shift to a low-carbon future, promote investment in new technologies and energy services in developing countries, and contribute to overall sustainable development.

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