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Financing the Green Economy

BEIJING – According to new estimates that will be presented at this year’s World Economic Forum meeting in Davos, $100 trillion is needed by 2030 to finance infrastructure needs worldwide. This investment needs to be greened – its design and use must rely on less carbon and fewer natural resources – if we are to avoid an unsustainable increase in global temperatures of four degrees Celsius or more in the coming decades.

At least in the short term, green investment costs more than business-as-usual investment – about $700 million a year worldwide, according to the G-20-inspired Green Growth Action Alliance, chaired by former Mexican President Felipe Calderón. Additional outlays of $140 billion annually are required just to green the estimated $15 trillion investment in energy generation needed by 2020.

These incremental costs are insignificant compared to the economic and other damage – including, for example, rising and volatile commodity and food prices – implied by unrestrained climate change. But someone still needs to put up the extra money.

Investment in clean energy has increased, with global spending on renewable energy rising six-fold since 2004. But the total remains far too small. While active government support remains crucial to advancing green investment at scale, widespread fiscal weakness is pulling in the opposite direction. Germany, the United Kingdom, and Spain, for example, have reduced their rates for solar photovoltaic feed-in tariffs, while the expiration of the United States’ federal production tax credit for renewable energy has undermined investment in wind installations there. The slowdown in long-term infrastructure investment is also an unintended consequence of tough new banking regulations adopted in the wake of the recent global financial crisis.