Climate Change Investment Plunges Second Year in a Row

Global investment in activities that reduce the threat of climate change fell for the second year in a row from USD 359 billion in 2012 to USD 331 billion in 2013.

Climate Policy Initiative’s Global Landscape of Climate Finance shows that while public sources and intermediaries contributed USD 137 billion, a figure largely unchanged from last year, private investment totaled USD 193 billion, falling by USD 31 billion from 2012.

The study credits the decrease in private investment largely to falling costs of solar PV, with deployment of this technology growing as investment shrinks. Solar deployment cost USD 40 billion less in 2013 than would have been the case with 2012’s solar investment costs. However, the situation remains grave: The International Energy Agency estimates that an additional USD 1.1 trillion in low-carbon investments is needed every year between 2011 and 2050, in the energy sector alone, to keep global temperature rise below two degree Celsius. In cumulative terms, the world is falling further and further behind its low-carbon investment goals.

Climate finance spending was split almost equally between developed (OECD) and developing (non-OECD) countries, with USD 164 billion and USD 165 billion respectively. Strikingly, almost three-quarters of all spending was domestic: It originated in the country in which it was used. Private actors had an especially strong domestic investment focus with USD 174 billion or 90% of their investments remaining in the country of origin. These figures illuminate a bias by private investors toward environments that are more familiar and perceived to be less risky. However, public sector money made up the vast majority of developed to developing country flows, which fell by around USD 8 billion from the previous year to between USD 31 and USD 37 billion in 2013.

“As policymakers prepare a new global climate agreement in 2015, climate finance is a key ingredient to bring the world on a two degree Celsius pathway. 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 Climate Policy Initiative and lead author of the study. She added, “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.”

Climate Policy Initiative works to improve the most important energy and land use policies around the world, with a particular focus on finance. An independent organization supported by grants from charitable foundations and governmental organizations, CPI has offices and programs in Brazil, China, Europe, India, Indonesia, and the United States.