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Dominic Waughray

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Green Business at Davos

Posted: 01/18/12 10:02 AM ET

What do green issues have to do with Davos? Many people assume that the World Economic Forum's Annual Meeting will focus on the financial crisis still rippling through the world. This may be an important part of the program, but it's far from the whole story. A strong green thread runs right through the Meeting, demonstrating the fact that questions about economic growth and environmental sustainability are not separate, but tightly intertwined. At Davos this year, we want to launch a transformation to bring the energy and ingenuity of industry to bear on addressing the urgent problem of climate change.

It's all too clear why a new approach is needed. Getting countries to agree on how to tackle greenhouse gas emissions is vitally important, but it is also a necessarily slow process. Last year's UN climate summit in Durban was a diplomatic success in that it managed to extend the Kyoto Protocol to 2017 and finalize a process to agree a new global accord to cut greenhouse gases. But countries have until 2015 to negotiate the new accord, and the measures won't actually come into force until 2020. Climate scientists, while welcoming the progress, are frustrated by the pace of these talks and are concerned that inevitable compromises will create too weak an agreement, given the scale of the challenge.

As a series of recent disasters has reminded us, we cannot afford lengthy delays in dealing with the interconnected issues of climate change, extreme weather, resources, economic development and humanitarian crises. Floods have cost the Thai economy US$45 billion in 2011, about 7% of its GDP according to the World Bank, with wider disruption to many global supply chains. Parts of China are experiencing their worst drought in 60 years, affecting over four million farmers. Poor rains across Djibouti, Ethiopia, Kenya, Somalia and Uganda have created the worst drought since 1950, affecting more than 10 million people and pushing food prices upward.

Worryingly, these events could be trends rather than outliers. A recent report from the Intergovernmental Panel on Climate Change says that it is at least 90% certain that the sort of exceptionally hot day that would occur once in every twenty years on average will occur once in every two years by the end of the 21st century. It also predicts with 66% certainty that the frequency of heavy rainfall will increase, particularly in tropical regions.

While international diplomacy goes at its own pace, many developing countries have seized the initiative and begun tackling these threats by designing more sustainable, resilient paths to economic growth. They are building up investment programs in clean energy, energy efficiency, water management systems, climate-resilient agriculture, smart grids and low-carbon transport systems. Reflecting this shift towards "green growth", developing countries now have more than half of the world's global renewable power capacity, and these investments are growing. According to Bloomberg New Energy Finance, in 2011, for the first time, global investment in new renewable power plants (US$187 billion) surpassed fossil fuel power plant investment (US$157 billion).

Although this trend is encouraging, much more needs to be done to attract the private finance necessary to fund the green infrastructure at the speed and scale that developing countries require. Investors are understandably cautious about the risks involved in this relatively new area. Small amounts of well targeted public finance can, however, help to soothe their nerves and lure in much-needed private sector funds. Some new models are already starting to emerge on how this can happen. For example, to support India's efforts to build up its solar power industry, the Asian Development Bank (ADB) recently launched a US$150 million Partial Credit Guarantee mechanism to help shield private sector investors from some of the various risks associated with the new technology. Several projects representing over 600 Megawatts of new solar capacity are now in the due diligence stage, and are seeking to benefit from this new facility.

At Durban, the World Economic Forum ran a series of talks on how to get the best out of these kinds of public and private sector partnerships in order to boost green growth, and the same ideas will be taken on to the next level at Davos. Specifically, the Government of Mexico in its role as G20 Chair for 2012 has invited the Forum to develop practical recommendations on this agenda. The first meeting of heads of state, ministers, investors, business leaders and international experts to discuss what sort of practical network of new investment mechanisms might work will take place at Davos. The Great Transformation - the theme of this year's meeting - will also be a green transformation. With governments unable to move quickly and citizens impatient for change, industry must be both encouraged and enabled to play its part in tackling climate change.