Govts urged to focus on climate funds risk, returns
* Private firms need more engagement to raise climate funds
* Upping returns, lower risk needed to attract aid for poor
* Too much attention on where money will come from -Deutsche
By Michael Szabo
COLOGNE, May 26 (Reuters) - Governments should focus more on generating returns and reducing risk for investors to attract the $100 billion in aid needed by developing countries to cope with climate change, a panel of experts said on Wednesday.
Rich countries are being urged to adhere to key elements of a climate accord signed in Copenhagen last year, including a promise of $10 billion a year in quick-start aid from 2010-12 for poor countries, rising to $100 billion a year from 2020.
"$100 billion sounds like a lot of money ... (but) raising large amounts of money in the private sector is actually very easy," said Martin Lawless, head of environmental financial products at Deutsche Bank.
"Too much attention is focussed on who will provide the money. Instead it should be on the other side, how to increase returns and reduce risks. Once that is established, the finance will follow."
The United Nations urged rich nations on Tuesday to keep their pledge to give $30 billion to poor nations by 2012, saying it was "not an impossible call" despite budget cuts in Europe. [ID:nLDE64O1P4]
But with worries over sovereign debt also growing, the private sector may be asked to help fill more of the funding gap.
"When you have the right proposition, the financing will come," said Mohsen Khalil, global head of the International Financial Corporation's new Climate Business Solutions Group.
"We're at a transition phase where the public and private sectors have to align their interests because heavy subsidies will be required initially until costs come down and we can have a large-scale sustainable business."
The panel agreed that the role of carbon markets in directing funds to financing clean energy and climate change adaptation in developing countries was shrinking.
Another panel of analysts said earlier on Wednesday that market mechanisms will survive beyond 2012, but their exact shape remains unclear as international climate talks now bypass their role in favour of the wider policy picture. [ID:nLDE64P1AQ]
"Carbon credits were good for a time, but is it the only instrument (to engage the private sector)? I don't think so," said Khalil.
"Against the background of recent economic turmoil, investors are particularly risk averse, so the private sector needs TLC: transparency, longevity and consistency," Lawless said.
He cited a unilateral carbon price floor set by China in 2007 and growing uncertainty over the $144 billion global carbon market's future post-2012, when the first five-year leg of the Kyoto Protocol expires, as deterrents to investors.
Key ministers and climate negotiators from China to Norway have said governments are unlikely to agree a successor to Kyoto at UN talks in Cancun, Mexico later this year. [ID:nTOE64O059]
"It will never be possible to motivate substantial private sector finance if the market faces the same uncertainties every 5-10 years. Incentive mechanisms need to be assumed to be permanent," he added. (Editing by Amanda Cooper)
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