Challenges in financing climate responseEffective mitigation depends on enabling private sector involvement in zero-emission transportation projects.
Financing climate responses is perhaps the most complex yet least talked about subject among the various crucial issues surrounding climate change. The complexity results from Nepal’s climate finance needs being as high as its exposure to substantial climate risks. However, there is no indication of what the financial needs will be and how they will be met when long-term programmes are identified as part of the national adaptation plan. What can be safely be assumed is the fact that a majority of the Sustainable Development Goals (SDGs), which Nepal is committed to achieving by 2030, are climate-sensitive. Hence, climate change, which is increasingly affecting Nepal’s natural and economic environment, must be addressed to achieve them. Similarly, Nepal has to meet its commitments of Nationally Determined Contributions (NDCs) made under the Paris Agreement to contribute to climate mitigation. The inter-linkages between climate impacts, our responses to adapt to or mitigate them, and meeting the global commitments makes having a blueprint for how the future of climate financing will be shaped vital.
Broadly, the funds for meeting climate finance needs can come from four different sources: domestic public and private, and international public and private. It is time we begin assessing how each of these sources would contribute to the national climate financing needs. As far as the domestic public fund is concerned, the government has already been allocating a substantial amount of public funds to implement climate-relevant projects. Data from the Ministry of Finance reveals that an average of about 5 percent of the annual national budget has been allocated to development programmes that are defined, under various sectors, as highly relevant to climate change. Even if we assume that a tenth of the allocated amount is actually spent to address climate impacts, the amount comes up to about Rs8 billion ($72 million) for the fiscal year 2019-20, which is extensive, considering the size of the economy.
On the international front, a limited amount of international public funds began flowing in the country for select climate projects, following the adoption of the National Adaptation Programme of Action (NAPA), designed to identify urgent projects for immediate implementation. The size of future projects, for now, can be judged by the recent allocations made by the Green Climate Fund (GCF), which ranged from $18.6 million to the Marshall Islands to $60 million to Chile. Pakistan and Bhutan received $35 million and $25.3 million, respectively.
Unfortunately, public sector financing alone may not be sufficient to fund a range of climate responses required to make the environment and economy climate-resilient in the future. Therefore, the other potential source, the private sector, needs to be mobilised to fill the gap. However, Nepal, being a low-income developing country, has limited areas where the private sector can come forward to invest in climate-resilient projects. The potential for mobilising private funds depends upon the identification of projects as well as its facilitation by private investments.
The fossil-fuel-driven transportation sector is a significant source of pollution and the largest source of greenhouse gases (GHGs). Therefore, with climate change becoming a major environmental concern affecting the wellbeing of people, heavy emphasis has been laid on the promotion of low-carbon transportation.
Electric transportation is one such endeavour where the private sector has shown keen interest globally. Various models are being discussed, and countries are attempting to lure private sector investment into the zero-emission transport systems. Many countries, including the largest GHG producers, have planned to phase out conventional fossil-fuel-based transport to pave the way for electric cars and buses.
China, for example, one of the biggest contributors of greenhouse gas emissions, has also become a leader in reducing the use of fossil fuels in its transportation system. The Asian powerhouse operates more electric buses than the rest of the world combined. Car manufacturers in India have planned to phase out diesel cars by 2020.
Recently, the government of Nepal announced that it would provide Rs300 billion ($2.7 billion) to Sajha Yatayat—a cooperative providing public transportation services—to buy 300 electric buses. Earlier, the Province 3 government and the municipalities of Kathmandu Valley also handed over Rs450 million to Sajha Yatayat to buy electric buses. These are welcome steps in promoting zero-emission vehicles in Nepal’s bid to promote low-carbon growth. They are also positive moves to reduce dependence on fossil fuels for transport, as committed in the first Nationally Determined Contributions, which intends to half our dependency on fossil fuels by 2050. However, the question remains: will this allocating of public funds to electric transportation encourage the private sector to invest in electric transport as well?
It has been more than a decade since advocates have been lobbying for a green investment policy framework. The government has a critical role to play in mobilising private investment in a climate-responsive transport system. While this requires long-term policy goals, it also mainstreams these goals within the national strategy, plan and budget. It requires a firm policy and a clear vision for an integrated climate transport as well as investment policy, along with the tools to facilitate private sector investment.
Already, a large portion of public transport is privately-owned; the private sector operates all long-distance bus services and cargo trucks. On the electric front, battery-operated three-wheelers have been in use for many years. An increased number of cable cars in the country indicates that the private sector is already investing substantial capital in viable projects. However, a large-scale transport system that helps reduce fossil fuel dependency, as well as GHG emissions, are what the country desperately needs. The priority, going forward, is to make venturing into electric transportation a more feasible venture for the private sector.
The question is how to encourage the private sector to meet some of the financial needs to implement mitigation projects such as zero-emission transport. Electric buses are a new venture with many unclear areas, including its cost-benefit factor to a private investor. The future of public transport must be governed by the necessary infrastructure that facilitates electric transport beyond mere symbolic gestures.
The government needs to enable financing to attract the private sector to invest in electric transport and create the conditions for the establishment of a market without risks for individual investors. There is a need to create opportunities for commercial banks to invest in long-term transport projects. Innovative financing solutions have emerged, over the years, as an embryonic area; these need to be explored for effective ways of channelling money from financial markets, combined with public resources, to address the climate challenges.
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