04/19/2016

Who Will Pay? Covering the Cost of Climate Change Mitigation and Adaptation

World Bank speaker Ajay Narayanan believes both the private and public sectors will have to ante up to cover major development costs associated with the impact of climate change on low-income countries.


Who Will Pay? Covering the Cost of Climate Change Mitigation and Adaptationinline-block
 

By Katie O'Brien ’16

 

The problem of climate change adds another layer to the already-challenging work of development. Despite not causing the problem, low-income countries will experience the worst of the effects of climate change over the next century, according to a September 2013 report by the Intergovernmental Panel on Climate Change. On April 4th, Ajay Narayanan, manager of Development Operations at the World Bank, gave a talk sponsored by Johnson’s Center for Sustainable Global Enterprise about the World Bank Group’s efforts to mitigate the problems of climate change worldwide, and some of the accompanying challenges.

 

Narayanan described the World Bank Group as “an organization that actually has been built up with the intent of helping emerging markets.” As a public institution, he said, it has two goals: to end extreme poverty by decreasing the percentage of people living on less than $1.90 a day, and to promote shared prosperity by fostering the income growth of each country’s bottom 40 percent. They seek to do this by transferring not just money, but knowledge.

 

“Climate change is a major development problem. It’s an environmental problem that’s affecting everyone; the polluters are not the only ones who pay the price,” Narayan said. He identified two sides to the problem that need to be addressed: mitigation — reducing greenhouse gas emissions to reverse the effects of climate change; and adaptation — dealing with the problems that arise as a result of climate change, such as threats to human health.

 

“If you want to solve the problem, you need money,” he said. More than $300 billion, to be exact. “So how do you actually make this money available? The private sector is going to have to fund it with the public sector chipping in,” says Narayanan, who was formerly head of Financial Markets Sustainability at the International Finance Corporation (IFC), the arm of the World Bank that focuses on private sector development. He and his team were tasked with growing the financing for climate change mitigation through IFC’s financial market clients in areas such as sustainable energy, sustainable value chains, cleaner production, and sustainable logistics.

 

Since lack of equity for energy project developers is a major obstacle to progress, the IFC works with financial institutions to incentivize them to fund climate mitigation projects in their countries through subsidies. “We look at the main financial drivers in emerging economies,” Narayanan said, “and get them to start funding climate change and sustainability causes.”

 

But there is still a long way to go to make tangible progress in mitigating climate change and finding a solution.

 

“We are essentially financing what is already happening; [but] what is happening is not enough to solve the problem,” Narayanan said. He called for development institutions to take more risk and to really grapple with developing new approaches to finding solutions rather than taking a linear approach.

 

“Because these problems are so difficult to solve, we tend to plan rather than explore,” he said. He sees this tendency embedded in the culture of development institutions, and it’s something he has sought out to change as a leader in the World Bank Group. He said institutional change must come through an “infection” in the organization, with more and more people pushing the institution to take on more risk and challenges.

 

“We are content to ‘contribute’ to finding the solution rather than solving the problem,” said Narayanan. “We tend to do what we can do rather than what we should be doing.”

 

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Katie O'Brien ’16 is an intern in Marketing and Communications at Johnson.


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