Development Account Projects
Mitigating climate change through attracting foreign direct
investment in advanced fossil fuel technologies
Mitigation of climate change will require de-carbonizing the global economy through the promotion of cleaner advanced energy technologies. Intergovernmental consultations at the fifteenth session of the Commission on Sustainable Development have confirmed that fossil fuels will continue to be the largest energy source in many developing countries in the coming decades. At the same time, countries underlined the importance of developing and deploying advanced energy technologies, which enable the use of these countries' energy resources in a compatible manner with climate change mitigation. The challenges are to attract the investment necessary to support the transition to a low carbon economy.
The sheer magnitude of required investment necessitates capital flows from foreign sources. Particular attention has been paid to foreign direct investment (FDI), which has many potential benefits, including financing capacity expansion without incurring debt, supporting technology and knowledge transfer, and acting as a catalyst for further capital inflows. Despite considerable efforts to attract FDI in the last several years, actual levels of such investment into the power and coal sectors in many countries with economies in transition have been moderate. Mobilization of the necessary capital resources will require an attractive investment climate — a business-friendly environment, favourable macroeconomic performance and a regulatory environment that is predictable, fair, transparent and efficient. It is critical to support the evolution of the economic, legal and regulatory frameworks that underpin an attractive investment climate while developing the financial skills of government and corporate officials and facilitating their interface with prospective investors.
In addition to renewable sources and energy efficiency, fossil fuel technologies such as coal gasification, underground coal gasification, coal liquefaction, could play an important role in meeting the growing energy needs of the countries with economies in transition. These technologies are more effective as well as more environmentally friendly. Together with carbon capture and storage technologies, they could make a critical contribution to the transition to low carbon economies. It is, therefore, critical that future infrastructure needs support sustainable development, and are incorporated into the investment framework.
The following developing countries and countries with economies in transition, which rely to a considerable degree on domestic coal and have expressed an interest in international sharing of experience in the development of their coal-based energy sectors, would be interested in participating in this project: Afghanistan, China, India, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Ukraine, and Uzbekistan. To the extent possible, a regional approach would be taken to optimize resources, encourage cross-fertilization, and build partnerships among regional and international experts.
ECE, the DESA and ESCAP will cooperate in the implementation of the project. Other partners will be invited to participate in the project as needed. ECE has prior involvement in this issue through the work of the ad hoc group of experts on cleaner electricity production from coal and other fossil fuels and the project "Capacity-building for air quality management and the application of clean coal combustion technologies in Central Asia", funded by the fourth tranche of the Development Account. In addition, ECE also has prior involvement through the work of the ad hoc group of experts on coal mine methane. The DESA has implemented several technical cooperation projects related to cleaner coal technologies in China and Kazakhstan and also provided advisory services on clean coal technologies. ESCAP has also conducted a number of activities in energy and coal which would be conducive to this joint effort.
To enhance Governments' abilities to attract FDI into advanced fossil fuels technologies to support energy security and low-carbon sustainable development.
- Increased skills to develop and maintain an attractive investment climate to encourage FDI into the power sector to meet the growing demand for electricity and climate change goals in countries with economies in transition.
- Improved cooperative relationships between energy policymakers in countries with economies in transition and investors.