The Green, Inclusive Innovation Imperative

Your Excellencies, ladies, and gentlemen.

On behalf of the Green Climate Fund, it is a privilege to take part in the opening session of the 2020 Green Smart Development and Vision Conference.   

In my remarks this morning, I will try to address a question that some of you might be asking yourselves:  Is green, smart development achievable on time to foster inclusive growth and avoid catastrophic climate change?

I will argue that on current trends we are not on track to achieve the Sustainable Development Goals but that trends are not a certainty and can be broken by cultural, policy, institutional, technical and financial innovations.

However, I will contend that innovation cannot be taken for granted. Innovation is not pre-ordained and does not always materialize on time to address societal challenges. It can create new unforeseen problems on its own, does not benefit all equally and can be rejected.

I will highlight the role of public policy to foster effective, inclusive and responsible innovation. I will then close this presentation with an illustration drawn from the Green Climate Fund’s portfolio.

In September 2015, world leaders from 193 nations adopted by consensus the 2030 Agenda for Sustainable Development, along with a set of 17 sustainable development goals.

This was hailed as a diplomatic triumph. For the first time, humankind had a common plan for peace, people, prosperity, and the planet. However, many commentators have questioned how realistic this ambitious 2030 agenda was, with its 17 Sustainable development goals, 169 targets and 232 indicators. 

Based on existing trends, we will not achieve the SDGs by 2030.

Let us take a few examples, starting with Goal 1 – ending poverty. According to a recent report by The Lancet, the world was off track to end poverty by 2030 before Covid-19, with projections suggesting that 6% of the global population would still be living in extreme poverty by 2030. Recent estimates suggest that Covid-19 could add 71 million additional people to this figure.

G20 countries have allocated over USD 12 trillion to stimulus measures to revive their economies battered Covid-19.  Most developing countries do not have the same monetary and fiscal space to roll out ambitious recovery packages. The sharp drop in public revenues, precipitous fall in foreign direct investment and remittances, and rising debt burdens have added stress to government balance sheets and threaten to wipe out decades of socio-economic gains.

We are not faring much better with SDG 4 : Education. Today, the world has the largest youth cohort in history. Whether this translates into the largest socio-economic dividend or the largest socio-economic challenge ever experienced by humankind will much depend on how this cohort of youth is educated and skilled for the changing world of work.

Based on existing trends, we will not achieve the 2030 global education goal of ensuring all girls and boys complete free, equitable and quality primary and secondary education before 2080 - 50 years too late. Failing to achieve SDG 4 will deprive the world of the scientists, innovators, entrepreneurs, political activists, and policy decision-makers that we need to foster green, smart development. Failing to achieve SDG 4 will also create capacity barriers for citizens and consumers to adopt green, smart technologies and practices.

Similarly, goal 13 is to take urgent action to address climate change and its impacts. The average global temperature for 2016–2020 is on track to be the warmest 5-year period on record. It is currently estimated to be 1.1°Celsius above pre-industrial times. Global temperature never exceeded the preindustrial value by more than 2 °C over the past three million years, the period which has seen the emergence of our species homo sapiens and its extinct forebearers. 

Based on existing trends, we could cross this threshold early during the second half of the century. The last time we came close to a 2°C increase in average global temperature was during the last interglacial period 125,000 years ago. During this period, sea level was 7 to 12 meters above today and the world was devastated by superstorms.

Even if we were to stop greenhouse gas emissions today, we are already committed to significant climate damage. Climate impacts are materializing faster than expected. Since 2001, the Inter-Governmental Panel on Climate Change has published an assessment of the impacts of different levels of warming for people, ecosystems, and economies worldwide. The level of risk has increased with each subsequent analysis.

For example, twenty years ago, we were not expecting threats to the survival of unique ecosystems to materialize before a global average temperature increase of 4 to 6 °C. Today, we fear that a 2°C increase in mean global temperatures could wipe out 90% of coral reefs and endanger the security and economic livelihoods of hundreds of millions of people.

Based on these trends, we will not achieve the 2030 sustainable development agenda, we will not avoid catastrophic climate change and we might witness a dramatic reversal of socio-economic gains achieved over the past few decades.

However, trends are not a certainty.

History shows that trends can be broken with innovation in policy, culture, institutions, sciences, technology, management, and finance. The capacity of innovation to break global development trends is recognized in the SDGs, the UNFCCC and the Paris Agreement.

A single institutional innovation at the turn of the 19th century, the limited stock company, allowed early innovators and industrialists to pool resources and risks and finance the railways and factories of our three industrial revolutions.

Philosophical innovation such as the invention of human rights changed the course of history and prevented societal collapses. In his 1798 book “An Essay on the Principle of Population”, Malthus theorized that populations would expand until growth is stopped or reversed by disease, famine, war, or calamity. This was echoed by Paul Ehrlich in his 1968 book “The Population Bomb”, which predicted mass starvation in the 1970s and 1980.

The second wave of the women rights movements was gathering steam at the time “The Population Bomb” was published. Its achievements included new space for women to pursue careers and choose to have fewer or no children.

As a result, the population bomb was diffused by cultural change and the world’s population should peak around 10 billion during the second half of the century. Today, Project Drawdown ranks educating girls and sexual and reproductive rights as the sixth and eighth most powerful initiatives to avoid catastrophic climate change.

Innovations in digital technology and artificial intelligence; material technology; nanotechnology; genetic technology; robotics; biotechnology; transport technology; and energy technology, to name just a few, have the potential to provide humankind with new fundamental capacities and rewrite our future.

Notably, digital technology and artificial intelligence can dramatically accelerate efforts to reduce malnutrition and hunger; facilitate disease diagnosis and treatment; improve the quality of education for all and promote lifelong learning; and provide unprecedented solutions to address the basic needs of marginalized communities.  As an illustration, mobile-based pay-as-you go systems for decentralized solar has made providing clean energy to millions of rural people in poor countries commercially viable.

While innovation can break trends, history shows that innovation is not inevitable, does not benefit all equally, can create new unforeseen problems of its own, and can be rejected.

History is littered with examples of techno-optimist goals that could not be achieved. For example, when the US Clean Air Act was passed in the 1970s, it was expected that the incentives provided by the legislation to green, smart technology development would solve the country’s clean air problems within a decade.

Half a century later, over 50% of the US population still lives in areas that do not meet ambient air quality standards. And while local air pollution has yet to be solved, much more severe global air pollutions have risen to the top of the policy agenda during the period with ozone depletion and climate change.

Even when innovation materializes on time, it can create new, unforeseen problem on its own. When the CFCs were developed in the 1920s, they were touted as a safe substitute for the explosive and toxic ammonia and sulphur refrigerants then commonly in use. However, it was found in the 1970s that these compounds, inert in the troposphere, are transported into the stratosphere by turbulent mixing.  Once there, they release halogen atoms that catalyse the breakdown of ozone into oxygen. The ozone layer prevents most dangerous wavelengths of ultraviolet light from passing through the Earth's atmosphere and harming plants and animals. The miracle compounds of the 1920s became an existential threat to life on Earth half a century later.

The risk of unforeseen problems and mal adaptation is particularly critical in a changing climate. Choluteca Bridge is a 484-metre-long bridge over the river Choluteca in Honduras, in Central America. The region is notorious for storms and hurricanes. When it was decided to build a new bridge over river Choluteca in 1996, it was structurally designed to withstand the extreme weather conditions.

When Hurricane Mitch hit Honduras in October 1998, all the bridges in the country were destroyed, except the new Choluteca bridge. But there was a problem. The flooding forced the river Choluteca to change course and it now flows beside the bridge.

A blind faith in engineering to master nature could lead to much more serious consequences with the emergence of climate geo-engineering techniques. They are increasingly promoted as a cost-effective or a last resort solution to avoid catastrophic climate change. The leading plan to reduce global warming promoted by geo-engineering advocates is to fill the atmosphere with a haze of fine particles.  

To balance the warming effect of a doubling in CO2, we would need to pump up to 5 million tonnes a year of SO2 into the stratosphere. According to some estimates, this would cost about $10 billion per year, and could become an attractive solution to some compared to the many trillions of dollars at risk from climate impacts if we fail to achieve the SDG 13 and the Paris Agreement.

But blocking sunlight would only address a sub-set of global impacts of increased GHG concentrations and would replace a sun-lighted oxygen-rich atmosphere with a dimmed CO2-rich atmosphere. It could disrupt the monsoons and bring permanent famine to billions.

Innovation does not benefit all equally either.

Notably, it does not benefit the poor and the rich, women and men equally. The second industrial revolution was driven by electricity. But for the 1.1 billion people worldwide who still lack access to electricity, it might as well have never happened.

Similarly, innovation can entrench inequality and discrimination. Addressing the gender gap between men and women farmers in access to land, information, technology, finance, and markets is an extremely powerful solution to address malnutrition, poverty, and foster climate-resilient agriculture. Alone, it could positively influence a third of the 169 targets of the 2030 Agenda for Sustainable Development.

Only 6% of app developers are women.  As a result, a review of 300 agricultural added value apps currently in the market to foster green, smart agriculture showed that very few of them were considering the specific barriers that women face. The situation is unlikely to get better on its own soon. In 2011, only 0.4% of women planned to major in computer science, compared with 6.7% in 1983.

Digital technologies could further deepen inequality through creating mass unemployment. Machines are becoming exponentially faster, smaller, and cheaper. Thanks to these innovations, nearly half of the jobs in today’s economy could be automated by the 2030s.

History has shown that technological revolutions create prosperity in the long run but force some workers into lower-wage jobs or unemployment in the short run—and the short run can last for generations. For the first 70 years of the Industrial Revolution in Great Britain, from 1770 to 1840, average wages stagnated and living standards declined, even as output per worker grew by nearly 50 percent. The gains from mass mechanization during this time were captured by magnates, whose profit rates doubled.

Not surprisingly innovation can be rejected. The Luddites were right. They were right to be worried about their future, and the future of their children, and the future of the children of their children. Today, the refusal of many people to accept genetically modified foods is often perceived as a modern luddite fallacy and a failure to convince the public of the benefits of science.

The focus of the communication efforts led by the industry and government was on convincing people that the technology was safe, but that was not all the public wanted to talk about. In addition to risks and benefits, they wanted to talk about who would be the winners and losers.

Stressing that there is no evidence that GM foods are unsafe is not the answer if the question is whether it will turn smallholder farmers into a new lumpen proletariat at the mercy of agro-businesses. Or if the question is whether it will reduce food insecurity in developing countries or contribute to a green agriculture resilient to climate change. To be socially acceptable, innovation must not only be safe and green but also inclusive.

So, are green, smart innovation and technology truly the solution to the challenges of this century?

Technology does not have a mind of its own. Humans have agency, not technology.

Technologies are embedded in a social context, and it is the policy framework that we put in place that will determine whether innovation will materialize on time and will benefit all or only a few to accelerate the implementation of the SDGs.

Let us take the example of autonomous vehicles, which are to feature predominantly in the discussions of the 2020 Green, Smart, Development Conference.

According to the United Nations, 5 billion people will live in cities by 2030. Demand for urban transportation is expected to more than double, requiring a tremendous investment in new roads, parking lots and public transport. On average, cars sit idle 94 percent of the time.

Autonomous vehicles (AV) combining car sharing and ride sharing could remove 80% of private owned cars from the streets. The vast areas of urban lands currently occupied by parking lots could be redeveloped to increase the resilience of urban areas to climate change, including broadened sidewalks repaved with materials that are permeable to water, storm surge absorption parks and trees planted to mitigate heat waves.

But the actual picture could be dramatically different. While AV could create overwhelming positive changes in urban transportation, they could also result in negative consequences if not managed proactively. The cost of travelling with AVs could drop so substantially that people could abandon public transportation, leading to an increase in the number of vehicles in the city. Reductions in fiscal revenues from fines and car associated taxes such as driver registration could negatively impact the capacity of municipalities to expand and maintain urban infrastructure. And millions of people working as drivers today could be left unemployed worldwide.

The emerging experience from hailing services in San Francisco and New York would indicate that this second direction is a distinct possibility in the absence of policy intervention. A key challenge for urban policy makers today is how to change course and steer these new technologies towards green and truly smart development. I understand that it will be a key topic of subsequent presentations.

So, having considered how innovation can help – but also how it can hinder our drive for green smart development, let me turn now to how the Green Climate Fund is supporting green, inclusive innovation to overcome these barriers.

The mandate of the Green Climate Fund is to foster a paradigm shift towards low emissions, climate resilient development in developing countries. To achieve this paradigm shift, the Fund supports and scales up innovation to create green, inclusive markets.

While innovation is usually associated with technological innovation in the popular imagination, the GCF also support the complementary policy, institutional, business and financing innovations required to foster inclusive and responsible technological innovation. And most often, our projects support several types of innovation in an integrated manner.

To illustrate this point, let me take the example of Espejo de Tarapacá (mirror of Tarapacá), a GCF-supported renewable energy project in Chile. The project was launched last April and is funding what will be the world’s largest hydropower station using seawater, providing a vast energy source, and making more freshwater available for drinking water and agriculture.

Located in the Tarapacá desert, this project combines a 561 MW photovoltaic solar plant that provides power during the day and a 300 MW pumped storage hydroelectric facility that generates electricity at night, using the Pacific Ocean as its lower reservoir and a natural geographic feature as its upper reservoir.

Intermittency and storage requirements are key bottlenecks to increase the share of renewable energy in the electricity mix. By producing power 24/7, this ground-breaking initiative resolves the problem associated with intermittent renewable energy by transforming it into a continuous baseload source, using natural features for storage.

If successful, the project will supply 1,500 GWh of renewable energy each year, directly benefiting 13 per cent of the population of Chile; avoid the emission of 35 million tonnes of C02 equivalent; provide stable water supply from the project’s desalination plant to local communities; improve people’s food and water security, health and wellbeing; and support Chile’s green economic recovery from the Covid-19 crisis by generating jobs.

An innovative community participation process was adopted during the project design phase to meet GCF’s environmental and social safeguard, Indigenous People Policy and Gender Policy. External local and international advisors helped design and facilitate a collaborative and interactive community engagement process; face to face visits were organized to every house in concerned communities to introduce the project on a more personal level; a special commission was created to address community concerns; and individual collaboration agreements were executed with local associations to govern the interaction with the community during development, construction and operation of the Project.

Additional programmes were identified to ensure that men and women have equal access to the project’s benefits and decision-making processes.  This innovative community engagement process allowed constructive agreements to be reached over difficult issues. It also helped identify opportunities to support local development in these communities, particularly for women.

The replication potential of the project in other suitable locations, particularly in Africa and Latin America, is significant- up to 340 GW according to some estimates. Despite its multiple benefits and its large market potential, this project would not have been bankable, and the sea water-solar energy technological innovation would not be about to materialize in Chile in the absence of several additional innovations.

Green and smart technologies such as integrated sea water-solar energy typically require higher upfront capital against lower annual operations and maintenance costs. While ultimately profitable, they have a longer payback period. In addition to the technological risks, this longer payback period can deter entrepreneurs and financiers alike, particularly in early-stage markets.

Securing a long-term power purchase agreement (PPA) in the highly competitive power market in Chile is a pre-condition to offset the risk associated with a long pay-back period and secure funding. By making a USD 60 million first loss equity investment in the project, prior to having a PPA in place, GCF is de-risking the investment and aims to unlock the remaining $ 1 billion investment from other financiers, including MUFG, Japan’s largest Bank. To foster its ground-breaking green, smart technology, the project is thus leveraging two other financial innovations: private sector PPA and blended finance using first loss instruments to de-risk investment. It is this combination of innovations: in technology, social policy, and in finance, which is the key to success.

Innovation is not an option- green innovation is the imperative of our time to avoid catastrophic climate change and implement the first-ever humankind agenda for people, prosperity, peace, and the planet. Innovation holds the promise to break trends and achieve inclusive and sustainable growth. However, to achieve this promise, integrated policy development will be critical to steer these new technologies towards societal goals, which prioritize the long-term interests of stakeholders rather than the short-term interests of shareholders.

Thank you very much for your attention.