MAS to back $5 million Asia climate solutions grant

To reach net zero by 2050, the world needs to reduce greenhouse gas emissions by 45 per cent by 2030. ST PHOTO: LIM YAOHUI

SINGAPORE - The Monetary Authority of Singapore (MAS) will contribute to a $5 million Asia climate solutions grant as part of a push to move closer to net-zero carbon emissions by 2050.

The grant will be hosted by a global network for blended finance known as Convergence, MAS chief Ravi Menon announced on Tuesday.

The scheme will provide funding for feasibility studies and proof of concept work on innovative blended finance solutions in target sectors that are significantly undercapitalised in Asia, such as early-stage climate adaptation and mitigation technology, clean energy access, sustainable transport, and nature-based solutions.

This will help build a pipeline of investable projects for investment, said Mr Menon.

Blended finance refers to the combination of concessional financing or loans that are extended on more generous terms than market loans and commercial funding.

MAS and the Asian Development Bank will also develop guidance for financial institutions on how they can gradually phase out coal power generation in the Asia-Pacific region.

This is an initiative of the Asia-Pacific network of the Glasgow Financial Alliance for Net Zero (GFANZ), a global body that coordinates efforts across all sectors of the financial system to accelerate the net-zero transition.

Speaking at the inaugural conference on blended finance, Mr Menon noted that there are about 5,500 coal plants in Asia, responsible for more than 4.5 gigatonnes of carbon emissions each year.

Many of these plants have decades left to operate, and GFANZ will help to responsibly decommission these plants.

About 85 per cent of the energy consumed in Asia today comes from fossil fuels, and demand for energy is projected to double by 2030.

The region is most vulnerable to climate change with large populations living close to areas prone to floods, droughts and rising sea levels.

This is why the ability to successfully help Asia's transition to net zero will "go a long way to getting the world to net zero", Mr Menon said.

The Suralaya coal power plant in Cilegon, Indonesia. MAS and ADB will work together to develop guidance for financial institutions on gradually phasing out coal power generation in Asia-Pacific. PHOTO: AFP

This can be achieved through inclusive transition, which is about decarbonising without compromising social and economic development, he said.

So far, the United Nations has convened a high level advisory board that will look at reforms to the global financial architecture to channel more public and private funding to developing countries.

Ms Joan Larrea, chief executive of Convergence, noted that blended finance, through strategic use of catalytic funding, can provide critical de-risking for private sector investment and improve project bankability, and play an impactful role in addressing the financing gap for net-zero transition.

To promote transition and blended finance, MAS and Enterprise Singapore launched Infrastructure Asia to give technical assistance to enhance project bankability that would help to attract finance.

Infrastructure Asia has facilitated a number of sustainable projects, including waste management and waste-to-energy.

Clifford Capital, whose borrowings are guaranteed by the Singapore Government, has so far catalysed a total of US$230 million (S$327 million) for sustainable infrastructure from institutional investors through its Bayfront Infrastructure Management.

To reach net zero by 2050, the world needs to reduce greenhouse gas emissions by 45 per cent by 2030, relative to 2010 baseline levels.

But emissions today are still rising.

Based on current policies in place, the world is 55 per cent short of the emissions reduction target for 2030, a UN report had said.

“The transformation of the global economy in order to achieve net-zero emissions by 2050 would need US$9.2 trillion in annual capital spending on physical assets until 2050, “ said Mr Oliver Tonby, senior partner at McKinsey Singapore.

But only about US$5.7 trillion is now being invested per year.

This means the world is more than 35 per cent short of the annual investment required for net zero.

Mr Menon noted in his opening address that investing in green technologies and renewable energy is important, but such green activities are estimated to make up less than 8 per cent of global gross domestic product.

"To move the needle towards net zero, we must progressively decarbonise across all sectors of the economy, including hard-to-abate sectors such as cement, steel and maritime transport," he said.

This means the world needs transition finance to provide funding and support for businesses and sectors that are not so green, to adopt cleaner technologies, raise energy efficiency and progressively become greener over time.

About 500 participants including Dr Rania Al-Mashat, Egypt's minister of international cooperation, as well as Ms Kristalina Georgieva, managing director at the International Monetary Fund, are attending the one-day conference.

The inaugural conference, organised by MAS, McKinsey and Convergence, discussed ways the public and private sectors can mobilise capital and push the use of blended finance to support global net-zero transition.

Correction note: MAS says Clifford Capital has so far catalysed US$230 million instead of what it previously said was US$330 million, for sustainable infrastructure.

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