# **Assessing the Investment Climate for Climate Investments**

## **A Comparative Framework for Clean Energy Investments in South Asia in a Global Context**

# **1. Introduction**

Climate risk management is fundamental for preserving and enhancing development progress in many developing countries. Successful mitigation efforts by the global community will reduce the burden of adaptation. At the same time, adaptation to aggravating climate risks, and low-carbon growth options, are often directly linked to national development priorities such as energy efficiency (EE), renewable energy (RE), sustainable livelihoods, and environmental protection; as well as to business opportunities such as strengthening the resilience of infrastructure to climate variability.

The South Asia Region (SAR) is highly vulnerable to climate change, due in large part to the highest absolute number of people at risk and the highest incidence of poverty in the world. Climate threats are made all the more severe by a degrading resource base (e.g., damaged and depleted aquifers, degrading forests and soils). While vulnerability to climate change is high, the region has also recently emerged as a contributor to greenhouse gas emissions. Increased energy consumption, fueled by a relatively high economic growth, has been accompanied by rising greenhouse gas emissions (GHG). On average, emissions have risen at about 3.3 percent annually in the region since 1990 – more rapidly than in any other region except the Middle East.

With economic growth a priority in all SAR countries, climate action can result in multiple commercial, developmental, and environmental benefits. Lessons from the Clean Energy Investment Framework and many longstanding World Bank and International Finance Corporation (IFC) engagements show that the best entry points for client dialogue and program development on climate change arise from the synergies between development progress and opportunities to invest in EE, renewable energy, and other low-carbon projects. The scope for cost-effective, pro-development investments in EE and, increasingly, RE— especially against the background of impending energy crisis—is particularly broad. The Government of India, for example, is beginning to shift its economic growth strategy to include technology and management options that will reduce GHG generation while maintaining social and economic development objectives.

The magnitude of the resources needed to finance access to and implementation of environmentally sound technologies and processes, is such that the bulk must be provided through private sources, with donors and the public sector serving in a catalytic and/or facilitating role. The success of these efforts is highly dependent on countries establishing an enabling environment for private sector investment in climatefriendly technologies and services, and on the development of endogenous capacities to adopt, operate, and maintain these technologies. The private sector will be a key driver of the transition to climatefriendly technologies; and both foreign and domestic investors will base their decisions on their assessment of how risky or difficult it will be to make an investment in a given country using a given technology, and how these risks or difficulties will add to their costs.

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