Deputy Secretary General Andie Fong Toy’s Opening Remarks on Mitigation and Adaptation for ADB Seminar on Advancing Clean and Climate Resilient Development in Asia and the Pacific

Harmonie Hall B1/B2

4 May 2016

Question: “Pacific islands do not have high carbon footprints, but there are opportunities to drive development which reduce emissions, including in the energy sector. Given that many Pacific island economies are dependent on imported fossil fuels, is renewable energy investment not an obvious ‘win-win’ for the economy and climate? What impedes investment into renewable energy?”

I agree that renewable energy can provide great opportunities for Pacific island countries and it is something the region sees as a “low hanging fruit” in the overall scheme of policies for Climate mitigation and adaptation. Basically, renewable energy is cost effective in remote/isolated islands and rural communities which are off the national energy grid.

In fact, ambitious national renewable energy targets ranging from 10% to 100% have been adopted - for example - Tokelau has 100% renewable energy, while Fiji, PNG, Samoa, and Vanuatu have significant shares of renewable energy, mostly hydro, in the total electricity supply (60%, 66%, 37%, and 15%, respectively).

These initiatives are being pursued regionally with the Political support of Forum Leaders through the 2013 Majuro Declaration for Climate Leadership and the 2011 Waiheke Declaration on Sustainable Economic Development.

However, an important issue to note is that fossil fuel usage by the energy sector (that is, electricity generation) only makes up about 25 per cent of all fossil fuel usage in the Pacific. Thus, any discussion about reducing the use of fossil fuels also needs to include the transport sector and strategies to reduce its dependence on imported fossil fuels.

In the major hurdles to investment in renewable energy, I believe it boils down to three specific issues in the region:

1. Capital for renewable energy investment;
2. Economic nexus of investment and returns from renewable energy;
3. Issues of capacity constraints & awareness, technology transfer and maintenance of investment overtime

To explain these further, most Pacific Island countries are constrained by their fiscal positions to invest in such projects. In most cases, the countries are running in persistent budget deficits to finance and prioritise immediate needs with a narrow economic and tax revenue base.  Hence, donor support in renewable energy is a critical factor in investment into renewable energy projects.

Secondly, substitution effects (between non-renewable and renewable energy) can be strong in determining the commitment to investment, expected project returns and overall viability. For instance, when global oil price are relatively low, investment in renewable energy become costly and expected returns from these projects tends to be unviable. This in turn negatively impacts the bankability of investment in renewable energy projects.

Finally, some other common impediments to greater use of renewable energy include weak project management capacity, inappropriate project designs and technologies (which may not withstand the harsh climatic conditions in the Pacific), absence of installation standards, and lack of funds to cover maintenance of investment. In most cases we have seen donors generously support the initial investment but do not provide support the maintenance of the project or equipment. With limited fiscal space in Pacific island countries, maintenance can be undermined or irregular overtime.  In addition, the requirement for land space for many renewable energy projects, especially solar and wind, are far more limited in the Pacific and adverse weather conditions, such as droughts and/or cyclones, can be greatly affected by long-term sustainability of hydo-investments.

Question: “The Asia and the Pacific region has the highest number of climate vulnerable people in the world, so clean development must be compatible with reduction of vulnerability and boosting of resilience. What are the most urgent actions in terms of adaptation – what is needed first, and what actions can wait? What are the particular challenges faced by low-lying or island countries?”

This is a very pertinent question. However, looking at the urgent adaptation needs of the Pacific countries, I don’t think we can clearly rank them. Nevertheless, we can appropriately sequence them, so that one adaptation action complements the other – that they fit into the overall puzzle of adaptation that needs to be inter-linked in a coherent manner.

I will try to highlight some of the urgent needs noting they may vary from country to country in the Pacific – as Pacific country needs are very diverse and unique in their own respect – for instance – comparing the need to secure coastlines and coastal food security in Tuvalu versus the need to safeguard forests in PNG.

Some of the adaptation needs of the Pacific range from food security (including coastal fisheries), preserving biodiversity (on land and in sea), coping with ocean acidification and dwindling economic resources (such as fisheries), climate proofing infrastructure, and very basic needs that people take for granted in developed countries such as, resilient housing, access to fresh drinking water, sanitation and electricity. In some countries, access to water and fresh vegetable are scarce commodity due to poor soil quality for subsistence agriculture, frequent droughts and limited or no freshwater source, except rain. I hope this in-exhaustive list gives you an insight into the daily struggles of people in the Pacific and peculiar challenges, especially in environmentally fragile countries or atoll states like Tuvalu and Kiribati.

Here, I must reiterate, the need for rapid access to climate finance for adaptation in the Pacific, as outlined by the Pacific Governors in the Board meeting early this morning. None of these envisaged adaptation programmes can materalise if appropriate means implementation are not available – that is – necessary finance to mobilise human, technological and physical capital.

A final comment I would like to make is the application of some market based principles for adaptation in the Pacific. This is probably the biggest fallacy, as the small and dispersed population across the vast Pacific Ocean renders any potential economies of scale inapt. Having said that, regional approaches can still present some opportunities to overcome these inherent diseconomies of scale.

Question: “How important is concessional finance for addressing the incremental costs of climate technology and building resilience in vulnerable countries?”

To simply answer this question, concessional financing is of utmost importance. As I briefly highlighted in my earlier intervention access to climate finance is extremely critical for mobilisation of resources for adaptation and mitigation in the Pacific island countries.

In addition to the accessibility issues of climate finance, all the Pacific countries are faced with the issues of non-concessional development finance due to graduation and/or relatively higher per capita income levels. A predominant measure to access concessional finance across the globe is the per capita income – which in our view is a skewed, partial and distorted perspective of the economic, social and climatic challenges of the Pacific island economies. It is skewed as it focuses only on the income factor, and with small populations per capita income outturns can be higher; partial as it does not take into account the interactions of economic, social and environmental factors; and distorted as it ignores the vulnerability and fragility of the Pacific island countries, where one extreme climatic event can wipe-out years of development – for instance Cyclone Evan in Samoa in 2012 was estimated to have cost 30% of GDP; damages from Cyclone Pam last year cost Vanuatu over USD 450 million, while costs of damage from Cyclone Winston in Fiji is estimated will be as high as FJD 1.3 billion.

Therefore, accessibility of grant financing through Global funds (like GFC) is equally as important as concessional financing. Given the level of fiscal space and debt distress in some Pacific Island countries, there is no appetite for additional loans. However, in specific cases a balanced blend of grants and loan can be conducive for countries in building resilience.

It is also important to note that financial resources are only part of the investment needed. The most important investment is in people through capacity development to successful utilise finance to build resilience and better adapt to climate change.

Question: “The recently concluded Paris Agreement has established a long term global goal for adaptation, and links this goal to the overall objective of keeping global mean temperature rise to well below 2 degrees. In a sense, it says that we will require less adaptation if we invest in mitigation. Is it really as simple as that?”

My response for this is that both are important – with varying time impact.

I see mitigation as more long-term and sustained efforts, particularly in large countries with significant carbon footprint.

On the other hand, adaptation is an immediate and critical need of Pacific islands countries to overcome their challenges.

Adaptation is critical for the survival of the Pacific countries and its people.

Question: “The theme of this year’s ADB Annual Meeting is, “Cooperating for Sustainability”. What good examples of clean and climate resilient development in Asia and the Pacific are there – and could they be applied in other parts of the region or the world? Conversely, what good practices from other areas could the region benefit from?”

One specific policy that Pacific countries have pursued with ADB’s support is Contingent Credit Lines (CCL) for post disaster recovery – as an adaptation to our inherent vulnerability to natural disasters.

The 2015 FEMM in Cook Islands discussed development finance options for financing disaster risk recovery and rehabilitation. We understand that ADB has taken lead in developing a contingent credit line for Pacific DMCs.

Pacific DMCs need innovative financing mechanisms that suit our needs and yet be flexible enough to account for inherent vulnerabilities. In this regard, we welcome the decision to focus on development of a Contingent Credit Lines (CCL) for post-disaster recovery.

-ENDS-