Global solar investment falls in line with falling costs

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Global investment in activities that reduce the threat of climate change fell for the second year in a row, from $359 billion in 2012 to $331 billion last year.

Climate Policy Initiative's Global Landscape of Climate Finance shows that while public sources and intermediaries contributed $137 billion, a figure largely unchanged from the previous year, private investment totaled $193 billion, falling by $31 billion from 2012.

The study credits the decrease in private investment largely to the falling costs of solar PV, with deployment of the technology growing as investment shrinks.

Solar deployment cost $40 billion less last year than would have been the case with 2012's solar investment costs.

However, the situation remains grave: The International Energy Agency estimates that an additional $1.1 trillion in low-carbon investments is needed every year between 2011 and 2050, in the energy sector alone, to keep the global temperature rise below two degree Celsius.

In cumulative terms, the world is falling further and further behind its low-carbon investment goals.

Climate finance spending was split almost equally between developed (OECD) and developing (non-OECD) countries – $164 billion and $165 billion respectively.

Strikingly, almost three-quarters of all spending was domestic. Private actors had an especially strong domestic investment focus with $174 billion, or 90%, of their investments remaining in the country of origin.

The figures illuminate a bias by private investors toward environments that are more familiar and perceived to be less risky. However, public sector money made up the vast majority of developed-to-developing country flows, which fell by around $8 billion from the previous year to between $31 and $37 billion in 2013.

"As policymakers prepare a new global climate agreement in 2015, climate finance is a key ingredient to put the world on a two-degree Celsius pathway," said Barbara Buchner, senior director of Climate Policy Initiative and lead author of the study.

"Our analysis shows that global investment in a cleaner more resilient economy is decreasing and the gap between finance needed and actually delivered is growing.

"Our numbers demonstrate that most investment is happening at the national level with investors favoring familiar environments they perceive to be less risky. This implies that domestic policy frameworks and appropriate risk coverage are critical to encourage investment."