OPEC Fund Quarterly - 2022 Q3

OPEC Fund Quarterly - 2022 3

The OPEC Fund for International Development OPEC FUND QUARTERLY 3 2022

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Climate challenge solutions

More than 50 ways to save the planet

PLUS

OPEC Fund goes to COP27

Spotlight on Egypt

The OPEC Fund Quarterly is published four times a year by the OPEC Fund for International Development. The OPEC Fund works in cooperation with developing country partners and the international development community to stimulate economic growth and social progress in low- and middle-income countries around the world. The organization was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people. The OPEC Fund Quarterly is available free. If you wish to be included on the distribution list, please contact us via opecfund.org . Back issues of the magazine can be found on our website. The contents of this publication do not necessarily reflect the official views of the OPEC Fund or its Member Countries. Any maps are for illustration purposes only and are not to be taken as accurate representations of borders. Editorial material may be freely reproduced, providing the OPEC Fund Quarterly is credited.

EXECUTIVE EDITOR Tarek Sherlala EDITOR Axel Reiserer EDITORIAL TEAM Howard Hudson, Carlos Opitz, Basak Pamir, Nicholas K. Smith, Julia Zacharenkova PHOTOGRAPHS Abdullah Alipour Jeddi, Carlos Opitz (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion

PUBLISHERS The OPEC Fund for International Development Parkring 8, A-1010 Vienna, Austria Tel: (+43-1) 51564-0 Fax: (+43-1) 51392-38 www.opecfund.org

DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Druckerei Odysseus This publication is printed on paper produced from responsibly managed forests.

FRONT COVER/SPECIAL FEATURE ILLUSTRATIONS: Alexander Korkin/Shutterstock.com; Alexzel/Shutterstock.com; aurielaki/Shutterstock.com; CW craftsman/Shutterstock.com; denisik11/Shutterstock.com; elenabsl/Shutterstock.com; Golden Sikorka/Shutterstock.com; Lytvynova Alina/Shutterstock.com; macrovector – stock.adobe.com; Macrovector/ Shutterstock.com; max vector/Shutterstock.com; Rvector/Shutterstock.com; Sensvector/Shutterstock.com; Tartila/Shutterstock.com; YummyBuum/Shutterstock.com

CONTENTS 3/2022

EDITORIAL 4-5 Climate action: Finding solutions, moving forward, delivering change SPECIAL FEATURE 6-41 Climate change: Turning plans into action 6-13 Stepping up to a new level: The OPEC Fund’s new Climate Action Plan 14-17 Professor Andreas Klasen: “The just transition is the real challenge” 18-21 The heat is on: Geothermal energy in Iceland to the developing world 22-25 Raúl Alfaro-Pelico: Energy transition partnerships in the Global South 26-27 Power to the people: Transmission and microgrids 28-31 Sustainable Transport: A solution on many roads 32-35 “Urban air sets you free”: City solutions to climate change 36-37 How drones are revolutionizing agriculture 38-41 Kristen P. Patterson: “We cannot address climate change in a silo”

IN THE FIELD 42-43 A lifeline for Mauritania’s small and medium-sized enterprises The OPEC Fund’s partnership with Banque Populaire de Mauritanie DEVELOPMENT NEWS 44-49 44 Supporting farmers and businesses in Paraguay 45 Improving food security and climate resilience in Zimbabwe

18-21

Geothermal energy

PHOTO: Málfrídur Ómarsdóttir

38-41

Interview with Kristen P. Patterson

OPEC Fund supports infrastructure development in Papua New Guinea Making Liberia’s fishing industry sustainable and efficient

Promoting food security in Côte d’Ivoire Strengthening Chad’s higher scientific education

PHOTO: Irene Abdou

SPOTLIGHT 50-53 The OPEC Fund and COP27 Op-ed by Minister Rania Al-Mashat and our work in Egypt EVENTS 54-55 2022 EBRD TFP Trade Finance Forum, Istanbul: Trade finance in tumultuous times OPEC FUND 56-58 56-57 New development funding 58

Fishing in Liberia

PHOTO: KONGKOON/Shutterstock.com

Vienna Energy Scholar Programme

EDITORIAL

CLIMATE ACTION: FINDING SOLUTIONS, MOVING FORWARD, DELIVERING CHANGE

Dear reader,

In the coming days and weeks Sharm El-Sheikh will be the center of international attention. The Egyptian city on the southern tip of the Sinai Peninsula, usually known as a popular beach resort, will host the COP27 climate conference. Delegates from around the world representing the 194 signatories of the Paris Agreement will gather knowing that concrete climate action can no longer be postponed. In a powerful contribution to this edition of our magazine, the host of the conference, Egypt’s Minister of International Cooperation Rania Al-Mashat (see pages 50-53) notes that global climate financing falls far short of the estimated US$4.13 trillion required annually to achieve our climate commitments. Her conclusion for COP27: “The main objective is to move from pledges to implementation.” The OPEC Fund is following this call. Our Governing Board in September 2022 adopted the organization’s first Climate Action Plan, setting ambitious

targets and changing the way the OPEC Fund appraises its projects: With this new strategy the organization commits to doubling its climate financing by 2030 from currently 20 percent to 40 percent of approved projects. It moves to combine the fight against energy poverty with the promotion of sustainable energy (see pages 8-13). Mobilizing more of the much-needed financing is key to moving forward in the fight against climate change. But these funds must also be invested prudently. Smart, effective and feasible solutions are key and this edition of the OPEC Fund Quarterly is dedicated to some of the many noteworthy options and opportunities. We are starting our journey in Iceland (see pages 18-21), a pioneer in geothermal energy, a resource which also holds promise for some of the OPEC Fund’s development partners: According to the renewables agency IRENA, as of 2020 the lion’s share of renewable electricity in Kenya, the Philippines and

Nicaragua already came from this source. Utilizing geothermal energy’s undisputed potential, however, will require mobilizing serious private sector investment. One of the conditions to attract private investors is a stable business environment with guaranteed rule of law and predictable risk performance. Minister Al-Mashat argues: “Innovative solutions, such as de-risking instruments and blended finance, are more important than ever.” Combining innovative financing with technical solutions remains the way forward. In an interview with Kristen P. Patterson (see pages 38-41) we have the opportunity to learn more about the work of Project Drawdown, a nonprofit organization based in the USA that seeks to help the world reach “drawdown” – the future point in time when levels of greenhouse gases in the atmosphere stop climbing and start to steadily decline. Patterson heads the organization’s efforts to find and promote concrete climate solutions.

PHOTO: Shutterstock.com

At the time of writing, they stood at 93, ranging from A for Abandoned Farmland Restoration to W for Water Distribution Efficiency. Talking to Ms. Patterson was refreshing not only because of the wide range of solutions Project Drawdown is offering, but also because of the strong belief that we can successfully address the climate challenge. The organization’s proposed solutions are meticulously tested for their practicality, affordability and actual impact. However, Andreas Klasen from Offenburg University sends a word of caution: Innovation, he tells us in an interview (see pages 14-17), is not a silver bullet, but improved international coordination could be “a game changer for the environment by 2030”. Which brings us back to COP27. The international community will come together in the shadows of the war in Ukraine and its sizeable economic impacts. The steep increase in energy prices has sent inflation in many countries soaring and the IMF is already

not only be green, but also just. Despite the rather challenging global outlook the need for urgent climate action has not seriously been undermined by recent, rather challenging developments. “Our world is in big trouble”, UN Secretary-General António Guterres warned in his opening address at the UN General Assembly’s 77th session in September 2022 in New York. Several countries have resorted to temporary crisis measures and short- term adaptations. But they made it clear that these are emergency responses, not solutions. Werner Hoyer, the President of the European Investment Bank (EIB), the largest multilateral development bank in the world in terms of assets, puts it very clearly: “We need to stay the course on decarbonization. Decarbonization is not a luxury, it’s an imperative if we want to keep our planet alive.”

The OPEC Fund's Climate Action Plan commits to doubling its climate financing by 2030 to 40 percent of approved projects.

warning of a “global recession”. The need to diversify supply chains and make economies more resilient has rarely been more pressing. More resilient means more sustainable. In his contribution (see pages 22-25), Raúl Alfaro-Pelico, Senior Director of the Rocky Mountain Institute think tank, argues that in order to succeed the energy transition must

We wish you an interesting read.

Axel Reiserer, Editor

SPECIAL FEATURE

TURNING PLANS INTO ACTION

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C limate change is one of the major challenges of our time. A steep increase in calamities has sharpened the realization that action is unavoidable. But while time is running out, climate change is not an inevitable fate. Innovation and industriousness are constantly producing new solutions, some of which we are portraying on the following pages.

The new approach will double the OPEC Fund’s climate financing by 2030 and introduce systematic changes in the way the institution appraises its development projects By Axel Reiserer and Başak Pamir, OPEC Fund

STEPPING UP TO A NEW LEVEL: THE OPEC FUND’S NEW CLIMATE ACTION PLAN

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C limate change and energy are inextricably linked. Globally, the use of energy represents by far the largest source of greenhouse gas emissions from human activities. About two-thirds of global greenhouse gas emissions are linked to burning fossil fuels for energy used for heating, electricity, transport and industry. However, energy is also an indispensable driver of development. As economies grow, energy demand increases. If energy is constrained, growth pulls back in turn. For the past two centuries, the amounts of energy that economies need have increased virtually in lockstep with the amounts of wealth that economies create. As a study by McKinsey, a management consultancy, put it: “To a remarkable degree wealth creation has depended on a society’s proficiency at burning things”. Combating energy poverty in developing countries has always received special attention at the OPEC Fund for International Development since its inception in 1976 with the explicit mission to foster development in low- and middle-income countries around the world. The OPEC Fund’s new Climate Action Plan, approved by the Governing Board on September 15, 2022 represents the next logical step in fulfilling the organization’s mandate, one that ensures that development efforts create an even larger positive impact. The plan starts with a calculated increase of the OPEC Fund’s climate financing from currently 20 percent to 25 percent by 2025. Having reached this milestone the plan gathers momentum and provides for an increase to 40 percent by 2030, doubling the minimum rate of climate-specific financing. OPEC Fund Director-General Dr. Abdulhamid Alkhalifa called the adoption of the plan “a historical moment as it commits the OPEC Fund to dramatically increase its climate action.” Putting things into perspective, he added: “When the OPEC Fund set out its operations almost 50 years ago, energy poverty was one of the defining issues of our work. Securing energy access remains indispensable, but today it has to be combined with climate action.” What makes the Climate Action Plan

a significant venture for the OPEC Fund is not just the rate of financing, but starting in 2025 climate change will be specifically considered throughout the project cycle. In other words, climate impact will be measured not only in projects that are specifically targeted to address climate change, but in all projects submitted for approval. To understand how this will boost progress, it helps to look at the increasingly important role energy plays in developing the world of tomorrow.

Martin Kriegler, Systems Infrastructure Analyst “Healthy living and permanent motion are very important to me. I feel energized thanks to motion.”

Energy as a driver The importance of energy for

development was acknowledged by the United Nations, when the Sustainable Development Goals (SDGs) were defined: “Access to affordable, reliable, sustainable and modern energy” was selected as SDG 7. Despite accelerated progress in recent years, the SDG target of universal access by 2030 appears “unlikely to be met”, the World Bank said in June 2021. According to these estimates, more than 750 million people still live without electricity, with about half of them struggling in fragile and

When the OPEC Fund set out its operations almost 50 years ago, energy poverty was one of the defining issues of our work. Securing energy access remains indispensable, but today it has to be combined with climate action.

conflict-affected settings. A rapidly-growing global population is adding to the pressure. By mid-century the global population is expected to reach ten billion, mostly due to significant increases in

Dr. Abdulhamid Alkhalifa, OPEC Fund Director-General

India, other parts of Asia, and, especially, Africa, where more than 50 percent of the world’s projected population increases will occur through 2050. This will put further strains on already scarce resources which are being exploited at a growing cost to the environment. The need to find alternative sources of energy had already been identified when SDG 7 was defined in 2015. The goal specifically mentions “sustainable” and “modern” sources of energy, explicitly addressing one of the main challenges of our times: the rapidly progressing changes of the global climate with massive repercussions on all aspects of our lives.

flooding, droughts and storms. High temperatures make previously prospering regions uninhabitable, water resources are drying up and Nick Golledge, professor of glaciology at the Victoria University of Wellington, New Zealand, warns: “Past greenhouse gas emissions mean we are now committed to future ocean warming throughout this century. The rate of change depends on our future emissions, but the process itself is now irreversible on centennial to millennial time scales.” In the same year the SDGs were adopted, the international community also hammered out the Paris Agreement on climate change with the goal of limiting global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach the global peak of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century. The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a legally- binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects. The international treaty was adopted by 194 parties to date. The accord requires all signatories to develop comprehensive plans for their economic and social transformation. These plans for climate action are known as the nationally determined contributions (NDCs) and cover a five-year cycle.

according to a new research paper from the IMF. Global climate finance currently amounts to about US$630 billion annually, mostly provided in the form of loans. Although the Paris Agreement places demanding obligations on countries, by far the largest contributions to climate financing to date come from multilateral development banks. Development finance institutions continued to deliver the majority of public finance, contributing almost 70 percent of public climate finance to date. Though total climate finance has steadily increased over the last decade, flows have slowed in recent years. External shocks like the COVID-19 pandemic or the war in Ukraine have taken their toll. Needs, however, remain

Action on climate Human-induced climate change,

including more frequent and intense extreme weather events, has caused widespread adverse impacts and related losses and damages to nature and people, beyond natural climate variability. Across sectors and regions, the most vulnerable people and systems are disproportionally affected. The rise in weather and climate extremes has led to some irreversible impacts and natural and human systems are pushed beyond their ability to adapt. Approximately 3.6 billion people live in circumstances that are highly vulnerable to climate change. Impacts of a changing climate include rising sea levels, more extreme weather,

urgent and pressing: An increase of at least 590 percent in annual

climate finance is required to meet the internationally agreed climate objectives by 2030 and to avoid the most dangerous impacts of climate change, the Global Landscape of Climate Finance report says. The need for more financing is all the more urgent as emissions are again rising: Following an unprecedented drop of 5.4 percent in 2020, global CO2 emissions are bouncing back to pre- COVID-19 levels and concentration of greenhouse gases in the atmosphere continue to rise. The emissions gap remains large: New NDC pledges for 2030 reduce projected emissions by only 7.5 percent, whereas 30 percent is needed to keep global warming below a 2°C increase relative to pre-industrial levels and 55 percent is needed to keep global warming below a 1°C increase. More support is necessary especially in countries and regions that are disproportionally affected by the impact of climate change: Africa accounts for the smallest share of global greenhouse gas emissions at just 3.8 percent, according to the global environmental disclosure system CDP. Yet, the continent is particularly exposed to increasing temperatures and sea levels, changing precipitation patterns and more extreme weather, threatening human health and safety, food and water security and socio-economic development, the UN climate change authority UNFCCC says.

Fatima Yakubu, Investment Manager, Private Sector & Trade Finance Operations

Financing for change While agreeing on binding climate targets took two decades – the first so- called Conference of the Parties (COP) took place in Berlin in 1995, and Paris hosted what was already COP21 – mobilizing climate financing proved even more challenging. Estimates of global investments

“For my husband and me who have both worked in the energy sector the starting point is energy efficiency. There are many things you can easily do, from switching off lights to not running your appliances on stand-by.

Lower consumption means lower demand means lower production means lower emissions. Simple.”

required to achieve the Paris Agreement’s temperature and adaptation goals range between US$3-US$6 trillion per year until 2050,

SPECIAL FEATURE

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• Drive innovative climate finance solutions for the private sector by financing low-carbon and climate resilient projects and facilitating on- lending, promoting the preparation of climate risk assessments and exploring investing in climate bonds issued by the private sector. To maximize the impact of its climate financing the OPEC Fund will continue to work in partnership with other partner institutions and prioritize projects that seek to crowd-in the private sector. The OPEC Fund also commits to joining international climate finance initiatives such as, for instance, the MDB Climate Finance Working Group and from 2023 onwards to measure climate finance, greenhouse gas emissions and emission reductions based on agreed methodologies and best practices. A review of the OPEC Fund’s portfolio over the period 2018-2021 (excluding trade finance) shows that climate finance accounted for 20 percent of approved projects. Climate adaptation (investments to reduce the risk of vulnerabilities posed by climate change and to increase resilience) accounted for 27 percent of approved projects and climate mitigation (investments to reduce, limit or sequester greenhouse gas emissions to reduce climate change) accounted for 73 percent. Climate financing in the public sector was higher (66 percent) than in the private sector (34 percent). The majority of projects was in the energy sector (37 percent), followed by water (25 percent) and agriculture (23 percent). “Our new strategy is ambitious in its target numbers, but also in its holistic approach,” said OPEC Fund Director-

The 2009 promise by rich nations to provide poor countries with at least US$100 billon annually by 2020 to cut greenhouse gas emissions and cope with the impacts of climate change is yet to be honored. Addressing the gap This is why the OPEC Fund’s Climate Action Plan comes at a crucial time. By doubling its climate financing rate and putting environmental and social principles at the core of its project cycles, the OPEC Fund will leverage its impact and reach. With total signed commitments of more than US$22 billion since inception, the OPEC Fund boasts a worldwide outreach with more than 125 partner countries especially in Africa, Asia and Latin America and the Caribbean. That amount has acted as a critical component worldwide with a total project value of close to US$190 billion.

Starting next year, the OPEC Fund will subject all new projects to climate screening to identify climate action potential and systematically include low-carbon and climate resilience options in the project approval documentation. The OPEC Fund’s Climate Action Plan will focus on three key areas to promote new climate contributions: • Support climate diagnostics, planning and policies by offering assistance to partner countries through grant- funded technical assistance for the formulation of climate risk profiles, priority measures and implementation in partnership with other MDBs and development finance institutions. • Promote transformative climate investment through public and private investments in energy, transport, agriculture, food, water and smart cities. The OPEC Fund’s climate contributions have historically been concentrated in the energy, water and agriculture sectors.

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Giving a greater focus to our warming world creates an ever- expanding ripple effect.

Our new strategy... will allow us to demonstrate that tackling climate change and its consequences is development work. That they are not only compatible, but complement each other.

General Alkhalifa. “It will allow us to demonstrate that tackling climate change and its consequences is development work. That they are not only compatible, but complement each other.”

Dr. Abdulhamid Alkhalifa, OPEC Fund Director-General

PARTNERSHIPS FOR CLIMATE FUNDING

P artnerships are at the core of the OPEC Fund’s operations and business model. Stronger partnerships for facilitating climate investments and crowding-in the private sector will support the implementation of the Fund’s Climate Action Plan. In June 2022, at the OPEC Fund’s inaugural Development Forum, the OPEC Fund and the International Renewable Energy Agency (IRENA) signed a Memorandum of Understanding ramping up their efforts to advance investment in renewable energy and support access to sustainable financing in emerging and developing economies, agreeing to mobilize finance, unlock investment and support project development on the ground. The institutions committed to provide technical assistance and capacity building to project developers with the aim of creating a pipeline of bankable projects ready to be financed and to attract potential investors.

PHOTO: OPEC Fund/Luiscela Moreno

A MULTIPURPOSE DAM IN PAKISTAN F lash floods triggered by record monsoon rains have devastated Pakistan this summer, leaving one-third of the country under floodwaters and affecting some 33 million people. Natural disasters of this magnitude expose the increasing urgency to accelerate investments in multipurpose climate-friendly projects such as the Mohmand Dam, which the country is currently building on the Swat River. Against the backdrop of growing water and energy demands, concerns about food security and rapid urbanization, building new reservoirs can facilitate water regulation and help mitigate floods. A dam captures floodwaters and can release them under controlled circumstances preventing potential disasters and providing water for agriculture. The OPEC Fund is supporting the Mohmand Multipurpose Dam Project with a US$72 million loan. It will contribute to

Pakistan’s energy security, increase sustainable water supply for agriculture and human consumption and improve resilience to floods. Upon completion the plant will add 800 MW capacity to Pakistan’s installed hydropower capacity and generate nearly 2.8 GWh electricity per year.

SPECIAL FEATURE

RENEWABLES ON THE RISE AMIDST THE GLOBAL ENERGY CRISIS

T he war in Ukraine and the global energy crisis have fueled concerns that clean energy investments will come under pressure. Others argue that the current crisis is a wake-up call for an urgent diversification of energy supplies. Recent figures show that the latter argument may prevail: The growth of the world’s capacity to generate electricity from solar panels, wind turbines and other renewable technologies is on course to accelerate over the coming years, according to a new report by the International Energy Agency. Clean energy investment is expected to top US$1.4 trillion in 2022, a significant acceleration after many years of slow progress. It now accounts for almost three-quarters of the growth in overall energy investment and renewables are set to account for almost 95 percent of the increase in global power capacity through 2026, with solar photovoltaics alone providing more than half, the report says. The OPEC Fund has been a longstanding supporter of renewable energy, investing in solar, wind, hydropower and geothermal projects in partner countries across the globe. To date, the Fund has committed nearly US$3.3 billion in support of projects in the energy sector, with renewables now accounting for nearly one-third of its public and private sector operations in energy. One such project is the San Marcos Wind Farm in Honduras, which helped to transform lives for 100,000 households in the rural department of Choluteca. In Honduras, a majority of the rural population live far from urban centers and viable electrical grids. Because expanding the grids over long distances is more costly,

producing sustainable, affordable and clean energy locally offered a good solution. The San Marcos Wind Farm project, owned by Vientos de Electrotecnia, consists of 25 wind turbine generators with an installed capacity of 50 MW and provides electricity to communities without prior access to power. The communities are also benefitting from the social and economic impacts of the project such as creation of jobs, new roads, reforestation and social and educational programs. In Egypt, the new Kom Ombo solar plant, to be developed with international multi-lender support including the OPEC Fund, will be located less than 20 km from Africa’s biggest solar park, the 1.8 GW Benban complex. Once operational, this new utility-scale plant will serve 130,000 households and increase the share of renewable energy in Egypt’s energy mix and further promote private sector participation in the Egyptian power sector.

AGRICULTURAL RESILIENCE IS KEY FOR GLOBAL FOOD SECURITY C limate change will dramatically impact agricultural production all around the globe, reducing yields and productivity. This is why it is crucial to invest in projects which will help strengthen agricultural resilience and adopt sustainable land management practices. Recently, the OPEC Fund extended a US$15 million loan to the Republic of Zimbabwe in support of the Smallholder Agriculture Cluster Project. Co-financed with the International Fund for Agricultural Development and private sector investors, the program will help to transform the small-scale farming sector and increase farmers’ participation in market-oriented and climate-smart value chains. It will finance the construction of small-scale irrigation schemes to equip a total area of 1,780 ha with improved, climate-proof irrigation systems, the rehabilitation of 89 km of feeder roads, as well as providing 100 districts with water supply and sanitation facilities.

PHOTO: CECIL BO DZWOWA/Shutterstock.com

INNOVATION FOR CLIMATE RESILIENCE

“THE JUST TRANSITION IS THE REAL CHALLENGE”

Professor Andreas Klasen believes in innovation, but warns that it is “not a silver bullet for climate change” By Howard Hudson, OPEC Fund B arely a generation ago, “geo- engineering” was the stuff of science fiction – and in many ways it still is. Shorthand for large-scale technological interventions in the earth’s natural

The biggest problem seems to be the untested nature of these innovations, not least because 35 percent of emissions cuts under the Paris Agreement depend on technologies that are either prototypes or not yet fully deployed, says the International Energy Agency (IEA), while a further 40 percent of cuts rely on technologies that are not yet commercially available at mass-market scale. This has to be put into real-world perspective: “The fastest energy-related examples in recent decades include consumer products like LEDs and lithium ion batteries, which took 10-30 years to go from the first prototype to the mass market,” says the IEA. “These examples must be the benchmarks for building the array of energy technologies to get to net-zero emissions.” Which rather begs the question: If it took decades to roll out energy-efficient lightbulbs, how long

will it take to get geo-engineering off the ground?

Driving mission innovation Professor Andreas Klasen, Director of the Institute for Trade and Innovation at Offenburg University in the deep south of Germany, is an avowed optimist – but also a realist and an expert on innovation systems. He says that innovation is not a silver bullet for climate change, but that real improvements in the coordination of innovation systems could be “a game changer for the environment by 2030”. “International coordination,” says Klasen, “allows for managing risks across borders, enhancing knowledge flows and leveraging economies of scale in innovation. Cross-border networks have the ability to bring together likeminded individuals, as well as those from opposite ends of the spectrum, to disseminate knowledge and innovation

systems, geo-engineering falls into two camps: on the one hand, greenhouse gas removal (GGR) such as planting forests and capturing carbon; on the other, solar radiation management (SRM) such as marine cloud seeding and stratospheric aerosol injection. These mega projects promise the world, but divide opinion. The UK’s Climate Change Committee says GGR innovations will be “essential” for achieving its national net zero emissions target by 2050. Some scientists claim they are little more than distractions from the central task of cutting emissions, while others fear the unexpected consequences of tampering with complex climate systems.

SPECIAL FEATURE

If societies, governments, businesses and individuals understand the strength of system innovations, we

can generate an ‘innovation

movement’ that brings together many actors who share the benefits and risks of change.

Professor Andreas Klasen, Director of the Institute for Trade and Innovation, Offenburg University

Keeping billions afloat To be truly game changing, therefore, we need to go beyond national institutions and even high-level international partnerships. The international community will need to come together and redraw the global playing field, while persuading billions of people to learn and play by new rules. To adapt, as humans do, to new physical environments and even, given the speed and scale of climate change, to a new social contract. Says Klasen: “We know what the primary sources of greenhouse gas emissions are in emerging economies, for example: transportation, electricity production and industrial processes. What has most potential in terms of impact is a stronger innovation ecosystem, integrating technologies and processes, business models and infrastructure, regulatory frameworks

methods. Put simply, co-governance drives interaction and alignment.” International cooperation, also known as “mission innovation”, has paid dividends in recent years for clean-energy research, development and demonstration (RD&D), says a new report led by researchers at the University of Cambridge in the UK. Between 2000 and 2018, clean energy RD&D funding shot up across major economies in Europe, Asia and the USA by an impressive 936 percent, 247 percent and 127 percent respectively. What is less encouraging, however, is the real-world impact on offer: “While we have seen the creation of a lot of new energy innovation agencies since 2000,” says co-author Esther Shears, “they experimented only marginally with designs that bridge lab to market and manage only a fraction of total energy RD&D funding.”

– but also culture and values. If societies, governments, businesses and individuals understand the strength of system innovations, we can generate an ‘innovation movement’ that brings together many actors who share the benefits and risks of change.” What do these big ideas and all the constructive “systems thinking” in reality mean to the billions of people on the crossroads of climate change and poverty? How can we empower what economists call the “Base of the Pyramid” (BoP), the poorest two-thirds of humanity – 4 billion people – and give them a stake in the environmental, economic and social changes to come? The answer is largely in their hands, says Klasen, so long as the

international community is able to stomach the risk and deliver the funding.

75% Proportion of emission cuts under the Paris Agreement depend on technologies that are either

“Despite their unfortunate conditions, the poor are a vast source of innovation, driven to be creative in solving problems of their economies and societies. The ‘BoP method’ is an excellent approach for tackling poverty and leveraging the opportunities that exist in emerging markets and developing economies. There are many examples: Long-lasting insecticide-treated nets against malaria, accessible water purification, mobile technology for the poor, as well as flexible payment options to access basic services. “Above all I should highlight innovative financing solutions, particularly finance to scale-up corporate BoP initiatives with an outcome-based contracting approach, which draw closely on recent advances in social and development impact bonds. Here the outcome payers (i.e. the providers of concessionary capital) protect the risk investors (i.e. the providers of commercial capital) by agreeing to repay a principal and a certain financial return, so long as pre-agreed and independently verified outcomes are achieved. For example, a total number of rural entrepreneurs, trained in line with impact benchmarks, adhering to climate friendly agricultural practices. “From my point of view, that’s a very efficient way to combine different BoP

innovations because it’s not only a technical process or product innovation regarding carbon emissions, but combines sustainable agricultural practices with innovation in financing. It’s when

maintenance trees are natural alternatives for storing carbon dioxide. Let’s think about agriculture franchise models in Nigeria that

still in development or not yet commercially available at mass- market scale

seek to sustainably

you bring these things together then you have the biggest potential for scaling-up in the Global South.” On the shoulders of innovation “Innovation is a friend of climate action and resilience,” declares Klasen. “If we think about new solutions, about more efficient ways to combine the SDGs such as poverty reduction and climate action leading to a just transition and sustainable economic growth, innovation must be our friend. “There are numerous examples:

improve the lives of smallholder farmers through

the provision of comprehensive farming services, focusing on climate change mitigation initiatives and building farmers’ resilience to climate-related shocks. Or smart meter technology that enables more reliable grid operations by reducing utility inefficiency and making it easier for utilities to collect large numbers of small electricity payments from customers. “The just transition is the real challenge, i.e. greening the economy in a way that is fair and inclusive for everyone concerned, creating decent work opportunities and leaving no one behind. For a just transition, we need innovation across so many different dimensions: technologies, products, processes, new production systems, the right legal and regulatory frameworks, as well as innovative financing instruments to finance innovation.” Ultimately, the smart

Let’s think about mangrove forests – successful approaches for conservation efforts globally because cost- effective and low-

money for climate resilience is less on geo-engineering or high-level international cooperation. It is on building bridges over critical sectors like agriculture, environment, energy and technology in a way that brings real- world impact to billions of people, giving them a stake in scaling- up major climate

Dr. Andreas Klasen is professor of International Business and Director of the Institute for Trade and Innovation (IfTI) at Offenburg University in Germany, focusing on innovation, climate action, global trade and sustainable leadership. In addition, he is a visiting scholar in the Blavatnik School of Government at the University of Oxford, UK. FACTFILE: DR. ANDREAS KLASEN

and development innovations – as part of a new and global social contract.

PHOTO: Courtesy of Andreas Klasen

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Valentina Walden, Executive Assistant, Director-General Office

“Overall it’s about nudging people into a slightly different culture, into doing the ‘right thing’. The more you educate people, the more choices you give, then eventually most people will choose the most sustainable option. At a certain point, though, I think we need to go from fringe options to mainstream expectations. The whole recycling culture didn‘t grow out of nowhere. It‘s common sense and today no-one questions it – which is basically the definition of mainstream!”

If we think about more efficient ways to combine the SDGs... leading to a just transition and sustainable economic growth, innovation must be our friend.

Professor Andreas Klasen, Director of the Institute for Trade and Innovation, Offenburg University

PHOTO: Málfrídur Ómarsdóttir

THE HEAT IS ON GEOTHERMAL ENERGY

A research party on site at Reykjavik’s GRÓ Geothermal Training Programme

Rarely has the exploratory work going on beneath our feet been more promising, or indeed more essential, given the urgency of the climate crisis By Howard Hudson, OPEC Fund

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Renewable electricity generation from geothermal energy, as of 2020: Kenya: 55% Philippines: 50% GEOTHERMAL PROGRESS

I n 1864, Professor Otto Lidenbrock travelled to Iceland with his nephew Axel to abseil deep into the iconic Snæfellsjökull volcano, 120km northwest of the capital Reykjavik. In typical 19 th century fashion, with little care for life or limb, the intrepid German explorers embarked on a long and perilous journey, narrowly surviving a series of cave-ins, subpolar tornadoes and prehistoric creatures, as narrated by Jules Verne in A Journey to the Center of the Earth . That expedition was of course fictional, but the exploratory work going on beneath our feet – worldwide – has rarely been more promising, or indeed more essential given the urgency of the climate crisis. “Here in Iceland, we've been promoting geothermal energy since the 1970s,” says Dr. Gudni Axelsson, head of the GRÓ Geothermal Training Programme under the auspices of UNESCO. “But it's not very well-known in the rest of the world because it's mostly underground and difficult to visualize.” Above ground the sun shines, water

flows and wind blows; elemental, renewable energy surrounds us with its bounty. Austria, blessed with an alpine landscape and mighty rivers, bases half its total installed power capacity and generates three-quarters of its renewable electricity from hydropower, according to the International Renewable Energy Agency (IRENA); meanwhile Italy, home of the “mezzogiorno” midday sun, generates more than 20 percent of its renewable electricity from solar photovoltaics. “Geothermal still represents a small fraction of all energy use in the world,” says Axelsson. “But it’s been growing rapidly in recent decades and is now quite significant in some countries and not only Iceland.” As of 2020, the lion’s share of renewable electricity in Kenya,

Nicaragua: 28%

the Philippines and Nicaragua came from geothermal energy, responsible for over 55 percent, 50 percent and 28 percent respectively of the countries’ renewable electricity generation, according to IRENA.

Here in Iceland, we've been promoting geothermal energy since the 1970s. But it's not very well-known in the rest of the world because it's mostly underground and difficult to visualize.

Dr. Gudni Axelsson, Head of GRÓ Geothermal Training Programme

The GRÓ Geothermal training covers technical details required to develop and explore geothermal resources

PHOTOS: Málfrídur Ómarsdóttir

PHOTO: ISOR/Asgeir Eggertsson

The pros Geothermal energy has several advantages compared to other renewable sources. “First of all,

Another advantage is that geothermal energy can in fact be tapped all over the world, not just in places like Iceland or the Great Rift Valley. “Volcanic areas have the highest temperatures and highest concentration of energy,” says Axelsson. “But you also have lower temperature resources in areas where you have tectonic activity or fractures in the ground where water can circulate. You can also tap geothermal energy from sedimentary basins, found in large parts of North and South America, Europe and Central Asia.” This global perspective was

“simple” generation of electricity. At a fundamental level, it also provides for the “direct use” of natural heat in the form of steam and hot water. In Iceland, for example, geothermal energy covers around 90 percent of heating demand (i.e. the “natural” heat is piped directly into buildings). In hotter countries, meanwhile, geothermal can be used in the agri-food sector in greenhouses, food processing and drying, as noted in a 2019 report by IRENA. Steinunn Hauksdóttir, Director of Mapping and Exploration at Iceland GeoSurvey (ÍSOR), goes further – underlining not only our capacity but our responsibility to use geothermal energy in the most efficient way possible. “To say it upfront, we’re in a position today that all nations should enable the direct use of their geothermal resources. “The big money is in power plants and electricity generation, but there should also be a focus on ‘cascaded’ use to harness the energy in a stepwise fashion. You start by taking steam to produce electricity, which leaves colder fluid that can then be used in different ways to heat homes, bathe in or process food. If you’re serious about working in harmony with the environment, you should have a clear row of utilization, each step fitting the next.”

geothermal is steady,” says Axelsson. “The baseload doesn’t depend on weather or the seasons, in complete contrast to wind and solar, which fluctuate so much. In Kenya, for example, they have dramatic fluctuations in hydropower because they have dry years and wet years.”

Ulrike Haarsager, Head of Development Effectiveness – Strategic Planning & Economic Services “I turn off the air conditioning and lights every time I leave my office. I use public transport or bike/walk/scoot in Vienna almost exclusively. I have an electricity supply contract with 100% renewable energy. I am an advocate for real

confirmed in September 2022 by Jim Hollis, head of US-based Geothermal

Technologies Inc., who told the UK’s Daily Express

newspaper: “These hot water aquifers are everywhere – pretty much everywhere you’re getting oil. So

we can scale these things globally, and

climate change action, projects and initiatives at the OPEC Fund.”

really ramp up the ability to bring geothermal in to complement solar, wind and other things.” Another benefit is that geothermal energy goes beyond the

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makers have a short window in power, which is normally less than the average development time of a geothermal plant. The rule of thumb is that it takes about a decade until you’ll have some geothermal energy production. It’s possible to accelerate things by spending more money, but a lot depends on the size of the project. This complexity is also an obstacle to greater investment from the private sector.” Another complication is that finding and exploiting geothermal resources relies on cooperation between several different disciplines. “It's not just engineers doing a survey and then coming in to erect a windmill or install solar panels,” says Axelsson. “Geothermal involves so much more: Starting with geoscientists trying to map the resource, engineers designing the various components, environmental people making sure things are done properly, plus solid project management to keep the process coordinated and on track.” The future “In terms of scaling up,” says Hauksdóttir, “the most effective approach is to work

and it was that window of opportunity that gave politicians in Iceland the courage to say: ‘We're going all the way with geothermal energy’.” So, on balance, given the advantages of geothermal – its steady baseload irrespective of the weather, its “direct use” for heating and food production, plus its availability worldwide near oil or sedimentary basins – it’s time for other nations to show similar vision and courage. It’s time to bite this small but silver bullet.

To say it upfront, we’re in a position today that all nations should enable the direct use of their geothermal resources.

Steinunn Hauksdóttir, Director of Mapping and Exploration at Iceland GeoSurvey

The cons Despite its advantages, geothermal energy remains a bit player in the global energy mix, partly because it’s complicated to access. “One of the drawbacks of geothermal is that this is a resource which is almost completely underground,” says Axelsson. “It takes a lot of investment to assess capacity, so in contrast to wind or solar, it's difficult for companies or developing nations to find the investment needed to locate and quantify the resource, including the money needed to drill wells to bring it to the surface. “Then you have the political challenges because in many countries the policy-

with other governmental agencies before bringing in private sector

Iceland’s GRÓ Geothermal Training Programme, under the auspices of UNESCO, dates back to 1979. Our six-month training, designed for experts from developing countries, covers all the technical details required to explore and develop geothermal resources. We offer eight lines of specialization ranging from geothermal geology, geophysical exploration, chemistry of thermal fluids, reservoir engineering & borehole geophysics, geothermal utilization, drilling technology, environmental science (to ensure sustainable approaches), as well as project management and finances. People who graduate from the training can then apply for a Master's or PhD scholarship at the University of Iceland or Reykjavik University.

financing. Then it’s important to ensure a legacy of capacity building, so that after each project there are people who can take over locally and pass on the complex expertise to the next generation or indeed to other developing countries. In a way, we’re creating competitors with our projects abroad and training courses at home. But we know that it’s for the greater global good. “The worldwide energy situation is now similar to the oil crisis of the 1970s

FACTFILE: THE OPEC FUND AND GEOTHERMAL ENERGY

The OPEC Fund’s most recent investment in geothermal energy was completed in 2019 in Djibouti, at the top of the Great Rift Valley. Lewnis Boudaoui, Senior Country Manager, Eastern & Southern Africa, OPEC Fund, explains: “This project aims at helping Djibouti secure a sustainable and competitive source of energy by drilling four wells to a depth of around 2.5 km, to be used to help generate geothermal energy. The wells are located in the Assal Rift, around 80km northwest of Djibouti City. The project should enable Djibouti to access a secure and sustainable source of energy and reduce its dependence on electricity imports from Ethiopia, which is only possible when the country has excess to sell.”

Málfríður Ómarsdóttir, Project Manager, GRÓ Geothermal Training Programme

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