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Transnational firms can boost contributions towards low-carbon economic growth

Published on Monday, July 26, 2010 Email To Friend    Print Version

Participation by transnational corporations (TNCs) and the strategic use of foreign investment can help the world’s small economies jump-start “low-carbon” economic development, UNCTAD´s World Investment Report 2010 says.

UNCTAD launched its 20th edition of the WIR on 22 July 2010. The 2010 flagship report is subtitled ‘Investing in a Low-Carbon Economy’. It examines the characteristics, contributions, key sectors, drivers, and determinants of TNC involvement in the move towards low-carbon economic growth and analyses government policy options that may enhance this shift.

Gina Ebanks-Petrie, Director of the Department of Environment, says the DOE is leading the Cayman Islands government’s effort to develop a national climate change strategy, which will highlight the economic opportunities presented by climate change mitigation.

Climate change mitigation is heralded worldwide as a threshold for a green economy, also referred to as a low carbon economy where new technologies will take over from fossil fuels as prime movers of energy.

In an email sent to Cayman Net News, she stated” “DOE has produced a position paper on the need for a National Energy Policy, in which we outlined some of the issues that we believe such a policy would need to address if we attempt to address climate change and sustainable development generally.”

Although international climate-change negotiations are proceeding slowly, the main issues of concern for the world’s small economies -- finance and technology - can partly be addressed through better harnessing of TNC resources. Governments can do this by adopting “clean” national investment promotion programmes, the report contends.

TNCs can contribute to reducing emissions by improving production processes in their operations and along their value chains, and by producing and marketing cleaner goods and services, the report says. In the process, transnational firms can bring much-needed capital and cutting-edge technology to global efforts to combat climate change. The report notes that TNCs already make such contributions.

UNCTAD estimates that in 2009, foreign direct investment (FDI) flows into key low-carbon business areas (renewables, recycling, and low-carbon technology) alone amount to roughly $90 billion. But taking into account embedded low-carbon investments in other industries and various TNC non-equity activities, the actual total investment is much larger. Although low-carbon foreign investments already are substantial, the potential for additional low-carbon investment flows is enormous as the world moves towards a low-carbon economy.

Areas where such foreign investment can have major and direct emission-reducing impacts include the power and industry sectors. Transport, buildings, waste management, forestry, and agriculture also can benefit from TNC participation, but mostly in an indirect manner, the report says. For example, TNCs can supply electric vehicles that reduce emissions in the transport sector, or they can influence their suppliers of agricultural products so that they use sustainable practices.

Keeping in mind potential negative effects of low-carbon foreign investment, UNCTAD proposes that efforts to attract TNC investment to low-carbon activities be complemented by government adoption of appropriate competition, industrial, and social policies.

Another issue is the possible relocation of greenhouse gas (GHG)-emitting facilities to locations with laxer environmental regulation. The report discusses such “carbon leakage” by noting that while such moves by TNCs can potentially generate short-term economic-growth benefits by adding productive capacity, carbon leakage impedes global emission reduction efforts. The extent of such activities is hard to assess.

UNCTAD suggests that instead of addressing the issue at national borders (for example, through tariffs on the carbon content of products), governments could deal with carbon leakage at its source, working through corporate governance mechanisms, such as improved environmental reporting and monitoring.
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