James Cameron, Chairman, Climate Change Capital: Our Transformation Requires Trillions in Investments

World Climate Ltd.: You have been active in the climate arena for a long time, so as of today do you see any trends arising in the field of climate change negotiations and finance?

James Cameron: In some respect, it is disappointing that for the best part of the last 20 years, we have not made a great deal of progress on either the climate change negotiations or climate change finance. The framework convention in 1992 was clearly a significant breakthrough and provided a clear objective, but not very clear obligations. This objective was carried on through the various annual COPs and gave birth to the Kyoto protocol, but from then on I do not believe we have made any considerable advancement.

Most of the debates throughout the negotiations are repetitive; new negotiators join lacking needed experience on the matter, fighting the same battles over and over again. Sadly, much of what is negotiated is removed from the reality of economic activity outside of the negotiations. For this reason, one has very strange parallel universe discussions on finance between entering negotiators that do not know very much about finance and the world outside, which is moving ahead with very different power relationships.

In addition, climate finance inside the negotiations is thought to be principally about public money. We know the Annex 1 countries, as they used to be called, which are also a kind of donor nations group, are still seen as the source of climate finance which is merely distributed through an international agency to the so called developing world.

However, in the last few years so much has changed, that it has made that division of no real importance when it comes to solving the problem. The problem being to find out where the money is to solve the problem, who has the responsibility to solve the problem or who has the capacity to profit from solving the problem. So, what disappoints me is that the negotiations are so very much structured around a definition on “who is to blame” that it does not fit with “who has the resources to solve the problem” and “who has an opportunity to make a transformation that might be in their interest”.

When looking at this year’s COP and towards 2015 and a global agreement, how can we construct some sort of pathway where we can unlock and find the type of finance that is needed to tackle climate change?

One of the things that was positive, in the midst of a very negative outcome in Copenhagen–and it is right that Copenhagen still has the reputation of being a failed event which did set us back years– is that the boundary line between the Annex 1 countries and the rest was in part removed. After the event in Copenhagen, countries all over the world started to pledge what they were going to do in order to deal with the problem in their domestic public policy realms; which I have to say has been extremely positive.

The most optimistic happening of the last few years was seeing what has been brought forward in terms of legislation, public consciousness, and industrial and commercial responses in Mexico, Chile, Columbia, South Korea, South Africa, and China which is obviously a prime example. These countries now have climate-related policies in place that are significant contributions to the global effort of responding to the framework’s objectives which remain good and binding on anybody including the United States and China.

The above is a decent basis for a 2015 agreement; nevertheless we know already that this agreement is now going to look like the framework convention or the Kyoto Protocol. As a result, in my mind, our expectation for the 2015 agreement should be set around a re-statement of a clear commitment of dealing with the problem. Followed by, principles that are universal on which anyone can agree on and finally by an opportunity of discussion of a small number of matters that must be agreed upon universally; including how the institution should be run and what the definition of GHG is.

We have to conform to a disciplined technical formula as the problem is basically scientific, but there should be plenty of scope for governments to choose their pathway within that framework and to encourage administration to take a step outside the box they have been put in, describing them either as the source of the problem or the victim. We know the world has moved on, one cannot simply divide it into the culprits and the victims, we are all in some way connected and the solutions will sooner or later emerge all across the world.

In terms of yourself and the work that you have done recently or even further in the past, what sort of financial solutions do you see moving forward this year and then the following two years?

You could almost call it an amusing paradox: so much of our story is bleak and this is in a way quite funny because you want to imagine incredibly large capital moving towards an energy, agricultural and new industrial system all around the world that uses less carbon and wastes less GHG.

That kind of transformation requires trillions of dollars. It is a major global enterprise that would take decades to get to and is commensurate with the nature and the scale of the climate change problem: colossal and dispersed.

That scale of capital will never come from donor governments depositing money into a pot administered by an international organization and then handed out to other countries. That there is a hopeless enterprise, but in political terms it is a necessary gesture to create such good-will around which one can build something much more effective. As such, what would be much more effective is being dependent on incentives, to make investments of a different kind, in places that have not previously received a large amount of capital, outside the capital centers like London, Frankfurt, New York and the likes.

We now have a much more extensive list of capital providers in sovereign wealth funds, pension funds, in Sub-Saharan Africa, family companies, and India; we have a massive range for potential investors and they are looking for financial returns, they are looking for growth.

Where is that growth? Well funny enough it is in the growing economies, which are the emerging economies, which are in the always developing-country block, and they are day-by-day less to be described as economic victims and more to be described as charity places for investments.

In result of this, we are at an inflection point. For several of the countries which have the largest emissions of the emerging economies, there are also very attractive investment opportunities in infrastructure, new energy systems, and in making agriculture more productive because it has a higher technological base and might reduce the carbon input in the production of agricultural commodity. That is a very interesting investment space, and that is what I had in mind when I started Climate Change Capital. I am interested in energy, water, and food; these three securities are all linked and are all amplified by climate change.

So the things that worry me most are also the things that provide the best opportunities for very large capital investments. There you want instruments and structures that can channel capital that would otherwise go into factors that increase climate risk, to investments that decrease risk and deliver financial returns in an economy that is in real need of capital.

The paradox of all that is that this matter does not appear at all in climate negotiations. It is quite weird that the so-called “victims” are attracted to investments that are not featured.

If we are going to do anything about the climate change problem, we are going to have to invest in agriculture, industry, and power in emerging economies. We will just have to do it in a different way, we are going to invest in various directions, have better technology, better infrastructure, more productive land and that is the right prospect for investment, whether you know or care about climate change.

How can the World Climate Summit, facilitate and bridge communication between the public and private sector to make everybody understand that we should not just blame the public sector, but also bring the private sector into the negotiations without any political interference and instead with the best of the private sector to compensate for the lack of its progress. How do we do this?

We have to understand the nature of the negotiations, the language that is used, and the things that matter to them inside their negotiating box, but without conceding to it. In order to do that one has to understand what motivates them and what matters, because we should all want and thrive for a 2015 agreement. For me it does not matter that it is going to come in a different form, it should still be a target. Agreement matters and it matters because it is symbolic, emblematic, and encouraging.

Four things: First of all, not just any old agreement can help the negotiations understand what they could do to increase the chances that the private sector would respond positively and deliver the outcomes that we all want. In that it is in a way a coaching job.

Second, is the climate agenda, it is important to acknowledge that the public sector game has merit and has value if it is followed through correctly. Thus, the public sector finance and regulatory role will reshape markets. The law-making follows an international agreement or surrounds an international agreement (sometimes a national legislation comes first), the tax-incentives, the planning incentives, what comes from it will shape markets, and so what they do really matters. One cannot be so critical and cynical that he or she misses the point; these individuals have the power to change the circumstances in which you become prey.

Thirdly, the public finance they could put together could be incredible, it could bring down risk, distribute risk, it could make some investments soar that otherwise would not.

Now, we would also like to be the folks that work on this from the clean energy side, that have a business interest in winning the new game around delivering economic growth with lower emissions. We should want governments to create demand for that activity and we should keep reminding them that you cannot expect the private sector to deliver all set objectives if you do not actually create the demand for a ton of carbon to be reduced. Therefore, you have to hold them to that task, do not fantasize about the private sector doing it all for you, it will not. The private sector needs those incentives and it needs you to say, as a matter of law, “we are going to penalize pollution” or “we are going to incentivize clean energy”.

Lastly, it is very important for this particular group that is formed to involve various technologies and businesses and simply reveal what is possible, what is already out there, what would not work if changes do not occur. That is incredibly important, the building of a positive narrative about how life can improve having made the switch, now that is crucial. This debate is wholly negative. We have to go back somehow in another time where we are not so bad and wicked. If we look at it as a negative campaign against our human instincts to improve ourselves, we have no chance. Although, if we look at it as positive aspiration to live better, to organize ourselves better (because all this is also social organization it is not just technology), we can actually aspire to something that lifts the spirit. Having that kind of a mind-set makes it much easier to make the transformation that we need to make in order to manage the risk of climate change