Opinion: 3 unexpected solutions for greater climate action

The M-KOPA Solar team meeting with its 100,000th subscriber in Uganda. Photo by: M-KOPA Solar

Amid vital U.N. climate talks at COP24 in Poland, decision-makers are looking for creative and practical solutions to help deliver on commitments made under the Paris Agreement. Digital financial services — such as mobile money, bank accounts, cards, and fintech apps — can be critical complements to efforts already underway to combat climate change, increase access to clean energy, and mobilize climate finance, in a way that’s fair and sustainable for all.

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An increasing number of countries and companies have embraced digital financial services for their SDG initiatives, particularly those aimed at energy and climate change. Their experiences shared here provide a proven path for decision-makers meeting in Poland.

1. Leverage technology to reduce environmental and financial impacts today

Experts say that drastic measures must be taken immediately to have a fighting chance of meeting the targets set in the Paris Agreement. Digital financial services have demonstrated they can reduce the costly environmental and financial impacts of climate change, from reducing carbon emissions to encouraging consumers to make more climate friendly purchasing decisions. For example, in China, over 1 million tons of carbon emissions have been prevented after users of Alibaba's Ant Financial’s digital finance platform monitored the environmental friendliness of their potential purchases and adapted their purchase decisions accordingly.

Digital payments have also been instrumental in helping poor households increase resilience to climate-related disasters. Since 2008, 25 million people have been displaced by weather-related events each year, and global economic losses from natural disasters now total $250-300 billion annually. In the Philippines, recovery efforts after Typhoon Haiyan in 2013 were expedited thanks to mobile money and smart cards. Households with digital savings accounts recovered faster than those using cash only.

2. Embrace new models to expand access to clean energy

Of the more than 1 billion people lacking electricity worldwide, research shows that nearly one in four households in largely rural areas would be best served by lower-cost distributed energy solutions such as rooftop solar. Digital finance helps utilities and mini-grid operators shift toward low-cost, prepaid, or pay-as-you-go services, increasing their ability to grow and reach more people. PEG Africa and M-KOPA, for example, have used digital finance to provide 10 million people access to affordable, modern energy.

With more than 690 million registered mobile money accounts around the world and other innovative digital solutions becoming available, the stage is set for more new business models for affordable and clean energy companies. To truly reach impact at scale, we must now ensure the market conditions for their success.  

3. Unlock new, resilient markets for the next generation

Only one in four utilities in emerging economies are financially viable, limiting their ability to grow. In Uganda, national electricity distributor Umeme beat the odds by replacing cash with prepaid cards and mobile payments. The switch increased the company’s collection rate from 84 percent in 2006 to 98 percent in 2016.

Worldwide, more than 2 million solar home systems were financed in 2017 through pay-as-you-go models, creating a new wave of green lending catalyzed by digital finance. Digital financial services can help encourage households and businesses to make environmentally friendly investments and clean, affordable energy companies to scale.

This week’s negotiations mark an important milestone, as decision-makers move from agreement to action and recognize the interconnectedness of climate change and the many other critical issues facing society, from hunger to economic growth. Digital financial services have successfully advanced a wide variety of global goals, and their impact on climate change must not be underestimated.

With barely a decade remaining to 2030 — and a major step-up in efforts from all stakeholders required to keep the Paris Agreement targets within reach — digital financial services provide a real bridge between where we are and where we need to be. By including financial service innovations as part of the larger game plan, government, business, and development partners can spark the progress we greatly need for the Paris Agreement and the SDGs at large.

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About the author

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    Camilo Tellez-Merchan

    Camilo Tellez-Merchan is the head of research & innovation at the U.N.-based Better than Cash Alliance. Prior to joining the Alliance, he worked at CGAP in Washington, D.C., and the GSM Association in London where he supported providers in the area of digital financial services. He has also worked at the U.N. Economic Commission for Asia and the Pacific in Bangkok, and at the Microsoft Labs in Bangalore where he conducted ICT4D research in the technology for emerging markets team.