Advance Market Commitments for Climate Change
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Center for Global Development visiting senior associate Jan von der Goltz presents some considerations for advance market commitments in the climate change context.
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Advance Market Commitments for Climate Change
- 1. Some considerations for an AMC in the climate context
- 12. Two possible analogies for an AMC in the climate context – and their limitations
- 17. Takeaway message
Notas del editor
- I will spend most of my time talking about the original AMC concept, and what to learn from it for climate finance; But first, a word on broader pull-mechanisms – what one could call ‘AMC+’: Plenty of opportunities for good clean investments; Much under way.
- Tie AMC subsidy to supply commitments Set a hard low tail price ceiling
- Industry perceived considerable demand risk Donors have historically over-estimated demand GAVI’s long-term funding contingent upon periodic Board approval
- AMC size should be driven by: Knowledge about potential market size (e.g. doses of vaccines, units of micro/pico-hydro); and Some knowledge of the cost curve: how much must be produced and sold to drive down unit cost to point of sustainability.
- Not clear that we know the demand curves in clean tech – what if India puts in place solar mission? Perhaps we are doing better on cost curves? Not clear that we know the demand curves in clean tech – what if India puts in place solar mission? Perhaps we are doing better on cost curves? Would you be ready to draw a demand curve like this for your favorite project? Would you be confident in drawing projected MC as a function of units sold? IF TIME, ADD AC/MC GRAPH
- Social returns are high; This has been frustrating to finance – especially at scale, and with local O/M Clearly defined need (similar to vaccines); Indivisibilities in research cost, if product is to fit the idea of robust, low-cost, locally maintained energy. (similar to adding relevant strains) At the same time, these are incremental improvements that it may be better to address with an AMC than with X-prizes; (because the demand element/market test ensures that innovations are practically useful) Specification could contain long-term delivery/maintenance requirement to force capacity dedicated to developing countries. AGAIN, MY PURPOSE HERE IS TO DEMONSTRATE THAT PARTICULAR CHARACTERISTICS MATTER, NOT TO CALL FOR THIS SPECIFIC INVESTMENT
- (ask yourself when considering a particular technology: would you want to do this with SERIOUS funds?); Product characteristics are less naturally defined than for vaccines: Offer contract for a specific technology? Easier to define which technologies are eligible; Prevent diluting subsidy; Easier to know cost curve. Or request general “off-grid technology with certain generating capacity, at certain cost, and certifiably (by whom) suited for local O/M” Brings in consumer preference; Allows for technology evolution; Best solutions strongly depend on local factors (e.g., storage needs, insolation/wind/biomass availability, O/M capacity)
- There may be an instructive analogy with the Pneumo AMC Donors had intimate knowledge of health system capacity and were confident in demand forecasts; Suppliers viewed demand as much more uncertain; This was driven by doubts about government capacity and donor willingness to pay.