Mobilizing Investment for the Developing World's Sustainable Cooling Needs

Camryn Billett: Welcome to IFC audio stories. My name is Camryn Billett, and on today's episode, we will be talking about sustainable cooling. On July 25^th, UN Secretary General Antonio Guterres released a call to action on extreme heat. With soaring temperatures killing half a million people each year, there is an increasing need to finance sustainable investment in cooling. Today, we sit down with Camillo Mondragon-Velez, lead author of IFC and UNEP's collaborative report, “Cooler Finance: Mobilizing Investment for the Developing World’s Sustainable Cooling Needs", to talk about the challenge and some solutions to cool our people and our planet. Camilo, welcome. So let's jump right into the report. This past summer, we have seen record-level heat across the globe causing major concern. What are the costs of not developing sustainable cooling solutions? And how do these costs support the investment in the sustainable cooling market?

Camilo Mondragon-Velez: Thank you. This is a good question. There are different costs related to the inability of adapting to rising temperatures globally. Some are related to the lack of adaptability, and some others are related to the levels of energy efficiency. Based on current evidence and estimates, it is possible to quantify broadly the global costs related to heat related food losses and waste productivity losses, electricity consumption and additional investments in power could add up to 4 trillion annually in the coming years. This compares to the size of the entire global cooling market, which is estimated to grow to 1 trillion only by 2050. However, those 4 trillion don't include other social costs related to half a million-heat stress related deaths, increasing morbidity and mortality for millions of children due to lack of vaccines, negatively affecting children's learning and also affecting women, which indirectly would affect other family members. Sustainable cooling provides also opportunities for innovation, new value chains and job creation in these economies.

Camryn: Given the essential need for cooling at the most basic human health level, what does policy look like that ensures that this is the case for every human being on Earth?

Camilo: On this the policy landscape is evolving, but there's still a long way before most countries incorporate universal coverage features in their policy frameworks. Thanks to the initiative and demonstration of some governments like India that developed a comprehensive national action cooling plan and institutions like UNEP and the UNEP’s led Cool Coalition, a growing number of countries have adopted national plans and advanced policies and regulations related to cooling. The main focus of current policies and regulation is the use of more sustainable cooling solutions in the market underlined by three types of regulatory instruments: minimum energy performance standards for equipment and appliances, building energy codes and the ratification, approval or acceptance of the Kigali Amendment. UNEP’s Global Cool Watch Report data shows that more than 80% of Countries have established at least one of these three instruments, but only about 50 countries are acting on all three fronts.

Camryn: The report emphasizes the need for transitional technology while sustainable solutions are being developed. How come there is no mention of indigenous community collaboration and adoption of some of their techniques as it pertains to cooling? Especially for those countries and communities that can’t afford transitional technology.

Camilo: Thank you. This indeed has a lot to do with costs, as the report emphasizes the critical role that the adoption of passing design strategies for cooling play in the transition to sustainable cooling. Passive cooling solutions are those that don't involve the use of electricity powered equipment. These approaches include shading, building orientation and architectural design, many of which are inspired in ancient cooling techniques. Passive strategies also include nature-based solutions, like using local vegetation and trees in cities and buildings for cooling to lower urban heat island effects, which are also inspired in indigenous techniques. The report portrays passive cooling as a first layer of efficiency in making cooling more sustainable as it reduces the amount of cooling that would need to be provided through powered equipment, and it also makes it more affordable, as a number of these technologies have much lower costs than active cooling using powered equipment. 

Camryn: You’ve mentioned industries such as architectural design, agriculture, engineering, economics, and even sociology. It sounds like the solutions for the cooling market intersect multiple industries. What evidence is there to support the investment in sustainable cooling?

Camilo: That is correct. Cooling applies across many sectors and industries. But ultimately the key issue is that cooling decisions across all these different sectors are mostly private decisions made by households and firms that consume cooling to address different types of needs. Their transition to sustainable cooling technologies, therefore, needs to make economic and financial sense. We used existing data about cooling across different countries to estimate cooling needs, capital costs and monetary benefits associated to the adoption of sustainable cooling. First, the market for cooling in developing economies is large, at around 300 billion per year, and is expected to grow significantly in the coming decades and double to 600 billion by 2050. Both of these estimates are crucial to incentivize entrepreneurs, cooling provider firms, investors and financiers to increase their efforts to develop and scale up sustainable cooling solutions. Second, there is a strong business case for the transition to sustainable cooling supported by more than 8 trillion in monetary benefits for consumers and developing countries in the coming 25 years. Sustainable cooling has the potential of reducing consumers' electricity bills by 5.6 trillion and reduce their need to spend in cooling equipment by 0.8 trillion. In addition, developing countries will need to invest 1.9 trillion less in power systems to respond to peak demand due to cooling. All these monetary benefits provide space for the design of policies, business models and financial instruments that allow cooling providers to realize gains, investors to realize attractive returns, and consumers to adopt sustainable technologies and reduce costs by investing their own funds or financing them.

Camryn: Thank you, Camilo. Can you explain how the Cooling-as-a-Service (Caas) model works and why it is considered a promising approach for reducing barriers to the adoption of sustainable cooling technologies?

Camilo: Cooling as a service is a business model to deliver cooling solutions while addressing affordability constraints. In this model, consumers would pay a cooling provider firm for the cooling they use in the same way they do with other utilities like electricity, water and gas, instead of acquiring a cooling system and paying for its maintenance. As shown in the report, this model has been tested with some local success in agricultural cold chains in Africa, where farmers would pay for refrigeration of their produce to companies that invest and maintain distributed cold rooms, which are often solar powered. This not only provides refrigeration in off grid locations and reduced food losses but can also aggregate the cooling needs of various farmers. The results in terms of benefits to farmers and sectors within developing economies, as well as on scaling up these local operations to broader geographies, remains mixed. These remain as challenges, not only from the point of view of financing, but also in terms of government coordination and partnerships with the private sector to develop such integrated systems.

Camryn: Thank you, Camilo. At the very end of that answer, you just mentioned private partnerships, but I want to ask you, what role do public and private partnerships play in advancing sustainable cooling initiatives, and how can these partnerships be structured to maximize their effectiveness?

Camilo: Thank you. Indeed, public private partnerships can play an important role in the support of sustainable cooling. The key here is to find the right roles for the public and private sector sites. These roles are underlined by the objectives of each of the partners. In general, the government would have a specific or broad societal objective, like closing the cooling access gaps of certain groups of the population, firms or sectors. For example, providing cooling solutions for smallholder farmers growing certain crops. The government can help small Cooling-as-a-Service (CaaS) providers for this purpose, by providing incentives like guaranteed minimum demand or integration incentives to broad cold chain infrastructure of such services. The objectives of the government could also relate to improving the adoption of sustainable cooling solutions in a particular sector or market segment. When building integrated cold chain systems, there are certain pieces of infrastructure that need to be built and where the private sector can participate, while such infrastructure is underlined by government support. As in many cases, initial usage fees, cannot pay for such infrastructure in a period of time that is attractive enough for investors. This is similar to what the government does when supporting toll roads.

Camryn: Thank you, Camilo, for that comprehensive explanation. My final question regarding financing is how do financing instruments like revolving funds and blended finance contribute to supporting sustainable cooling solutions, and what are their advantages over traditional funding mechanisms?

Camilo: Thank you, Camryn. Both of these instruments can help consumers address financing and affordability constraints based on a specific use of proceeds related to the fund's objectives. Blended finance, for example, is similar to the public-private partnerships, in the sense that the concessional funding involved has a societal objective, including environmental benefits. Concessional funding can be provided by donors or governments to support, for instance, low-income consumers, smallholder farmers or SMEs to access the cooling solutions they need, or these can be used to incentivize with better financing terms other companies to make an effective transition to sustainable cooling technologies. Governments and donors can provide subsidies and grants and have private sector entities provide and operate the programs or provide complementary financing. Revolving funds on the other hand, have the advantage of focusing on supporting many different consumers of cooling to make the transition to sustainable technologies, taking advantage of a specific payback period backed up by the energy and other savings that consumers have, and then re lend the funds to finance a new cohort of consumers. A key advantage is their specific focus, for example, on energy efficiency projects to bring expertise guidance and specific rules on the use of funds by consumers, securing that the use of projects is directed to the objective of transitioning to sustainable technologies. It also has the advantage of running over long periods of time, underlined by cost effectiveness, and thus help a large number of cooling users.

Camryn: Thank you, Camilo. As we've discussed today, sustainable cooling is not just an environmental issue but a necessity, especially in developing economies. The urgency to implement these solutions is clear, and there are innovative financing models and strategies that can make a real difference. To learn more, check out the IFC and UNEP report on sustainable cooling. My name is Camryn Billett and thank you for listening to IFC Audio Stories.