For a climate course correction, finance to be key at COP28

When global leaders convene at the 28th Conference of the Parties (COP28) in Dubai, United Arab Emirates, the world would expect a climate course correction. There has been a surge in climate change-induced events and a record temperature increase this year. Even the first global stocktake of the United Nations (UN) shows that current global greenhouse gas (GHG) emissions are incompatible with the mitigation pathways consistent with the Paris Agreement.

Mobilising finance will be vital for aligning activities with the Paris climate deal negotiated at the COP21 for limiting global warming to 1.5° C by 2100. 

Despite several announcements and commitments over the years, poor and developing countries struggle to mobilise finance for mitigation and adaptation. The problems of incremental climate finance must be addressed urgently since the tripling of renewable energy and doubling of energy efficiency alongside the systems-level transformation will send requirements soaring into trillions of dollars.

International Climate Finance: What is on the plate?

Climate finance is one of the fundamental building blocks of international cooperation in climate change. This is especially true for countries least responsible for human-induced climate change but suffer the worst impacts. However, the discussion on climate finance mostly hinges on the US$100 billion per annum committed by developed countries at the Cancun climate conference held in 2010.

While developed countries claim they may have finally delivered US$100 billion in climate finance in 2022, there remains concern over a lack of balance in allocating money for adaptation and mitigation. For instance, developed countries channelled one-third of the public climate finance to adaptation projects implemented in developing and least-developed countries in 2021. However, mitigation and cross-cutting projects received 59% and 6% of the funding, respectively.

Many developing, least-developed and small island countries have the least capacity to adapt to climate change. Some are already debt-ridden. Therefore, international climate finance should not add to their burden. Yet, only a quarter of the reported climate finance flows as grants, while the remainder goes as loans. Moreover, non-concessional finance instruments are a significant part of climate loans.  

Notably, international climate finance is additional to the official development assistance (ODA) finance extended by developed countries. Yet, 25% to 30% of the reported climate finance in 2021 was treated as real support for climate change or additional to the development cooperation.

As global leaders meet at COP28, they must completely resolve such disagreements.

Likewise, policymakers must work on operationalising the loss and damage fund, making it purposeful and removing its complexities to ease access. For all practical purposes, the loss and damage fund should help the vulnerable countries.

The Need for Incremental Climate Finance

The latest analysis of available climate plans of different countries, conducted by the United Nations Framework Convention on Climate Change, shows that the combined GHG mitigation in 2030 will only be 2% compared to 2019 levels against 43% required to meet the 1.5° C temperature goal. The International Energy Agency (IEA) identified tripling of renewable energy capacity and doubling energy efficiency as key pillars to achieve the required emission reduction within this decade.

Analysing the 1.5° C compatible GHG emission scenario, the IEA concluded that the annual clean energy investment would need to reach US$4.3 trillion in 2030. Of this, emerging and developing countries would need US$2.26 trillion.

On the other hand, the estimated annual adaptation finance gap in developing nations already ranges from US$194 billion to US$215 billion, limiting their scope to advance mitigation measures.

A climate-vulnerable country, Bangladesh, which experiences catastrophic climate change-induced events frequently, incurs a loss of US$1 billion annually due to cyclones. Severe flooding could contract Bangladesh’s gross domestic product by 9%. The estimated cost of GHG mitigation, including conditional and unconditional targets up to 2030, is US$176 billion.

The global stocktake report also underscores the importance of systems transformations across sectors with upscaling renewable energy, different supply- and demand-side interventions, ending unabated fossil fuel combustion, etc. These systems transformations would necessitate undertaking a “whole of economy” or “whole of society” approach for greater emissions reductions to tame and adapt to climate change. As countries gradually embark on such an approach, the need for climate finance will only rise. Of course, developing countries will spend a fair share of the required finance, but that will not be enough.

Therefore, developed countries should enhance their climate finance commitments at COP28. The financing architecture should fulfil the purpose of the poor and developing countries and drive meaningful action on the ground for climate course correction. There are different ways to raise money, such as taxing fossil fuel companies and cancelling the debt of severely climate-hit countries.

More importantly, there should be a consistent process to address the issues related to differentiating climate finance from ODA finance, increasing the grant component, channelling concessional loans and ensuring a balance between adaptation and mitigation finance.

This article was first published by Outlook India.