Photo by UN Climate Change/Andrea DiCenzo
Climate Investments in Developing Countries Must Quadruple Or Climate Change Action Will Fail
Today marks the final date of the COP28 in Dubai. COPs, held annually, bring together representatives from almost every country to decide how to address the climate crisis: COP28 is shorthand for the 28th meeting of the Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC).
The Paris Agreement to limit global temperature rise to 1.5 degrees Celsius was adopted by 196 Parties at COP21, held in Paris in 2015. So far, countries have failed to deliver on commitments signed, including collectively mobilizing USD 100 billion per year to address climate change.
Last week, one topic dominated the summit: climate finance, and how radical action must be taken before time runs out.
Climate Finance 101
Climate finance refers to any funding—public, private, alternative; local, national, or transnational—for actions to address climate change. Climate finance is needed for both mitigation and adaptation: large-scale investments must be made quickly to significantly reduce emissions; funding must be allocated to support communities in adapting to existing and evolving adverse effects.
The UN recognizes that developed countries are more able to allocate resources to climate finance—the Kyoto Protocol and the Paris Agreement, both treaties aiming to reduce greenhouse gas emissions, call for wealthier countries to extend predictable financial assistance to poorer vulnerable nations. Parties who signed the Cancun Agreements in 2010 committed to jointly mobilizing USD 100 billion per year to address the needs of developing countries by 2020, a date that was extended to 2025 by the Paris Agreement. It’s a goal that countries have consistently failed to meet. (You can read the UN’s Introduction to Climate Change here.)
How is funding allocated and managed?
Industrialization in developed nations is the main culprit in greenhouse gas emissions causing global warming. Developing nations are the ones most exposed to risks posed by extreme weather and rising seas, and also need the energy to continue to grow their economies—a demand that could be met by adopting clean energy if relieved of debt burdens and provided access to financing.
The COP decides on policies, program priorities, and eligibility criteria for funding, assisted by the Standing Committee on Finance (SCF), which was established at COP 16 in Paris in 2010. Countries and groups make pledges. Organizations operate the financial mechanism: the Green Climate Fund (GCF); the Adaptation Fund (AF), established under the Kyoto Protocol in 2001, and the Global Environment Facility (GEF), which oversees the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF).
Information on climate action activities funded in developing countries is available via the UNFCCC Climate Finance Data Portal.
COP28’s global stocktake: What was pledged this year?
Host nation United Arab Emirates pledged $270 billion in green finance by 2030 through its banks, although at the time of publication, Saudi Arabia—the region’s biggest economy and the world’s biggest oil producer—had not attended the summit despite joining COP27 last year.
The UK and France, as well as the World Bank and African Development Bank (AfDB), committed to allowing borrowers to pause repayments after extreme weather events. Japan and France announced support for the AfDB’s access to “special drawing rights” under the IMF to support climate-related investment in Africa. Danish investment firm Copenhagen Infrastructure Partners announced plans to raise $3 billion for renewable projects in emerging markets. Despite its small population, Barbados made waves with its Bridgetown Initiative, which outlines major reforms in global financing systems to ensure better outcomes for developing nations.
Certification bodies for carbon credits announced a collaboration aimed at strengthening standards. (Under our sustainability initiatives, CANOPY partners with CNaught, which embodies science-based best practices laid out in Oxford’s Principles for Carbon Offsetting, to purchase a diversified portfolio of carbon offsets designed to maximize impact, mitigate risk, and foster innovation.) Several big banks and corporations announced support for the US-led Energy Transition Accelerator, designed to fund developing nations’ move away from polluting energy sources.
Contributors announced new pledges to the Adaptation Fund totaling nearly US$ 160 million—a long way short of the Fund’s resource mobilization goal of US$ 300 million for 2023. The pipeline of projects not yet funded has reached US$ 425 million.
COP28’s big takeaway: Developing countries need “radical” investment to fight climate change.
Last year, UN climate finance experts reported that developing nations, except China, must spend $2.4 trillion a year on clean energy and climate resilience by 2030—four times current levels. In comparison, fossil fuel subsidies have hit a record $7 trillion per year.
Just before COP28, the group delivered a damning update. To meet this target, international private finance needs to be increased by more than 15 times, and funding from the multilateral development banks must triple. Current funding levels would “fail on Paris,” with devastating consequences for the world’s most impoverished people.
“Why are we off track on emissions? Because we have not invested nearly enough in what we have to do to bring them down,” said report co-author Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment. “We are in a hurry.”
Vulnerable countries hit by costly climate disasters are asking for billions more through a newly formed disaster fund, although current pledges are only around $700 million.
Barbados Prime Minister Mia Mottley believes taxes, not voluntary pledges and pleas to charities and private investors, are the answer. A global 0.1% tax on financial services, for example, could raise $420 billion, she said, while a 5% tax on global oil and gas profits in 2022 would have yielded around $200 billion.
“Unless we have an urgent set of decision-making, we are going to suffer what every parent suffers from—exciting expectations and being unable to deliver,” she said.