At COP 15 in Copenhagen, 14 years ago, developed countries pledged to jointly mobilise 100 billion USD annually by 2020 towards adaptation and mitigation efforts in developing countries. This is where climate finance first began to take centre stage at COPs, and since then it has only grown in importance.
Unfortunately, despite being renewed at COP 16 and COP 21, the targets to eventually meet the eventual 2020 figure have been missed every single year. In fact, the target has been pushed back to 2025, though it should be noted that the UK government suggested that we could hit it as early as 2023. Will this be the year? The trend doesn’t look promising:
But what is climate finance, and where does all the money go? Climate finance is multifaceted and challenging to define, but we can view it as financial flows from public, private, and alternative sources that are directed towards improving adaptation and mitigation efforts. Over the course of the last decade, conversations at COP have looked at increasing funding to developing countries, with the intention of bringing them to parity with developed countries’ adaptation and mitigation efforts. In the 2020 Assessment and Overview of Climate Finance Flows from the UNFCCC, it was evident that developing countries prefer to fund mitigation, with adaptation finance sitting at barely 25% of committed climate funding across all sources. This is in stark contrast to political ambitions of a fair, 50/50 split between the two.
Nevertheless, the question of whether this funding is enough is a little more straightforward. The answer: in terms of the total figure required, absolutely not. The Green Climate Fund estimates that, to avert catastrophic consequences of climate change, developing countries require 2 to 4 trillion USD. According to the Climate Policy Initiative, 80% of the USD 165 billion spent in 2013 in developing countries on climate adaptation and mitigation efforts was from domestic or non-developed countries. Although it cannot be expected for the climate ambitions of developing nations to be funded exclusively by developed ones, it is clear that they need to step up. A few models from Bowen et al. (2015) illustrate this: if the climate mitigation effort was equal across geographical regions, 4 out of 6 models predict that annual financial flows from developed to developing countries would need to reach around USD 400 billion by 2050, while the remaining two suggest a figure in the realms of USD 2 trillion.
So, how do we fill the gap? At COP 27, the Loss and Damage Fund was proposed and agreed upon to support developing countries in accounting for losses related to climate change. Adapting to these could cost up to USD 340 billion annually by 2030. But a year on, talks have stalled. This is partially due to some developed countries, such as the United States, pushing for the fund to be hosted by the World Bank. This is a point of contention for various campaigners, with the implication being that this is in developed countries’ best interests. This may spill over into continued discussion at COP 28, with Dr Sultan Al Jaber recently targeting Multilateral Development Banks to improve the availability, accessibility, and affordability of climate finance. He also suggests that we need to reduce the “risk to unlock capital from the private sector”, and the graph below shows how the private sector could contribute to funding the Net Zero Pledge:
But wherever the money comes from, one thing is clear; what we have now is not enough. Discussions at COP 28 must take actionable steps to address this; both by increasing private sector mobilisation and financial assistance from developed to developing countries.
Update as of 17 November 2023: Out of the US-China joint statement on climate positions, the announcement that the New Collective Quantified Goal (NCQG) of $100 billion target per year towards climate finance will be met this year makes STEP very optimistic about COP outcomes.
COP28 President Dr Sultan Al Jaber backs STEP’s excitement:
“The announcement on the $100 billion today is extremely encouraging. I want to thank Germany, Canada and the OECD for their continued support in getting us here, as it will enable us to focus on an ambitious decision on the global stocktake and ensure that we keep 1.5 within reach.”
Written by Viraj Ganatra for STEP
Edited by Tongfei Zheng
References
Ares, E., & Loft, P. (2021, November 3). COP26: Delivering on $100 billion climate finance. The House of Commons Library. Retrieved November 5, 2023, from https://commonslibrary.parliament.uk/cop26-delivering-on-100-billion-climate-finance/
COP26 Outcomes: Finance for Climate Adaptation. (n.d.). UNFCCC. Retrieved November 5, 2023, from https://unfccc.int/process-and-meetings/the-paris-agreement/the-glasgow-climate-pact/cop26-outcomes-finance-for-climate-adaptation#What-specific-financial-pledges-were-made-at-COP26
COP 28 [@cop28uaeofficial]. (2023, November 1). With 4 weeks to COP28, ambitious action is needed from the Multilateral Development Bank to make climate finance more available, accessible, and affordable. #COP28 #MDBs. Instagram. Retrieved November 5, 2023, from https://www.instagram.com/p/CzGxaGCy5K1/?igshid=MzRlODBiNWFlZA%3D%3D
European Environment Agency. (n.d.). What is the difference between adaptation and mitigation? www.eea.europa.eu. Retrieved November 12, 2023, from https://www.eea.europa.eu/en/about/contact-us/faqs/what-is-the-difference-between-adaptation-and-mitigation
European Investment Bank. (n.d.). Multilateral development banks. EIB.org. Retrieved November 12, 2023, from https://www.eib.org/en/about/partners/development-banks/index.htm
Harvey, F. (2023, November 3). Climate crisis talks resume on ‘loss and damage’ funding for poorest countries. The Guardian. Retrieved November 5, 2023, from https://www.theguardian.com/environment/2023/nov/03/un-climate-crisis-talks-resume-loss-damage-funding-poorest-countries
Markandya, A., Galarraga, I., & Rübbelke, D. T. G. (Eds.). (2017). Climate Finance: Theory and Practice. World Scientific. https://doi.org/10.1142/9433#t=toc
McKinsey & Company. (2023). Financing the net-zero transition: From planning to practice. Retrieved November 5, 2023, from https://www.mckinsey.com/~/media/mckinsey/business%20functions/risk/our%20insights/financing%20the%20net%20zero%20transition%20from%20planning%20to%20practice/financing-the-net-zero-transition-from-planning-to-practice.pdf
Soubeyran, É., & Macquarie, R. (2023, February 22). What is climate finance? — Grantham Research Institute on climate change and the environment. London School of Economics. Retrieved November 5, 2023, from https://www.lse.ac.uk/granthaminstitute/explainers/what-is-climate-finance-and-where-will-it-come-from/
