Delivering a trillion dollars in climate finance is doable, experts say #IndiaFinance

For years, developing countries have demanded a trillion dollars in climate finance in order to better adapt to the impacts of climate change and to lead efforts in reducing carbon emissions. Rich countries have typically pushed back committing to pay large sums like this, but a growing tribe of economists and climate finance experts are now backing this demand, saying it “is absolutely possible,” to deliver it.

At the 29th Conference of Parties (COP29) in Baku, Azerbaijan, countries are wrestling with the New Collective Quantified Goal (NCQG) on climate finance – a new target for enabling climate action in emerging and developing countries that will come into effect post-2025. It will replace the older goal of raising $100 billion by 2020, set in the COP15 in Copenhagen over a decade ago.

New reports by independent experts and by the Standing Committee on Finance under the UN Framework Convention on Climate Change (UNFCCC), agree that climate finance needs exceed $1 trillion. “Ramping up climate investments in emerging markets and developing countries is the only way to reach the Paris Agreement goals of limiting the global temperature increase to well below 2 degrees Celsius and adapting to climate change,” said a report by an Independent High-Level Expert Group on Climate Finance, which is co-chaired by eminent economists Amar Bhattacharya, Vera Songwe and Nicholas Stern.

“It’s more expensive the longer you wait. This [$1 trillion by 2030] is absolutely possible for rich countries to achieve, but it does entail real commitment and moving quickly,” Stern told The Guardian in an interview at the start of COP29.

In talks, the demand for 1.3 trillion in climate finance, which has the support of the largest developing country block, the G-77 and China, is proving to be a stumbling block.

“While ($1-1.3 trillion) is a good number to use to represent totally external finance needs, the negotiators need to determine how much of this will be made up of public funds by public sources committed under the NCQG. This is where we’re currently stuck,” said Gaia Larsen, Director of Climate Finance Access at World Resources Institute, adding, “Some developing nations want all of the trillion to be public funding, but that is not going to happen. Meanwhile, the developed countries haven’t put a counter-offer on the table, though the EU has hinted at a range of $200 to $300 billion.”

India had formally made a submission to the UN earlier this year, demanding the NCQG accommodate a demand for $1 trillion a year in climate finance, “composed primarily of grants and concessional finance…in line with the needs of developing countries.”

During a plenary on November 21, Uganda’s Adonia Ayebare said on behalf of the G-77 and China group that he was “disappointed” by a lack of response by developed countries on their demand for $1.3 trillion in climate finance. “We should not leave Baku without a number,” he said during the plenary.

A trillion dollars in climate finance

Even as countries argue over a $1 trillion commitment in climate finance, the actual needs are much higher.

According to the UNFCCC’s Standing Committee on Finance (SCF), developing countries will need between $5.036-6.876 trillion until 2030 to cover the costs of achieving their climate targets. An annualised cost estimate comes to between $455-584 billion per year, says the SCF’s Determination of Needs of Developing Country Parties report. “It is understood that the costed needs presented in Nationally Determined Contributions (climate goals) do not reflect the entirety of needs across developing country Parties and regions,” the report said.

Developing countries expressed needs across mitigation, adaptation, and prevention of losses and damages due to climate change. Some of the most pertinent areas in need of funds are renewable energy, agriculture and food, forestry, ecosystems and biodiversity, water supply, health and sanitation, disaster management, and coastal zones.

The Independent High-Level Expert Group on Climate Finance (IHLEG), which has advised climate finance negotiations since COP26, pegged required investments in developing countries (excluding China) even higher, at $2.4 trillion annually until 2030. For all countries together to achieve targets under the Paris Agreement, investment requirements are estimated to be between $6.3 and $6.7 trillion annually by 2030.

Raising the funds

For international climate finance to reach $1 trillion, overall spending needs to rise by 15 to 18 times from current levels, according to the IHLEG. For this to happen, finance from private and domestic sources needs to scale up, and funding from multinational development banks (MDBs) needs to triple by 2030. “Bilateral climate finance from advanced economies, which currently amounts to $43 billion per year, needs to double or more, given the central role that it plays in building trust and financing the most difficult needs,” the IHLEG’s report says.

“The IHLEG’s report is welcome, because it doesn’t just focus on the quantum of needs but also talks about the quality of finance and emphasises what needs to be done to get there,” Vibhuti Garg, Director, South Asia at the Institute for Energy Economics and Financial Analysis, told Mongabay India. “Concessionality is key here, and this report recognises that concessional forms of finance are needed to boost investments in developing countries.”

A bulk of climate finance under the UNFCCC comes from bilateral and multilateral sources, with multinational development banks (MDBs) accounting for a much smaller share. Funds from multilateral development banks are predominantly in the form of loans, which countries argue is worsening their debt burdens. Only 17% of adaptation funds from MDBs was in the form of grants, for example.

Read more: Developing nations demand public grants, not loans, at COP29 finance talks

In talks, developing country parties are demanding that of the $1.3 trillion, between $440 and $900 billion be in the form of grant-based, public funding. “We are stressing that a lot of climate finance has to be public finance because the market has clearly failed to address the issue. Getting private finance is very difficult for many of our countries,” Jiwoh E. Abdulai, the environment minister of Sierra Leone, told Mongabay India.

Rich countries failed to honour their previous commitment of mobilising $100 billion in climate finance by 2020, instead delivering it two years later, in 2022. The IHLEG proposes tripling the $100 billion commitment. “Other stakeholders also need to come forward with ambitious commitments, including the MDBs, the private sector, and developing countries that are in a position to provide support,” the IHLEG says.

The developing countries however have opposed the suggestion that they contribute to climate finance under the UNFCCC, arguing it goes against the principle of common but differentiated responsibilities.

Banner image: Activists hold up signs for climate finance at COP29. Image by IISD-ENB | Mike Muzurakis.