Climate Change

Economic downturn eats into climate mitigation, adaptation funding: UNCTAD

Reduced green investment will put a spanner in the efforts to fasttrack solutions for climate change. 

 
By DTE Staff
Published: Friday 28 October 2022
__

The number of climate mitigation and adaptation investment projects declined 7 per cent and 12 per cent respectively from January through September 2022, as the world grapples with an economic slowdown, a new report showed.

Shrinking investments across industries, especially those that play a major role in tackling climate change, was in stark contrast to the growth seen in 2021, according to the report published by the United Nations Conference on Trade and Development (UNCTAD). It can be attributed to the multiple crises that have dented the global economy, it noted.

The gap between mitigation and adaptation financing was also huge this year, the UNCTAD analysts observed: Mitigation projects accounted for 94 per cent of international climate investments. 

The decline trend will continue the rest of the year as well, the global body projected. This will put a spanner in the efforts to fasttrack solutions for climate change. 

They wrote in the Global Investment Trends Monitor 43:

The shift from fossil-fuel to green investments to support the energy transition risks a setback, due to the loss of momentum in renewables and high oil and gas prices.

“Most mitigation investments were in renewable energy and, to a lesser extent, in various energy efficiency projects," UNCTAD added.

The funding was also lopsided, with the developing world losing out. As much as two-thirds of the international project finance deals and greenfield investments in renewables went to developed economies, the analysts noted.

More than half the investment projects on renewable energy (over 700) were in Europe in the first three quarters of 2022, they wrote.

"North America and developing Asia attracted about 200 projects each, while Latin America and the Caribbean and Africa had about 150 and 100 respectively.”

The global economic downturn has also affected fossil-fuel based energy generation and extraction projects, which reduced 16 per cent during the first three quarters of 2022, the findings established. 

But the energy crisis facing many countries and the higher profits made by these industries can lead to the world falling back on polluting fuels. This can lead to more investment in the fossil-fuel sector and derail the shift to renewable energy, the UNCTAD analysts wrote in the report. "An early indication of that is the value of cross-border mergers and acquisitions in the extractive industry, which rose sixfold between January and September 2022,” they said. 

The overall decline in new project investment during the period also indicated “tightening financial conditions and higher investor uncertainty”, the report said. Developed countries as well as Latin America and Central Asia recorded the biggest declines.

Extractives and petrochemicals industries were among the few that bucked the trend of dwindling project numbers, the observers wrote. 

The number of greenfield projects shrank 10 per cent in the first three quarters of 2022 but grew in value due to some big-ticket announcements in electricity and gas supply, the report noted.

UNCTAD projected a slowdown in global investment for 2022 in another report it published October 20, 2022. Food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates and fears of a coming recession were among reasons for the drying up of funds, UNCTAD said.

"Foreign direct investment (FDI) flows in the second quarter of 2022 reached an estimated $357 billion,” it noted. This was 31 per cent lower than the first three months of 2022, when the growth momentum of 2021 was sustained, UNCTAD added. But the figure was “7 per cent less than the quarterly average of 2021”. 

FDI flow declined 22 per cent in developed economies but grew 6 per cent in the developing economies combined, according to the report. 

But the fund distribution was uneven in the developing world: Latin America and developing Asia maintained previous upward FDI momentum, while flows to Africa nearly dried up completely.

Subscribe to Daily Newsletter :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.