Mobilising private finance can be crucial in unlocking the funds needed
Developing and emerging economies, except China, will need $2 trillion per year by 2030 for energy transition, adaptation resilience, loss and damage and sustainable agriculture, according to a new report.
One trillion of the same should originate from domestic sources, stated the Finance for climate action: Scaling up investment for climate and development report, launched at the COP27 climate summit November 9, 2022.
The remaining one trillion should come from external sources — developed countries or multilateral development banks.
Developed countries pledged to provide $100 billion in climate finance to developing countries by 2020. But they are yet to meet the commitment.
Failure in delivering the pledged finance has eroded trust, the analysis said.
Emerging markets and developing economies, except China, require a total annual investment of $1trillion by 2025 and $2.4 trillion by 2030.
“The world needs a breakthrough and a new roadmap on climate finance that can mobilise $1 trillion per year in external finance that will be needed by 2030,” the report read.
The report was prepared by a new independent high-level expert group on climate finance. The group was launched in July 2021 by the presidencies of COP26 and COP27 and the UN Climate Change High-Level Champions.
The report analysed the financial structures required to deliver the Paris Agreement’s goal of limiting global warming, Nicholas Stern, chair of the Grantham Research Institute, London, said during the launch.
“You should not and cannot disentangle climate and development,” Stern said. China was exempted because it does not need external climate finance, Stern added.
The report covered three broad areas — energy transition, adaptation resilience and sustainable agriculture — that restore damage inflicted by human activity to natural capital and biodiversity.
Natural capital covers the world’s stocks of natural assets such as geology, soil, air and water. Stern said a third of the funds must channel into each of the three broad areas.
Mobilising private finance can be crucial in unlocking the funds needed, the report pointed out.
Mobilisation is different from providing finance. The latter (providing finance) is the money one country gives another country or a multilateral development bank (MDB) or multilateral climate funds.
Mobilisation, on the other hand, uses the current resources to leverage more additional finance.
The report also called for revamping the role of MDBs.The financial flows from these institutions need to be tripled over the next five years.
“The flow of finance from these institutions should triple from about $60 billion annually to around $180 billion annually within the next five years,” Stern said in a statement.
This requires a strong sense of direction and support from the country shareholders and real leadership from the top of these institutions, Stern added.
The authors urged developed countries to double concessional finance by 2025 from 2019 levels while expanding the envelope of low-cost finance through innovative ways — including special drawing rights (SDR), voluntary carbon markets, philanthropy and guarantees.
SDR is an international reserve created to supplement the official reserves of the International Monetary Fund member countries.
At CoP27, there were unanimous calls to increase SDR allocations from 20 per cent to 30 per cent. The report also raised concerns over rising debt burden. “We do not want to saddle them (especially poor and vulnerable countries) with more debt,” said Stern.
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