Governments agreed in 2010 that developed countries would provide $100 billion a year by 2020 to help developing countries pay for the adaptation measures needed to better manage the impacts of climate change. In particular – extreme weather events such as droughts and floods – and in support of mitigation efforts aimed at transitioning countries away from fossil fuels and towards sustainable energy sources.
That was at the UN climate conference COP16, seven years ago. As COP28 kicks off in Dubai this week, the seemingly perennial question of delivering on the $100 billion pledge comes to the fore once again.
The Organization for Economic Co-operation and Development (OECD) suggests, based on unverified data, that the goal has finally been achieved. But even if this is the case, the International Energy Agency is clear that trillions, not billions, of dollars are needed to move the world to a net-zero economy, removing as many greenhouse gases as it emits. Given this fact, at the Dubai climate talks, governments must do much more to mobilize private financing to fill this huge financing gap.
The idea was that this $100 billion could come from a mix of private and public sources, based on bilateral or multilateral agreements, such as the Green Climate Fund, which was set up to mobilize adaptation finance. However, no specific amount was set for adaptation or mitigation, but only one annual amount to be paid.
At COP21 in 2015, the Paris Agreement stated that developed countries would continue to mobilize $100 billion in financing annually through 2025 and that countries would agree on a new target for the following years before 2025.
However, two years ago, at COP26 in Glasgow, it was clear that countries had not met the 2020 target for a number of reasons, including a lack of private financing.
Part of the problem is that it is not clear what ‘climate finance’ actually means, and it is not surprising that the $100 billion target has not been met while neither governments nor private investors fully understand what they are investing in or what investments should are done. counted as ‘climate finance’.
For example, if the funding goes towards strengthening a bridge, is that climate funding, as the bridge will be subject to increased wear and tear from storm surges, or is it just general infrastructure funding?
Experts are working on this problem, but even without this added confusion, we can say with certainty that climate finance needs to increase.
The total climate finance provided by developed countries in 2021 amounted to $89.6 billion, according to the OECD, an increase of 7.6% compared to 2020. The percentage increase is much higher than that of previous years, and it is wonderful to see mobilized private financing returning to 2019 levels, reaching $14.4 billion in 2021, after a dip in 2020.
Yet two issues clearly require attention. The first is that of this amount, only a relatively small amount, $24.6 billion, was spent on adaptation measures, with the majority of the money going to mitigation projects. Moreover, this figure has fallen in recent years. The second is that most of this funding came from public sources.
Addressing both issues poses a substantial challenge, but it is certainly possible to initiate actions at COP28 that will bring about change.
First, ideally there would be an agreement in Dubai to substantially increase both mitigation and adaptation financing, encouraged by individual targets.
Second, participants must formally acknowledge that public financing alone will not be sufficient to finance both mitigation and adaptation needs, and agree on a path forward to urgently unlock private financing.
We recently published a paper at the Cambridge Institute for Sustainability Leadership, entitled ‘Everything, everywhere, all at once’, which examines the challenges and proposes solutions for unlocking private capital. It proposes options to strengthen risk management and guarantees, increase data transparency, stimulate the private sector and support diverse and innovative financing models.
Promoting diverse financing models can diversify risks, making climate investments more attractive and attractive, potentially accelerating the pace of climate finance and increasing its effectiveness in promoting sustainable development. These structures may include origin-and-share or origin-and-transfer models, where banks, instead of holding loans on their balance sheets until maturity, distribute the loans, potentially generating billions of dollars in additional financing becomes available.
A promising model for tapping into more private financing is the Bridgetown initiative. This proposal was put forward by Mia Mottley, Prime Minister of Barbados, ahead of COP27 in Egypt in 2022. It sets out ways to reform the global financial system to ensure it can increase climate resilience and achieve the Sustainable Development Goals financing, while also dealing with the debt and high inflation crises facing poorer countries.
The Bridgetown Initiative calls for an increase in lending for climate and for the Sustainable Development Goals from multilateral development banks to help boost investment in areas such as climate resilience, water security and access to renewable energy.
Our document also makes clear that cooperation must be at the heart of all these actions if we are to achieve climate goals in line with the Paris Agreement.
If the $100 billion target is finally reached by 2022, it will be a sign of progress, which should help advance climate negotiations at COP28. Yet this figure is actually paltry compared to the $1 trillion or more that will be needed annually by 2025 to meet the climate needs of poorer countries.
In Dubai, the pressure is on to unlock the multitude of opportunities that private finance can offer and to substantially increase the supply of finance to all emerging and developing economies.