By Biswajit Dhar

Developing countries need trillions of dollars in aid from developed countries to help them meet their climate goals and compensate them for losses and damage caused by climate change. So far, funding has fallen well short of what is needed.

Financing mechanisms under the United Nations Framework Convention on Climate Change are among the most controversial aspects of the treaty, largely due to undersupply by developed countries.

While they agreed to provide $100 billion by 2020, the actual level of financing remained below this amount until 2022. In 2022, for the first time, developed countries provided and mobilized financing climate totaling $116 billion, compared to around $90 billion a year earlier. .

Climate finance from public institutions accounted for almost 80% of funding in 2022, increasing from $38 billion in 2013 to $91.6 billion in 2022. Although the increase from public institutions was 25% between 2021 and 2022, private climate finance has increased by almost 50%. . Most developing countries have long demanded much higher levels of financing from developed countries.

India and the Arab Group have, for example, demanded that developed countries provide around $1 trillion per year to meet the financing needs of developing countries.

Several institutions have confirmed that the levels of climate finance provided to developing countries are poor compared to their actual needs, and that their actual annual needs could amount to several billion US dollars.
According to the Green Climate Fund, developing countries need $2-4 trillion per year and mobilizing private capital is key to achieving this goal.

The Standing Committee on Finance’s first Needs Determination Report of 2021 estimated that nearly $6 trillion would be needed to implement developing countries’ climate action plans by 2030. Other estimates place this cost between 7,800 and 13,600 billion dollars for the same period. . In 2019, the High-Level Independent Panel on Climate Finance estimated that emerging markets and developing countries, excluding China, are expected to spend nearly $2.4 trillion per year until 2030 to achieve climate goals.

The Expert Group argued that about half of the total funds these countries would need would come from sources offering concessional credit (including bilateral, multilateral and other “innovative concessional” financing), and that more than Half of this private financing would be directly and indirectly catalyzed by multilateral development banks and other development finance institutions, among others.

Two new funding windows – the new Collective Quantified Target and the Loss and Damage Fund (L&D Fund) – are also expected to face a shortage of funds when, in less than two weeks, COP29 is held in Baku in Azerbaijan. We can nevertheless hope that the meeting will make it possible to make important decisions concerning the two new components of climate financing.

The new financing window for collective quantified targets could allow developing countries to fulfill their nationally determined contributions (i.e. plans that countries create to reduce greenhouse gas emissions and limit the global warming) by 2030.

Adoption of the new collective quantified targets financing window at COP29 would ensure the continued provision of targeted climate finance, a process initiated in 2009 with the decision to create the Green Climate Fund. Developed countries had committed to contributing $100 billion by 2020.

The new financing window is seen as key to channeling more urgently needed funds into developing countries for climate action. It would support the implementation of low-carbon, climate-resilient solutions in energy, transport, agriculture and other vital systems.

Growing financial support should enable developing countries to strengthen their climate ambitions in the next round of national climate plans, due in 2025.

The second major climate finance window, which would be the focus of concern in Baku, is the L&D Fund. This fund is the result of the COP27 decision to “establish new financing mechanisms to help developing countries particularly vulnerable to the harmful effects of climate change”.

The L&D Fund was created at COP28 following the approval of the Fund’s governance instrument. The idea of ​​such a fund was initially defended in 1991 by the Alliance of Small Island States to combat the harmful consequences of climate change.

The L&D Fund would test the global commitment to meet the long-standing demand of the most vulnerable countries to be compensated for the “loss and damage” they have suffered due to climate change. Since the creation of the L&D Fund at COP28, 23 countries have committed to contributing $700 billion to address loss and damage.

Four countries – France, Italy, Germany and the United Arab Emirates – account for 60% of commitments made so far, but the United States, whose share of historical emissions (since 1850) is the largest. important (20% of the world total), it contributed to the tune of 17.5 billion dollars.

These contributions are too meager given that the projected economic cost of loss and damage by 2030 is estimated at between $400 billion and $580 billion per year. Furthermore, by 2050, the economic cost of loss and damage in developing countries is expected to reach $1-1.8 trillion.

An equally important concern is whether climate finance would worsen the debt burden of developing countries, which is already at a precarious level.

In 2023, public debt in developing countries will reach $29 trillion, or nearly 30% of the global total. Furthermore, the share of private creditors in the total external public debt of developing countries was 61% in 2022.

Borrowing from private creditors on commercial terms is more expensive, but with concessional financing from multilateral and bilateral sources drying up, developing countries could end up worsening their debt burdens while still meeting their commitments to reduce warming climatic.

Originally published under Creative Commons by 360info.

The author is a distinguished professor of the Social Development Council.

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