Our planet is rapidly warming. Global temperatures have risen 1.2°C above pre-industrial levels so far due to man-made climate change, and we are already seeing more frequent and more extreme episodes of heatwaves, storms, droughts, and forest fires around the world – and we are on track for 2.7°C of warming by the end of this century. Climate change is here, now, and it’s set to get worse.
Limiting further increases in global temperatures and avoiding their worst impacts will require large efforts to reduce emissions of planet-warming greenhouse gases while adapting to some of the inevitable effects of climate change. This in turn will depend on us making huge systemic shifts: of the energy system to cleaner sources of generation, of the transport system to more electrified and integrated public modes of travel, of urban infrastructure to more efficient and resilient designs, and a whole host of other measures. For developing countries like India, all of this comes atop existing development needs such as economic growth, energy access, increasing employment, better health and education, and socioeconomic equality, all of which will also be aggravated by climate change and impacted by climate policies. Addressing climate change is therefore not an easy undertaking – for instance, a 5 MW solar park alone cost INR 35 crore (USD 4 million) in India in 2021. Various estimates indicate – based on specific approaches – that India collectively needs between USD 5.5 and 13.5 trillion to decarbonise its economy by the middle of the century. The estimate for global decarbonisation is many times higher.
In a token reflection of their greater abilities and historical responsibilities, and in an attempt to promote greater cooperation on climate, in 2009 developed countries committed that by 2020 they would collectively provide USD 100 billion to developing countries towards addressing climate change. While this represents only a fraction of estimated total needs, it is a symbolic amount meant to build trust among countries and encourage the global south to do more to mitigate their present and future emissions.
Three years after that deadline has passed, we are still some distance away from meeting this target.
Total climate finance flows that developed countries reported as having provided to developing countries in 2020 stood at USD 83 billion (more recent estimates are not yet available). By way of comparison, the combined GDP of the G7 group of industrialised countries alone was USD 46 trillion, global subsidies to fossil fuels were in the range of USD one trillion, and Exxon Mobil’s profits last year were USD 56 billion. Not only is the token amount not being met, but it is also being outmatched by support to and profits from the fossil fuel industry.
However, even that figure of USD 83 billion is debatable. An older 2015 report, which had claimed that developed countries were at the time already providing about USD 62 billion and were thus well on their way to meeting their target, was rejected by India, because the reported estimates included finance from a range of sources – public and private – and covered a variety of instruments, including loans that had to be repaid and that risked increasing indebtedness. Considering only flows from all the dedicated climate funds since their inception, India argued that developed countries had only provided USD 2.2 billion in climate finance.
Further, recent analysis has found that the finance that developed countries are reporting towards that USD 100 billion targets is not always going towards clear climate purposes – some of the projects that have been included in their reporting were a coal plant, a hotel expansion, chocolate stores, a movie, and an airport expansion.
What does this leave us needing?
At COP26 in Glasgow in 2021, expressing regret over the missed target, Germany and Canada outlined a climate finance delivery plan outlining how developed countries now intend to meet their USD 100 billion commitment by this year, 2023. In parallel, there are ongoing conversations about setting a new financing goal for the post-2025 period, building upon this USD 100 billion floor, which will also better reflect developing country needs and priorities. How this new goal is decided, what sources and instruments are included as counting towards it, and what purposes the money goes towards, will be worth watching for. This will require improved systems of transparency and accountability, as well as more collaborative decision-making. In the meantime, the shortfall of crucial finance continues to further contribute to delayed action on climate, leading to a narrowing opportunity to limit global temperature rises to 1.5°C.
Recognising this, countries are also attempting to advance progress on climate finance through other fronts, three of which are mentioned here.
• Within the UNFCCC: The Paris Agreement also seeks to make all global finance flows compatible with low-carbon development (Article 2.1c). It is not clear how this relates to the USD 100 billion goal – whether the latter will be a subset or driver of the former – and developing countries fear that focus on this could dilute attention from developed countries’ obligations. Attention to this Article has therefore been limited.
• Plurilateral initiatives: Developed countries have forged multi-billion dollar just energy transition partnerships (JETPs) with a number of developing countries to help them shift to cleaner energy systems while managing the socioeconomic impacts of these disruptions. Initiatives such as these are attempts to support ambition among smaller groupings of countries beyond formal UNFCCC channels, although India is not yet party to one.
• Global financial reform: In early signs of growing awareness that the current global financial architecture – built in the 1940s – is not suited to address the current challenges of climate change, momentum is building towards reforming multilateral development banks (MDBs) and the International Monetary Fund to be able to better respond to the multiple crises facing developing countries today. To this end, France and Barbados last week hosted a summit to advance discussion on building a more inclusive global financial system covering issues such as the role of MDBs, global partnerships, easing sovereign indebtedness, and mobilising private finance.
These and other international initiatives are gaining momentum, borne from the acknowledgement that finance is a crucial enabler of climate action, and is a scarce resource in developing countries such as India. However, they are as yet unproven or are focused on specific sectors and limited groups of countries. Until the nucleus of developed country public financial obligations is not expanded and met in a meaningful way, broader global trust and cooperation risk being even scarcer.
(Aman Srivastava is a Fellow at the Centre for Policy Research. Views expressed are personal.)
