Rich countries need to dig deep on climate finance

The green transition was once mostly the preoccupation of activists and scientists. One result of Vladimir Putin’s weaponisation of energy in his war on Ukraine has been to thrust it to the heart of the geosecurity agenda, at least in advanced democracies. Soaring prices have finally prompted determined efforts by governments to cut reliance on fossil fuel, even if, short-term, some are having to use more coal. Rather than a setback for climate action, the International Energy Agency says, the energy crisis can be a “historic turning point”.

That is one positive element in a backdrop to the COP27 summit now under way in Sharm el-Sheikh that otherwise looks grim. Inflation and economic slowdown hardly provide a propitious environment. Extreme weather events this year such as the appalling floods in Pakistan have highlighted the damage done even by 1.1C of global warming to date. A UN report has warned, meanwhile, that “woefully insufficient” climate efforts mean the world is still on track for at least 2.4C of warming — well above the 2C, or ideally 1.5C, goal in the 2015 Paris agreement.

The $370bn financing for the green transition in the US Inflation Reduction Act, and the EU’s REPowerEU programme are signs that the rich world is, belatedly, starting to put its money where its mouth is. That will give advanced economies more authority in seeking to persuade poorer countries — which have had less time to benefit from carbon-fuelled industrialisation — to leap to green energy. By September, only 24 out of more than 190 countries had presented more vigorous action plans this year to cut emissions, as agreed at last year’s COP26.

As well as spending more at home, however, rich countries will also need to provide far more financial support for poorer countries in mitigating and adapting to climate change; financing is set to be the make-or-break issue for this COP. Wealthy nations pledged to mobilise $100bn a year by 2020, but are still about $17bn short. Last year, they committed to hit the target by 2023, and negotiate a new deal to start in 2025. They need to go much further.

A much bigger chunk of financing, moreover, should go towards adapting to the effects of climate change — from weather warning systems to climate-resilient infrastructure and new farming methods — for which the UN has said developing countries will need up to $340bn a year by 2030. More should also come as grants, rather than loans that push poor countries even further into debt. If the rich world can dig deep enough into its pockets on funding for mitigation and adaptation, that may offset increasingly vocal calls from poorer nations for funding to cover loss and damage caused by warming. Though the moral argument for this may be strong — and the EU and US have signalled a readiness to discuss it — any agreement will be hard.

One priority in raising financing is reform of multilateral development banks, above all the World Bank. Proposals to change how MDBs operate could unlock several hundred billion dollars of green lending capacity without needing additional shareholder capital. Another priority is to leverage donor money more effectively to pull in private capital for green investment, especially in developing countries. Signs that some of the big banks that joined Mark Carney’s net zero financial alliance at COP26 in Glasgow are preparing to backslide on their emission-cutting commitments are unfortunate.

The defining challenge of the 21st century can only be resolved through co-ordinated government action — especially by China and the US — in concert with the private sector and non-governmental bodies. This, above all, is what the world needs to see from COP27.