8%, that’s the percentage of climate funds allocated against the needed amount to mitigate the impacts and adapt to the changing climate in the developing world. And this 8%, too, is a hugely liberal estimate. Oxfam puts the amount at a mere 2%, whereas governments put the number as low as 0.1%.
This begs the question, what goes on in the vastly intricate world of climate finance? Are rich countries paying enough reparations for the damage they have done? And why do the estimates vary so much? Well, the answer to all these, just like the sector, is convoluted.
Promise and action
The Sharm el-Sheikh Implementation Plan, as decided by Cop27, stated that a ‘global transformation to a low-carbon economy’ would cost USD 4-6 trillion a year. And the developing world needs at least USD 1 trillion every year to mitigate the impacts of Climate Change.
This, however, is a far-fetched goal since affluent countries have massively failed even to reach the USD 100 billion yearly pledge. This pledge, taken in 2009 in the Copenhagen accord, promised USD 100 billion yearly by 2020. But this fund saw slow development, reaching only up to USD 83.3 billion by the stipulated time. From 2013 to 2019, the yearly fund barely hung around the USD 50-80 billion mark, according to OECD.
But Oxfam puts the number much lower, at around USD 19-22.5 billion (2016-17). This discrepancy is primarily because a significant portion of those funds was loaned out at the standard market rate. So it shouldn’t be counted as climate financing, they justified. We should note that the funds given as standard loans have to be paid back with interest, leaving little space for developing countries to implement projects that help with adaptation.
Much of the funds are also mischaracterized, with development funds going to the climate category. This is explained by the problematic use of the OECD ‘Rio Markers,’ which helps characterize whether a project is climate-focused. However, donors have often misused and misinterpreted these markets, citing irrelevant funds such as climate funds. This leads to the development and construction project being treated as Climate Fund, fully projected into OECD’s estimates.
While mobilizing more funds is appreciable, there is no doubt that if the actual value isn’t derived from those funds, then no amount of mobilization will be fruitful. Rather it will just make developing countries accumulate more debt, stressing their already volatile economy and balance of payment.
On the other hand, many developed countries haven’t paid their fair share. Most notably, the USA, which is supposed to pay 40-47%, barely paid 8% annually. Australia, Canada, and Greece have also failed to reach the allocated goal. However, France, Japan, Norway, and Germany have reached the threshold. But much of these funds have been mischaracterized and misinterpreted, and they are not just grants. Most of them are loans, investments, insurance, etc.
Mitigation and adaption are the two main facets of fund allocation. Mitigation deals with reducing carbon emissions, introducing cleaner energy resources, and focusing on better technology and lifestyle to inhibit climate change. Adaptation refers to improvising with the already changing climate, ensuring basic rights and amenities while the current level of climate change takes its toll. Even though both are important, one for the future and the other for the present, many donors focus on mitigation projects discriminately.
According to the Adaption Gap Report by United Nations Environment Programme (UNEP), USD 300 billion by 2030 and USD 500 billion by 2050 will be needed by developing countries yearly to implement adaptation programs effectively. However, in 2020, only USD 28.6 billion went to developing countries. Infrastructure and Agriculture stand to be the most prominent receivers of adaptation funds. So why do donors prefer mitigation projects?
Because these projects offer tangible development, experts note that adaptation projects’ progress and direct impact are hard to figure out. Furthermore, mitigation projects are often economic boosters and have a good return on investment since they deal with new technology and renewables like wind turbines, solar farms, and hydroelectricity. On the other hand, adaptation projects don’t have the same feature since it’s much more humanitarian in nature, directly assisting individuals ravaged by the impacts of climate change.
The vulnerable countries are the most exposed to climate change damages. Estimates put that the V20 countries have lost 20% of their wealth over the last two decades due to the changing climate, which amounts to USD 525 Billion in aggregate terms. The most vulnerable among them have lost as much as 51%.
Climate change’s economic and social tolls are becoming increasingly evident. And without concentrated effort, and proper mobilization, this will only get much worse. The global economy can finance this transition, which is reflected in the enormous defense and services budgets. There’s no denying that the steps taken are appreciable but also vastly insufficient.