Raising money needed to tackle the climate crisis need not be a burden on overstretched government budgets, leading economists have said.
The sums needed – approximately $1tn a year by 2030 – are achievable without disruption to the global economy, and would help to generate greener economic growth for the future.
Amar Bhattacharya, a senior fellow at the Brookings Institution, and a visiting professor at the London School of Economics, who is the executive secretary of the UN’s independent high-level expert group (IHLEG) on climate finance, said: “Is it feasible? The answer is absolutely yes. Is it politically challenging? The answer is also yes. But I do believe it can be done.”
Without such investment, the world faces a future of economic damage, rampant inflation and the reversal of gains made in recent decades to pull poor countries out of destitution, the UN has warned.
Simon Stiell, the UN’s climate chief, said: “When nations can’t climate-proof their links in global supply chains, every nation in an interconnected global economy pays the price. And I mean literally pays the price, in the form of higher inflation, especially in food prices, as savage droughts, wildfires and floods rip through food production.”
The governments of nearly 200 countries are wrangling over how to channel the funds needed to help poor nations cut their greenhouse gas emissions and cope with the impacts of extreme weather. But the two-week Cop29 summit, in Azerbaijan’s capital of Baku, which is scheduled to end this Friday, has been deadlocked for several days as rich countries have so far refused to say exactly how much they are willing to contribute to the sums needed.
Well-established research suggests that about $1tn a year in climate finance to the poor world will be needed by 2030 to meet the core goal of the Paris agreement, to limit global heating to 1.5C above preindustrial levels. This cost will rise to about $1.3tn a year by 2035, according to a recent update published by the IHLEG, made up of leading global economists.
Not all of this needs to come from the governments of rich countries, however. About half should come from the private sector, which can fund projects such as building solar and windfarms in developing countries, according to the IHLEG. About a quarter of the $1tn should come from multilateral development banks, such as the World Bank, that are ultimately funded by the rich world. About $80-100bn should come directly from rich countries in the form of aid – roughly double the current quantity. The remainder could come mostly from new sources of finance such as taxes on fossil fuels, frequent flyers or shipping.
The sums seem large, conceded Nicholas Stern, the economist and co-chair of the IHLEG, but they are not when put in the context of the global economy, of which $1tn is only about 1% a year. According to the International Energy Agency, the world already spends more than $3tn a year on energy, of which two-thirds is on renewables and clean forms of power. Global pension assets add up to approximately $56tn.
Developing countries also already spend many hundreds of billions on their own green infrastructure, on making their societies and economies more resilient to the impacts of the climate crisis, and on rescuing communities when disaster hits.
Achim Steiner, the head of the UN development programme, said: “Developing countries are actually investing hundreds of billions of dollars a year already, from their own taxpayers’ revenue, in climate action. It wouldn’t hurt anyone on the other side of the table to acknowledge that.”
According to the IHLEG, the overall cost of shifting all of the world’s developing countries excluding China on to a low-carbon path would come to $2.4tn, of which the $1tn only describes the amount needed from external sources – the rest would come from the countries’ existing domestic budgets.
Some civil society groups are concerned about the inclusion of private sector investment in the “new collective quantified goal” (NCQG) – the name given to the global settlement on climate finance that countries must agree on in Baku. There are also concerns among developing countries that relying on private sector finance will drive them deeper into debt.
Lidy Nacpil, the coordinator of the Asian Peoples’ Movement on Debt and Development, said: “To deliver climate finance through loans not only contradicts the principle of acknowledging historical responsibility, it is deeply unjust to force impoverished countries to go deeper in debt to address the climate emergency. It is not enough that the amount of climate finance is adequate. The $5tn a year that the global south is owed should be public, non-debt-creating, new and additional, and delivered without conditionalities.”
However, it seems unlikely that developed countries will stump up such sums. Economists spoken to by the Guardian said that recruiting the private sector to build green infrastructure – such as wind and solar farms, electric vehicles, low-carbon transport and other amenities – made sense, as these were activities that turned a profit and were thus able to attract investment.
Many poorer countries have difficulty attracting private sector investment or are forced to pay a high price for it, because they are perceived to be high risk. Setting up a solar farm in Africa can cost three times as much as doing so in Europe, even though much more energy would be generated in Africa.
Developed countries can play an important role in reducing this perception, and thus reducing the cost of capital to the poor, usually for very little outlay, for instance by providing loan guarantees. Measures like this should also be part of the NCQG, several economists told the Guardian, though it may be harder to quantify than standard definitions of overseas aid.
Private investors also tend to shun projects that help countries adapt to the impacts of the climate crisis, such as droughts, floods and heatwaves. For this reason, several influential figures believe that the portion of the $1tn that comes directly from developed country budgets, and preferably in the form of grants rather than loans, should be mostly or entirely devoted to adaptation projects, rather than carbon reduction efforts.
Avinash Persaud, a former economic adviser to the prime minister of Barbados, Mia Mottley, who is now special adviser to the president of the Inter-American Development Bank, said: “Using public funds to finance adaptation is pragmatic. About $300bn a year would cover adaptation.”
Patrick Verkooijen, the chief executive of the Global Center on Adaptation, said: “Adaptation is underfunded and directing public resources from the developed world to this would make a big difference, and make sense – it would improve the stability of the countries involved.”
