When world leaders gather next week to hash out ways to slow climate change and adapt to it, one question is expected to loom large: Where will the money come from to fund those efforts?
Much of the debate likely will focus on a central figure, $100 billion. That’s the amount of money that wealthy nations pledged to pony up each year from 2020 to 2025 to help less-developed countries confront global warming. But collecting $100 billion annually has proved more difficult than expected. And time is running out.
“It’s not just about making big pledges, which is important and necessary, but it’s actually about delivering on them,” said Joe Thwaites, a climate finance expert at the research organization World Resources Institute.
The climate goals of developing countries often are contingent upon finance from developed ones. That means that progress at the talks in Glasgow, Scotland, could hinge on rich nations making good on their pledges.
They’re not on track to do so.
The countries that agreed to contribute to the $100 billion fund fell $20 billion short in 2019, the latest year for which figures are available, according to the Organisation for Economic Co-operation and Development (OECD). Since then, a number of those countries have pledged greater amounts, but not all.
It’s enough of a gap that Oxfam analysts have warned that developing countries are on track to lose out on billions of dollars in promised climate aid.
Based on current pledges and plans, Oxfam estimates that wealthy governments will only reach the $100 billion goal by 2025, five years after it should have been met.
The analysis came out just before the U.S. announced a doubling of the $5.7 billion it committed to by 2024, but even with that boost, climate-vulnerable countries could still miss out on as much as $70 billion over the six-year target period if developed countries don’t agree to make up the shortfall.
Oxfam’s pessimistic projection could change in the next few weeks if countries can drum up the political leverage to bring more money to the table. Germany and Canada are currently leading a process to deliver the $100 billion, but negotiations have been delayed as countries haggle over their obligations (Climatewire, Oct. 21).
The challenge, said Jan Kowalzig, a climate change policy adviser at Oxfam, is getting countries to prioritize climate investments for the most vulnerable.
Various studies show that more money from pandemic-related stimulus packages went toward energy-intensive parts of the economy than ones that would reduce emissions — despite calls for a “green” recovery. According to Oxfam, the $15 trillion that just six of the developed economies put toward their stimuli could fund the climate finance goal 150 times over.
“It’s not a problem of finding the money, it’s a problem of political will,” said Kowalzig.
Wherever they land, countries won’t start doling out that cash immediately.
The Biden administration, for example, now plans to scale up its climate finance to $11.4 billion by 2024. But a lot depends on Congress and how much it agrees to fund through the U.S. budget.
For the coming fiscal year, the Senate has increased the amount the White House requested in its appropriation’s bill to $3.1 billion. That’s just slightly more than the $2.8 billion the Obama administration put toward climate finance in its final year — the last time complete official information on climate finance was reported.
It will need to grow the pie, however, instead of just shifting spending away from other development projects.
One way to do so is through the U.S. International Development Finance Corp., a federal institution that has committed a third of its investments starting in 2023 to climate-related projects — about $1.5 billion annually. But rules that limit how much the DFC can lend out would have to change for it to expand its portfolio more significantly, said Thwaites.
Biden administration officials say they’re hoping to use government funding as a catalyst to encourage more investment from the private sector.
“We are really trying to take every tool we have on the public sector side, mobilize as much as we can from the private sector and private finance … to understand how we go from the billions [of dollars] to the trillions,” Melanie Nakagawa, special assistant to the president and senior director for climate and energy at the National Security Council, said in a webinar last week.
So far, however, private-sector finance has proven disappointing.
In 2016, developed countries put out a road map for how they could get to the $100 billion. It predicted private finance would make up about $33 billion of the total, Thwaites said. In 2019, it was less than $15 billion and has been mostly stagnant, according to assessments by OECD.
Hitting the $100 billion and then exceeding it in the coming years isn’t the only concern that developing countries have about finance. They’re also looking for a greater proportion of the money to go toward adaptation and resilience efforts. And they want more of the money in the form of grants, rather than loans that increase debt.
“Quantity is not the same as impact, and that is one of the issues with the $100 billion,” Ricardo Nogueira, an independent adviser to the Green Climate Fund, said during a climate finance briefing last week.
“At the same time, we know it’s politically important, it’s diplomatically important … and it is a sign of progress if more money is flowing,” he said. “The key is how do you use it in a way that is most effective?”
Another challenge is that most of the new finance pledges aren’t set to be met until years in the future.
“The progress toward actually getting the funding out the door hasn’t necessarily started in 2021,” said Thwaites. “It’s not just about making big pledges, which is important and necessary, but it’s actually about delivering on them.”