To meet the targets of the Paris Agreement, this will encompass external finance from all sources for the investments needed by emerging markets and developing countries (EMDCs), excluding China
As countries negotiate over updating climate finance goals at COP 29 in Baku, Azerbaijan, a new climate finance figure has been floated – $1 trillion per year by 2030.
This figure was cited in a report by the Independent High-Level Expert Group on Climate Finance. It estimated that this amount of climate finance is needed to meet the targets of the Paris Agreement. This includes external finance from all sources for the investments needed by emerging markets and developing countries (EMDCs), excluding China.
Furthermore, the report points out that delays in achieving the climate finance goals will exacerbate the situation, leading to costs spiking much more in the future. Funds needed for both the loss and damage as well as adaptation measures are expected to rise, according to the report.
Climate finance goal expected to be higher
The figure for climate finance put forth by G77, which includes a lot of developing countries, is actually even higher than what the report cites. G77 has called for a $1.3 trillion climate finance target.
Introduced by the African Group, other nations from the Global South are also voicing support. In fact, climate finance goals floated range between $1 trillion to $1.5 trillion, which makes the $1.3 trillion figure a realistic expectation in the negotiations.
In fact, $1.3 trillion is also the figure that the report has put forward as the annual climate finance goal by 2035.
“Any shortfall in investment before 2030 will place added pressure on the years that follow, creating a steeper and potentially more costly path to climate stability. The less the world achieves now, the more we will need to invest later. Delayed action means we will need to mobilise even larger sums in shorter timeframes to catch up on critical targets. Additionally, investment needs for adaptation and resilience, as well as loss and damage and restoration of nature, will rise sharply as climate and nature risks escalate,” said the report.
A path forward
“We estimate that the global projected investment requirement for climate action is around $6.3–6.7 trillion per year by 2030, of which $2.7–2.8 trillion is in advanced economies, $1.3-$1.4 trillion in China, and $2.3–2.5 trillion in EMDCs other than China. These latter countries will account for almost 45% of the average incremental investment needs from now to 2030 but they have been falling behind, especially Sub-Saharan Africa,” according to the report.
To achieve this, there are some fiscal instruments that can be put into play. This includes tripling the $100 billion annual climate finance commitment made in 2009 and reaffirmed in 2015, found the report.
Involving investments from private sectors and increasing financing from multilateral development banks (MDBs), as well as asking developing countries which can afford to contribute to meet the finance goal, are the other recommendations put forward by the report.
The report’s authors said, “The large and rapid scale-up of finance to support a big investment push can only be achieved by harnessing all pools of finance. Domestic resources, which currently account for around 70% of climate finance, can reasonably finance $1.4 trillion per year of the total investment need of $2.4 trillion by 2030 and $1.9 trillion of the total investment need of $3.2 trillion by 2035.”
For this, private finance is crucial.
“Different sorts of investment need different sources of finance and thus the composition of the different sources of the $1 trillion per year in external finance by 2030 is of great importance, and so too is the cost of capital. For example, private finance will be the main source of investment in infrastructure for renewable energy generation,” said the report.
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