Money Talks: Climate Change is a Financial Imperative
The world is grappling with the devastating impact of extreme weather events caused by climate change, and it”s evident that the poorest in the poorest countries are bearing the brunt of these catastrophes. Climate finance plays a pivotal role in addressing this issue. It goes beyond reparations; it”s about providing the necessary financial support for these nations to develop sustainably. Climate justice, as outlined in the 1992 UN Framework Convention on Climate Change, highlights the responsibility of historical polluters to reduce emissions while aiding the right to development for others.
Unfortunately, over the past three decades, there have been numerous conferences that aimed to weaken this principle of equity. However, the issue of fairness remains a central concern. Currently, 70 percent of the global population still lacks access to essential resources like energy for their well-being. Meanwhile, we are running out of the carbon budget required to limit warming to 1.5°C above pre-industrial levels. The $100 billion a year pledged in 2009, which remains elusive, might be insufficient and too late.
We need to find the necessary funds rapidly. But that”s not the sole challenge; we must address the structural issues that perpetuate global inequalities, making it impossible for many countries in the Global South to afford adaptation or mitigation. A compiled a report titled “Beyond Climate Finance,” delves into this problem and suggests a path forward.
We know that the current level of climate finance is insufficient. Further, there is no universally agreed-upon definition of climate finance, allowing for creative accounting. What often goes unspoken is that the money allocated as climate finance is not provided on concessional terms; roughly only 5 percent is granted, while the rest is in the form of loans or equity. Consequently, it”s no surprise that this finance doesn”t reach the countries that need it most. These funds flow where there”s an opportunity to make money, perceived financial stability, and lower cost of finance.
For instance, the cost of financing a solar plant might be 2-5 percent in Europe but rise to 12-14 percent in Brazil and even 20 percent in some African countries. This disparity makes projects unviable in Brazil and Africa. Even when money is extended as loans, which it often is, it exacerbates their repayment challenges. Defaulting on loans harms their credit ratings, which are already negatively influenced by their vulnerability to climate change. These countries suffer from elevated debt burdens, and each climate- disaster pushes them further into indebtedness, worsening their credit ratings and making borrowing more expensive.
We must recognise that we can no longer discuss minor adjustments or shortchanging the poor. Proposals like the Bridgetown Agenda, championed by Prime Minister Mia Mottley of Barbados, aim to unlock new funding for concessional finance. The time for real solutions and genuine financial commitment to address the existential crisis of climate change is now.
