Who Will Pay for Planet A?

-Edited and reviewed by Tommy Hodson

It is getting increasingly tough for poor and developing countries to finance their fight against climate change. With a slow and ineffective global response to climate change, how can they keep their head above the water? 

On October 17, 2009, the government of the Maldives conducted an underwater cabinet meeting to draw global attention to the urgency of their situation (Shah, 2009). The Maldives, an archipelago barely above sea level, fears that rising sea levels, coral bleaching, and increasing temperatures could render the entire country uninhabitable by the end of the century. These fears are substantiated by scientific projections indicating that up to 80% of the Maldives could become uninhabitable by 2050 due to sea-level rise (IPCC, 2019).

Following the Maldives' appeal, the 2009 United Nations Climate Change Conference (COP15) in Copenhagen witnessed significant commitments. World leaders agreed to limit the global temperature increase to 2 degrees Celsius and established the Green Climate Fund (GCF) to mobilize $100 billion annually by 2020 to assist developing countries in mitigation and adaptation efforts (UNFCCC, 2009). These commitments were further reinforced in the Paris Agreement at COP21 in 2015, where nations pledged to limit global warming to well below 2 degrees Celsius, preferably to 1.5 degrees, and to reduce greenhouse gas emissions significantly by 2030 (UNFCCC, 2015).

However, the realization of these commitments has fallen short. The goal of mobilizing $100 billion annually was not met; estimates suggest that only about $79.6 billion was provided in 2019 (OECD, 2020). Moreover, a significant portion of these funds was delivered as loans rather than grants, increasing the debt burden of recipient countries (UNCTAD, 2021). Additionally, funding has been skewed towards mitigation projects, with adaptation efforts—crucial for vulnerable nations—receiving less than 25% of total climate finance (UNEP, 2021). This underfunding leaves developing countries ill-equipped to prevent or respond effectively to the impacts of climate change.

A recent report by the United Nations estimates that developing countries require $5.8 to $5.9 trillion up to 2030 to implement their Nationally Determined Contributions (NDCs) under the Paris Agreement (UNFCCC, 2016). This translates to an annual need of over $500 billion, far exceeding the promised $100 billion. The COVID-19 pandemic and geopolitical tensions, such as the war in Ukraine, have further strained global economies, impeding the availability of climate finance (IMF, 2021).

The lack of a robust financial framework hampers our collective ability to address climate change. An effective model necessitates significantly more funds, efficiently allocated as grants to avoid exacerbating the debt burdens of developing nations. Yet, the current global economic climate makes this challenging. The energy crisis resulting from geopolitical conflicts underscores our dependence on fossil fuels and highlights the urgency of transitioning to sustainable energy sources (IEA, 2022).

At the COP27 summit in Egypt in 2022, there was a glimmer of hope. Delegates agreed to establish a “Loss and Damage” fund to compensate vulnerable nations suffering from the impacts of climate change—a concept long advocated by developing countries (UNFCCC, 2022). This initiative acknowledges the historical responsibility of developed nations, which have contributed the most to greenhouse gas emissions since the Industrial Revolution (IPCC, 2014). Countries like the United States and members of the European Union are thus called upon to support sustainable development in regions like Africa, Asia, and Small Island Developing States (SIDS).

However, questions remain about the adequacy and timeliness of such measures. Rachel Kyte, former Special Representative of the UN Secretary-General for Sustainable Energy, questions the efficacy of these commitments, emphasizing the need for actual disbursement of funds (Kyte, 2022). Past pledges have often fallen short, and without concrete financial flows, vulnerable nations remain at risk.

In light of insufficient international support, developing countries are exploring alternative financing mechanisms. Indonesia, for example, has initiated a Just Energy Transition Partnership (JETP), securing $20 billion in public and private financing to accelerate the retirement of coal plants and expand renewable energy infrastructure (Government of Indonesia, 2022). This approach combines international assistance with domestic reforms to attract private investment.

Private sector involvement in climate finance is increasingly vital. Globally, sustainable investment assets reached $35.3 trillion in 2020, up from $22.8 trillion in 2016 (GSIA, 2020). Private firms are investing in sustainable infrastructure, achieving net-zero targets, and purchasing carbon credits. These investments not only contribute to climate goals but also enhance corporate reputations and meet growing investor demand for environmental, social, and governance (ESG) considerations (OECD, 2020).

Developing countries are leveraging this trend by creating conducive environments for private investment. India has made significant strides in expanding its solar energy capacity, increasing from 2.6 GW in 2014 to over 49 GW in 2022 (IRENA, 2022). Government policies such as reduced tariffs on solar equipment and tax incentives have attracted domestic and foreign investors, driving down costs and expanding access to clean energy (MNRE, 2021).

Similarly, countries like Chile and Nigeria have issued sovereign green bonds to finance climate-friendly projects, tapping into a global green bond market that surpassed $1 trillion in cumulative issuance by 2020 (Climate Bonds Initiative, 2021). These instruments attract private capital while demonstrating national commitments to sustainable development.

Despite these efforts, challenges persist. Political instability, weak regulatory frameworks, and high debt levels can deter private investment in some developing countries. Therefore, blended finance approaches—combining public funds to de-risk investments and attract private capital—are essential (World Bank, 2021).

As the international community prepares for COP28 in Dubai, decisive action is imperative. Developed nations must fulfill their financial commitments, increase support for adaptation, and facilitate access to funds for the most vulnerable. Innovative financing mechanisms, enhanced by private sector participation, can complement international efforts but cannot replace the need for substantial public funding.

The stakes are immense. Without adequate financing, developing countries will struggle to mitigate and adapt to climate change, exacerbating global inequalities and undermining collective climate goals. It is a moral and practical imperative for the global community to act with urgency and compassion to ensure that no nation is left behind in the fight for a sustainable future.

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