The conundrum of climate financing: Where is the money?

This week in Addis Ababa, the fifth Africa Climate Talks will take place alongside the Africa Regional Forum on Sustainable Development. The events will bring together civil society groups, academics, researchers, youth movements, the private sector and climate change negotiators – this is a key moment for Africa. These events will build momentum on vital issues ahead of the 12th Conference on Climate Change and Development in Africa, Africa Climate Week and COP29 in Azerbaijan.

What’s wrong with the narrative?

We know that the world needs “a breakthrough and a new roadmap on climate finance that can mobilise the US$1 trillion per year in external finance that will be needed by 2030 for emerging markets and developing countries other than China”, but again and again we hear of insufficient resources to solve the climate crisis, an existential threat that will affect us all. Recent global developments show that there is money, but it is not being committed to climate action. We have seen nations quickly mobilise vast sums of money for defence and military aid (over US$2 trillion a year), businesses make substantial investments in the global space economy (US$0.6 billion a year), and vast funding for the response to Covid-19 (US$8 trillion in the first year of the pandemic). But far too little money makes its way to countries that are most vulnerable to the impacts of climate change – often the same countries that emit the least, and whose natural resources act as carbon sinks that are taken for granted. For these countries to implement climate action, they must be able to access long-term, risk-tolerant funds. Without them, it’s hard to see how they might implement their Nationally Determined Contributions.

Now is the time for a discussion about what constitutes a just transition for the continent. Having established the scale of needs and the availability of funds, it's evident that current approaches to climate action are insufficient. We need to come together and agree on clear principles to help us finance climate action.

This week, DI published a discussion paper asking what is broken about the current approach, and identifying what needs to change, and how?

What’s not working about the current approach?

We don’t even know how much is invested in climate action. Without a clear definition of climate finance, a rigorous accounting methodology or standardised reporting, we don’t have a clear idea of how much is being genuinely invested in the name of climate finance.

The figures that we have can’t be trusted. At COP15 in 2009, delegates agreed a target of US$100 billion per year by 2020 (although this didn’t accurately reflect the true scale of need). Research from Development Initiatives (DI) shows that billions may be incorrectly tagged as climate finance and research from Reuters shows that what is reported as climate finance may be supporting projects with no real climate connection.

There are fundamental issues – what approaches might help solve them?

The system we’re using to find the solution isn't designed to solve the problem. The current global economic architecture was designed in 1944 for a different purpose. International financial institutions such as the World Bank and International Monetary Fund have been accused of misprescribing policies, and multilateral development financial institutions are also pushing countries into more debt to finance climate action.

We need to strengthen agency. There are certain initiatives in developing countries that could allow regions to strengthen their agency in the financial architecture – either in reforming or participating in alternative systems. Some recent developments include the launch of the ‘Africa Club’, the increased membership of African countries in the BRICS group, as well as the AU’s membership at the G20 – all represent avenues for enhancing the continent's leadership role in shaping a new global order to influence negotiations and multilateral decisions.

Markets are part of the problem. Capitalism and economic expansion are directly and strongly correlated to global warming, and it is curious that we are now turning to the same market for solutions, through either private capital or carbon markets. Many countries are wallowing in debt and borrowing to finance climate action while carbon markets do nothing to reduce emissions. In fact, they allow corporations to emit more because of a rush to offset but not reduce emissions.

We need to double down on the mobilisation of domestic resources. Of the US$2 trillion of additional finance needed by 2030 to fully implement the Paris Agreement and cap global temperature, it’s estimated that 40% could come from domestic resources. Already, it’s reported that government expenditure for adaptation in Africa is greater than private adaptation, and 10 times larger than international support for adaptation.

Advanced economies have caused and are causing greater emission damages. Ensuring that low-income and climate vulnerable countries are not unfairly burdened when implementing climate action is fundamental. Climate-debt swaps have been proposed as an effective solution. Providing debt relief in exchange for agreed-upon climate projects or policies would seem to be a win-win. But, pushing for policies and approaches for leaving non-renewable resources in the ground, when a country's carbon sink exceeds what it would emit, could cause economic stagnation without a clear compensation roadmap for future prosperity.

We need to consider historical emissions and carbon sequestration when deciding how much countries should emit. As the Guyana president argued in a recent interview, his country’s extensive forests span 18 million hectares, storing approximately 19.5 gigatonnes of CO2, and this should be taken into consideration when discussing explorations of resources and emissions levels. Forests like these contribute significantly to global climate action efforts. However, the current climate financing model struggles to recognise this contribution. Countries that have made minimal contribution to the current climate crisis, yet remain economically disadvantaged and vulnerable to its impacts, should have a degree of flexibility regarding their emissions and approach to get to net zero.

Conclusion

Low-income and climate vulnerable economies are bearing the brunt of climate impacts. For them to implement climate action, they must be able to access long-term, risk-tolerant funds. Given the unsustainable nature of current offerings, reliance on an inequitable global economic architecture and the lack of accountability from wealthy polluters, we must explore other practical solutions. Some are identified above, but there are many more ways to ensure a just transition, mobilising greater funding without compromising pathways for prosperity for these countries. DI is working on just foundations for climate finance, looking at how we can improve the definition and tracking of financing – but this is just one step in securing the financing we need. Stakeholders at the Africa Climate Talks and the Africa Regional Forum on Sustainable Development – and beyond – must work together to identify bold solutions and commit to driving them forward on the global stage. To achieve climate justice, Africa must help lead the way.