Climate Finance Schemes Will Increase Burden of Indebtedness
A series of "thematic days" took place at the COP27 summit in Sharm El-Sheikh, Egypt. They were Finance Day; Science Day; Youth and Future Generations Day; Decarbonization Day; Adaptation and Agriculture Day; Gender Day; Water Day; Action for Climate Empowerment (ACE) and Civil Society Day; Energy Day; Biodiversity Day; and Solutions Day.
The main aim of Finance Day was to provide mechanisms to facilitate borrowing by so-called developing countries to finance projects that it is claimed would assist them to shift towards sustainable development and meet targets from emissions reductions set in the Paris Agreement. Some news agencies give an estimate that the world will require between $4 trillion and $7 trillion per year for such undertakings. One such financial borrowing mechanism announced at COP27 was the Reducing the Cost of Sustainable Borrowing initiative.
Several panels addressed the matter of financing:
- Mobilizing Finance for Climate Action called for the doubling of 2019 finance levels by 2025 by making the commitment for developed countries to step up financing.
- Reducing Cost of Green Borrowing is said to have showcased solutions and pledges needed to reduce the cost of green loans.
- Closing the Finance Gap for Nature-Based Solutions, discussed sustainable agriculture and forest management, including measures such as agroforestry that it was claimed could "deliver over $2 trillion annually in economic benefits, generate millions of jobs in developing countries and improve food security."
- Special Role of Multilateral Development Banks/Commercial Banks/Philanthropies in Climate Finance reaffirmed that multi-lateral development banks, "in spite of institutional challenges, are by far the most effective intermediaries in mobilizing and allocating resources that will benefit the poorest countries."
Regarding financing of Mitigation and Adaptation Actions, the COP27 Presidency convened high level ministerial dialogue on "The New Collective Quantified Goal on Climate Finance."
The COP27 Presidency and the United Nations Economic Commission for Africa launched an initiative, "Reducing the Cost of Green and Sustainable Borrowing" for African countries, with the ostensible aim of enabling "more sustainable financing through mechanisms including Green and Social and Sustainable Bonds." The UN also published a list of projects worth $120 billion that investors could back to help poorer countries cut emissions and adapt to the impacts of global warming.
A question that comes to mind is what has been the track record of climate financing at this time?
In 2009, developed countries agreed to jointly mobilize
U.S.$100 billion per year by 2020 to support developing
countries in
taking climate action. This was reaffirmed in the 2015 Paris
Agreement
reached at COP21, where the Parties agreed to extend the
U.S.$100
billion goal through to 2025. Only in recent years has this
commitment
been met. In 2019, only U.S.$79.6 billion was raised, up only
two per
cent from 2018. In 2020, $83 billion was raised. About $89.6
billion
was in 2021. Finally, 2022 data from the Organisation for
Economic Co-operation and Development indicates that the $100
billion mark was exceeded, and this is also the case for 2023.
Unsurprisingly, climate funding is looked at from the point of
view of
serving private interests and wealthy countries, not a
human-centred
outlook. A 2021 joint report by the International Monetary Fund
and the
International Energy Agency stated that globally, $5 trillion of
investments is required by 2030 to facilitate the shift to clean
energy. To that end, the World Economic Forum and World Bank are
now
pushing "blended financing," a pay-the-rich scheme that it is
claimed
will pay for measures to transition countries to net-zero carbon
emissions, by using public funds to guarantee returns for
private
investors. A February 2022 article from the International
Finance
Corporation (IFC), the private-sector arm of the World Bank
Group
explains:
"Private investors will often shy away from certain projects or
markets
because of specific risks that can’t be well managed. This is
especially true in developing economies, or with the
introduction of
new technologies in more mature markets. Blended finance makes
use of
small amounts of concessional donor funds to mitigate specific
investment risks. This rebalances the risk-reward equation for
pioneering investments that wouldn’t be able to proceed on
strictly commercial terms.
"For example, Uzbekistan is one of the most energy-intensive
countries
in the world. Its power infrastructure is old and inefficient.
However,
it is blessed with solar, wind, and hydro resources that could
position
the country as a clean-energy leader in Central Asia.
"To put Uzbekistan on the path to sustainable energy production,
IFC
helped finance a 100-megawatt solar power plant, the nation’s
first grid-scale renewable energy project. As part of the
$110-million
financing packaging, the Canada-IFC Blended Climate Finance
Program
provided a loan of $17.5 million on concessional terms, with IFC
matching the same loan amount on the same terms. Blended finance
helped
mitigate the risks of this project in a sector with a new and
untested
regulatory framework, and made a climate-friendly project
possible that
otherwise wouldn’t have been commercially viable."
Many of the countries that are the most affected by climate change are the least responsible for it, as well as being the same countries that are amongst the poorest and the most indebted to the international finance institutions such as the World Bank and International Monetary Fund (IMF).
Another question that comes to mind is why is the burden on these countries to further indebt themselves to the World Bank and IMF, and then risk having "structural reform" imposed, to change the direction of their economies to one aimed at servicing such debts?
Those super-exploited countries that are already being seriously affected by climate change managed to put the issue of reparations, termed "loss and damage finance," on the agenda of COP27. These countries are said to be pushing for a dedicated fund for countries to contribute to for this purpose. The proposal is said to be receiving pushback from the European Union and the U.S. At COP26 in Glasgow, the EU and U.S. "blocked a proposal to establish a dedicated fund for loss and damage, agreeing instead to a 'dialogue' with no clear end goal," Euractiv reports.
Similarly at COP27, the European Commission's chief advisor for international climate relations, Jacob Werksman, said the EU welcomed "a process on funding for addressing loss and damage" at the UN level and backed the new agenda item. However, he said the new agenda item "was agreed to under certain conditions," including that "we would not be discussing this issue of liability and compensation." He also insisted that the process be time-bound, with concrete outcomes expected at the latest by 2024. He further stated, "The scope of our conversation is not going to be focused on one single solution, as some parties see it, to the challenge of loss and damage -- the establishment of a new fund or a facility -- at this COP. Instead, we will start a conversation that is broad enough to be able to contain within it multiple solutions to what we see as a very complex and challenging problem."
Meanwhile, EU officials in Brussels gave a similarly detached and bureaucratic answer to the urgent cries for assistance for those countries already experiencing calamitous and deadly effects of climate change. EU officials said loss and damage finance is "part and parcel" of the Paris Agreement, but the creation of a new fund is off the table, for the time being, and that plenty of funding is already available under existing aid programs. A senior EU official who was briefing the press stated, "I think it's important that we first identify what are the needs, second that we see how we can already mobilize existing resources both from the public and the private sector, globally, bilaterally and multilaterally, and then we move on from there."
In a similar vein, Monica Medina, U.S. Assistant Secretary of State for oceans and international environmental and scientific affairs told media recently, "We're focused on using the tools that we have." Euractiv reports that the U.S. has already put large amounts of money in the Green Climate Fund and multilateral development banks, which distribute aid to countries affected by climate change. "I think the focus should be on getting some of that funding to where it's needed rather than trying to create another fund," Medina stated.
As of November 10, 2022 several countries made pledges to loss and damage funding at COP27: Belgium -- 2.5 million euros to Mozambique; Austria -- 50 million euros from its existing budget over the next four years; New Zealand -- NZ$20 million (almost U.S.$12 million); Germany -- 170 million euros to the Global Shield Against Climate Risks initiative, which funds climate risk insurance and prevention support for at-risk nations; Canada -- CAD$7 million to support the Global Shield Initiative; Ireland -- 10 million euros to support the Global Shield. At COP26 in Glasgow in 2021, Scotland pledged an initial 2 million pounds (about U.S.$2.3 million), followed by an additional 5 million pounds during COP 27 in 2022. Denmark, committed 100 million Danish kroner (U.S.$13.7 million) in September 2022.
Also at the COP27, UN Secretary General António Gutteres stated that greenwashing has been identified as a real problem by the UN, and that empty and deceptive pledges by states and private corporate interests not only makes prediction impossible and evaluation of progress unreliable, but puts the green agenda in disrepute.
This article was published in
Volume 54
Number 27 - April 20 2024
Article Link:
https://cpcml.ca/Tmlm2024/Articles/MS542716.HTM
Website: www.cpcml.ca Email: editor@cpcml.ca