As we head for another year of increasingly unpredictable weather stemming from climate change causing damage through flooding, heat waves and fires, it is becoming quite apparent that urgent global collective action needs to be taken. But the question of tactical importance is who is to pay for this collective action?- because if that isn’t settled, nothing will get accomplished.
At an earlier United Nations climate change conference, it was recognised that a global Green Climate Fund needed to be set up and funded by the wealthier nations. The Green Climate Fund (GCF) was established over 10 years ago to support developing countries to shift to climate-resilient, low emission, development pathways and shift away from coal-powered, fossil-fuelled polluting sources of development. To that end the Green Climate Fund is the world’s largest climate dedicated fund and represents a test of the world's commitment to combating global warming. Now specifically, the replenishment campaign to close the global climate financing gap is a test of that commitment.
The urgency of action requires more than just rhetoric and platitudes and there is a recognised implementation challenge due to the funding gap that exists for less developed economies. Traditional contributors to the green climate fund need to increase their pledges whilst new contributors need to step forward during the second replenishment round that is currently underway.
The implementation challenge facing the world currently is to deliver the $2.4 trillion required annually by the developing nations by 2030 to achieve this goal. But even as the United States and the EU announce subsidies to incentivize clean energy investments the financial environment of rising interest rates and debt burdens make accessing finance more expensive for developing nations. Green bonds issued by Developing nations have fallen between 2020 and 2022 whilst those issued by developing nations saw an increase in issuance in that same time. This is leading to a widening renewable gap between them and a slowdown in clean energy investments in developing nations.
Whilst developed countries can subsidise the transition to clean energy usage there is less fiscal space available to developing nations who have seen their debt burdens and higher inflation pressure their financials. The war in Ukraine has also derailed plans to cut coal and fossil fuel usage while Net Zero timelines have been pushed further out. The rise in food and energy costs have shifted priorities and interest rate rises in the developed world- particularly for the United States Dollar, have increased debt burdens amongst developing nations. And this is important because- given the disproportionate contribution to the greenhouse gas levels made by the developed nations, there is a feeling that the developing nations should not have to incur further debt to finance their transitions to clean energy sources. But currently there are no financial instruments which do not generate debt responsibilities.
At the COP26 the Just Energy Transition Partnerships were launched which committed to funnel money from the highest emitters to the less developed nations. In COP27 a Loss and Damage Fund was established, and a reform of the global financial institutions was begun for scaling up funding to the Green Climate Fund. But there remains the gap between promises and the actuality of events on the ground: a credibility or trust gap exists where developing nations question how committed the developed nations are to combatting global warming. How can the developed world increase subsidies to clean energies and renewable sources whilst allowing record levels of investment by the fossil fuel companies and petro-states into new fields of production?
Given that the Green Climate Fund is the world’s largest climate-dedicated fund it must be the vehicle for helping deliver the implementation solutions. But the commitments fall short of the requirements for making the transition. So clearly, contributions from the identified existing wealthy polluters must increase. The former Prime Minister of the UK, Gordon Brown, has suggested that the petro-states be asked to pay a windfall tax from the excess profits they have made over the last 2 years and which they are expected to continue making into the foreseeable future and that this be used directly to bridge the funding gap between current contributions and the required expenditure. He asserts that these petro-states have made over $ 4 trillion in excess profits in the last 2 years along- which he calls obscene, and they be asked- along with the private sector, to contribute to mitigating the damages caused by climate change. Singling out countries like Saudi Arabia, the UAE and Norway for their nationally owned companies which accounted for 85% of the production that benefitted from raised oil prices Brown states that they bear the responsibility and ‘a duty to provide the finance for the climate needs of the global south’. He adds that the windfall tax from their sales would not affect their domestic consumers and that such a commitment would ‘galvanise the stalling COP28 negotiations’ where there appears to be a trust deficit about the seriousness of the wealthy nations to finance a global fund to address the damage caused by climate change- particularly on the poorer nations.
Another interesting idea amongst others is a variation of the debt-for-equity swaps that were popular in earlier bailouts: a debt-for-nature swaps where funding is provided for tangible measurable outcomes in policies meant to preserve the environment. This will be particularly useful in ensuring the preservation of the Amazon rainforest, for example.
Ultimately, even Gordon Brown does not seek to absolve the west of its historical role in creating the current crisis and “these nations, having benefited from indiscriminate industrialisation predominantly reliant on and promoting fossil fuel consumption, bear a unique responsibility to redress the adverse impacts of climate change and to provide financial and technological support for sustainable and greener developmental models worldwide.” His call for putting petrostates on the hook for the damage they have caused is a radical- though commonsensical, call for addressing the essential problem facing the world: who is to pay for saving the world?