Over the next decades, trillions of dollars will be required to tackle climate change.
Leveraging it is a question that concerns politicians and financial institutions alike. Largely, it has been a conversation that the two have held separately.
The political discussion centres around a promise made in 2009 at the UN’s climate conference in Copenhagen, when developed countries committed to provide $100bn a year from 2020 to help poor nations reduce their emissions and adapt to the impacts of climate change, with a significant portion of this flowing through a Green Climate Fund.
Nations reaffirmed that pledge at the Financing For Development conference in Addis Ababa this week, where the UN largely focused on the issue of how to finance its post-2015 sustainable development agenda – a set of guidelines, to be finalised this September, on reducing poverty, hunger and climate change, among other issues.
$100bn may sound like a lot of money. It is. But the investment required to deal with climate change will likely cost trillions, as infrastructure and energy across the world reshape into a greener, more resilient form, compatible with a world where temperatures rise no more than 2C. Enabling this will require a rethink of how the financial system itself works.
Unlike the vague trillions required for a low-carbon overhaul of the global economy, the $100bn is a precise figure embedded in a political agreement.
The text of the Copenhagen agreement states that this could come from a variety of sources: public and private, bilateral and multilateral, and alternatives. It also established a Green Climate Fund (GCF). This has been designed to channel a significant proportion of these funds, but by no means all of them.
Despite this, the GCF is often seen as synonymous with the $100bn pledge.
Green Climate Fund
Many poor nations are in a situation where their capacity to reduce their emissions is limited by a lack of funding. The GCF was established to ensure that developing countries have access to additional and predictable finance that will allow them to scale up their own efforts to tackle global warming.
Under intense pressure from campaign groups and developing countries, rich nations have already started to trickle public funds into the GCF. So far this amounts to $10.2bn, with much of this pledged at a Berlin meeting in November 2014. Others, including Australia, added to that sum at the UN conference in Lima.
To date, 58.5% of these pledges have been signed off by the donor nations into actual contributions, surpassing the 50% threshold required for the GCF to start allocating resources through bodies that have been approved by the board.
As a new financial institution, the GCF remains a work in progress.
Tackling climate change requires a lot of money. Mobilising these funds is a task for both politicians and the financial sector.
But, as the New Climate Economy points out, it will also save a lot of money – potentially trillions – as fossil fuels are phased out and the share of renewable energy increases.
But the benefits aren’t purely financial. Limiting global warming and preparing citizens to deal with the impacts of climate change will also better protect the world’s poorest and most vulnerable communities.
Press link for more: Sophie Yeo | carbonbrief.org