Moneycontrol, November 14, 2023
By Mihir Shekhar Bhonsale
With imbalances in nature and environmental hazards due to climate change and the loss of biodiversity, maintaining the earth’s temperature rise at 1.5° Celsius above its pre-industrial level is proving to be difficult. Sharp divisions among countries with respect to their positions on finance for climate change mitigation and adaptation are set to further complicate efforts.
The fault lines among countries were evident at the UN Transitional Committee meeting held on November 6 in Abu Dhabi, UAE, which proposed a watered-down Loss and Damage Fund deal for adoption at the upcoming UN climate change conference (UNFCCC COP 28).
As per the proposal, the Loss and Damage Fund will be hosted by the World Bank. Once vetted by some 200 nations that are parties to COP28, the fund will serve as a financial intermediary for an interim period of four years.
The fund will be financed through voluntary contributions from developed nations and the latter will not be forced to contribute. The proposal haselicited mixed responses. Developing countries expressed worries that the size of the fund has not been announced.
Conservative Estimate
Critics have noted that the Loss and Damage fund has not been proposed as a standalone fund but is being housed by the World Bank. Many countries would have never hoped to settle for a compromise as this fund was believed to be detrimental to meeting their climate adaptation needs, say some.
The said Loss and Damage Fund was announced at the 27th COP Summit held in Sharm-el-Sheikh, Egypt, in 2022 to assist countries that are particularly vulnerable to the adverse effects of climate change. Similarly, the 15th Conference of Parties to the Convention on Biodiversity (CBD) held in Montreal in December 2022 resulted in a host of commitments on biodiversity.
As per a UN estimate, loss and damage costs in developing countries were projected to be as much as $580 billion per year by 2030. By this year, as many as 132 million more people could be pushed into poverty by the impact of climate change. This is by all means a conservative estimate as it was taken prior to the pandemic.
On biodiversity-related funding, a promise to mobilise at least $200 billion every year from public and private sources by 2030 has been hailed as critical for arresting and reversing biodiversity loss.
There is a wide gap between the finance developing countries need to spend on climate adaptation projects and the funding they get from developed countries and IFIs (international financial institutions) including the World Bank.
This gap is widening every passing year and the longer this gap persists, the larger will be the damage and loss by developing countries because of the impact of climate change and biodiversity loss. The scale of funding required to salvage the damage caused by climate change and biodiversity losses requires multiple sources of finance.
To this end, a campaign on Innovative Finance for Climate and the Planet by CUTS International suggests that what is required is a bouquet of innovative solutions that can be integrated with the global finance architecture.
It calls for exploring a global roadmap to establish a fund of funds for the planet’s recovery with efficient utilisation of tax and non-tax measures from public and private sources and, more importantly, from non-governmental sources.
Tax measures could include taxes on digital services, air emissions, and property, a cess on biodiversity and climate resilience as well as a financial transactions tax. Furthermore, more innovative ways of non-traditional funds such as green bonds, sustainability-linked loans, debt-to-nature swaps, and blended finance are proposed.
Other Options
Consolidating such options under a common approach will help deliver significant outcomes or else lead to a larger catastrophe. The proposed Loss and Damage Fund being delivered by the World Bank is welcome, but it should not be looked at as the only source of climate finance.
Options such as blended finance and co-financing with the private sector could complement public finance flows to create a bouquet of sources. Crowdfunding could be a source of climate finance, as evidenced by ‘Go Fund Me’, a popular crowdfunding platform.
However, many newer multilateral finance institutions that are driving huge infrastructural investments including the China-led Asian Infrastructure Investment Bank (AIIB) and the Brazil, Russia, India, China, and South Africa (BRICS) Bank do not focus on sustainability including climate change.
The policymaking world is still operating in silos, and trade and investment treaties are still far from promoting climate action. Old-generation trade and investment treaties do not reflect the grave challenge of climate change. Among treaties concluded before 2010, there are inconsistencies, overlaps, and gaps in promoting climate action.
The fact that old-generation treaties are still in force leaves a lot of work to be done, including reforms in policy frameworks and treaties. There also needs to be a new generation of sustainable treaties to be drafted and agreed upon by countries. Promoting sustainable development would also require tax reforms and ESG (environmental, social, and governance) integration.
We are racing against time to leave a cleaner and greener world for future generations. Therefore, it is necessary that countries overcome their differences and act together to deliver outcomes that are adequate and timely.
Mihir Shekhar Bhonsale is an Assistant Policy Analyst at CUTS International, a global think and action tank headquartered in Jaipur, India. Views are personal, and do not represent the stance of this publication.
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