Finance has increased, not reduced, greenhouse gas (GHG) emissions. Meanwhile, funding for mitigation, and especially adaptation, is grossly inadequate, with little for climate losses and damages.
Global warming accelerating
Rich countries are mainly responsible for the fast-worsening global warming as developing nations suffer more of its adverse effects. Worse, they are much more financially constrained, e.g., due to the higher costs of and poorer access to credit.
Before the 2009 UN Climate Change Conference of Parties (CoP) in Copenhagen, rich countries promised to provide $100 billion yearly to developing nations until 2020 for climate finance, after which such assistance would increase.
But the Inter-Governmental Panel on Climate Change (IPCC) found their promise well short of needs. It also estimated total climate finance – from both public and private sources – at only $640 billion, i.e., averaging about $60 billion yearly.
Adaptation costs until 2030 have been assessed at up to $411 billion annually, with most yearly estimates exceeding $100 billion! But even this does not cover financial losses and damages due to climate change, which have barely been funded.
Climate finance pathetic
Official estimates claim about $80 billion was mobilized in 2020, the most ever, but still well short of rich nations’ commitments. A significant share came from private finance plus a third via multilateral financial institutions. But these estimates – especially for private finance – are widely seen as grossly exaggerated.
Commitments by rich countries to the IMF’s Resilience and Sustainability Trust Fund – to provide climate finance to a few poor countries under very restrictive conditions – have been modest despite much fanfare and rhetoric.
Bilateral official transfers during 2013-19 were under $18 billion annually, averaging between a quarter to a third of all climate finance delivered. Rich country governments have since spent several trillions on the pandemic and the Ukraine war!
Rich nations’ climate finance proposals are mainly about more loans, not grants. But more government borrowings have already worsened the climate and debt crises. Clearly, more developing country debt cannot be both problem and solution.
More concessional climate finance would not cost much as rich nations have about $400 billion of special drawing rights (SDRs) from the International Monetary Fund (IMF) – virtually ‘free’ foreign exchange reserve assets – which they hardly use.
Fossil fuels still subsidized
Very limited non-concessional climate finance contrasts sharply with rich nations’ fossil fuel subsidies. Their governments have long enabled such energy generation while insisting poor countries cut GHG emissions.
The actual extent of such subsidies has been obscured by prevailing discourses, especially over statistics. The Organization for Economic Cooperation and Development (OECD) and International Energy Agency (IEA) measure of government support for fossil fuels only considers direct budget transfers and subsidies other than tax breaks.
The duo found 52 developed and ‘emerging’ country governments accounted for 90% of world fossil fuel energy supply. Their total subsidies averaged $555 billion annually during 2017-19, i.e., before the pandemic.
But this greatly understates actual government fossil fuel subsidies. IMF research recognizing implicit subsidies – including environmental costs and lost consumption taxes – finds much higher subsidies than thus acknowledged.
The IMF study estimated world fossil fuel subsidies in 2020 at $5.9 trillion – more than ten times the OECD-IEA estimate, with implicit subsidies accounting for 92% of the total!
China provided the most, followed by the US, Russia, India and the European Union. Total US fossil fuel subsidies in 2020 – mostly implicit – came to $662 billion, while the Biden administration’s climate finance commitment came to only $5.7 billion!
More recent government interventions continue to skew market incentives to favour – rather than limit – fossil fuels. Hence, private finance has mainly gone to fossil fuel energy investments, despite much rhetoric about greening finance.
Private finance problem, not solution
Better data on fuel finance – by source, destination and power generation capacity – are essential. But lack of reliable, comprehensive and transparent data – on cross-border, particularly private financial flows for fossil fuels – prevents better analysis and policy.
The UK hosts of CoP26 in Glasgow in late 2021 pledged to end coal burning for energy generation. But less than half a year later, European and other countries sanctioning Russian gas exports were pursuing the opposite.
Most foreign financing for coal comes from rich nations’ commercial banks and institutional investors. Fourteen of the top 15 lenders to new coal investments worldwide were from wealthy economies.
The main institutional investors in fossil fuel company stocks and bonds are also from such nations, with the top three – BlackRock, Vanguard, and Capital Group – all US-based.
GHG emissions by major transnational corporations – including supposedly green companies – are considerable because of such fossil fuel energy. Emissions generated by these investments exceeded all others.
Address policy reversals
The Ukraine war has been used by many governments to abandon their already modest and inadequate climate promises. And instead of using the oil price spike to accelerate the transition away from fossil fuels, many governments have been subsidizing domestic energy prices.
Hence, the Global Green New Deal (GGND) – proposed by the UN during the 2008 global financial crisis (GFC) – is even more relevant now. The GGND urged a strong, green, equitable and inclusive economic recovery after the GFC.
Taking account of what has happened in the interim is also essential to achieve the needed ‘big push’ for renewable energy to create the conditions for sustainable development for all.
Jomo Kwame Sundaram is a prominent Malaysian economist. He is senior adviser at the Khazanah Research Institute, visiting fellow at the Initiative for Policy Dialogue, Columbia University, and adjunct professor at the International Islamic University.
