US President Joe Biden delivers a speech at COP27, Sharm el-Sheikh, Egypt, November 11, 2022. Photo: Reuters/Mohamed Abd El Ghany
- The US and many other developed countries want to shift the onus of delivering climate finance in the future to private sector investments.
- This argument comes against the backdrop of developed countries failing to keep their promise to provide $100 billion a year for climate-related work.
- Private investments are neither adequate nor predictable – nor can private entities be held accountable under international agreements.
- A large part of climate action that needs to be financed in developing countries is not profitable – nor do these countries make for profitable markets.
Deflecting attention from its failure to provide climate finance, the US has said at the COP27 climate talks that poor countries should instead bank more on the private sector to meet their climate finance needs.
Climate finance refers to the money paid by countries to fight climate change. One of the targets, per the UN Framework Convention on Climate Change (FCCC), for the delegations of countries [or parties] gathered at Egypt’s Sharm El-Sheikh this COP27 is to make “finance flows a reality”.
The US special envoy on climate finance, John Kerry, told delegates gathered at the negotiations on November 9, “We all need to think about how we capitalise the larger amounts of money from the private sector.”
The previous day he had said, “Everyone is upset that the $100bn has not been fulfilled. “It’s at $90-something… When I got 90-something on a test at school I felt pretty good.”
He was talking about the $100 billion climate finance target set in 2009, at the COP15 climate talks. And it wasn’t a maximum to be attained like a test score.
His two statements over 24 hours at Sharm El-Sheikh reflect the position the US has taken in several tracks of negotiation over climate finance. Many developed countries have largely supported it behind closed doors as well.
These countries’ push has in turn deepened differences over climate finance between them and their developing counterparts, including South Africa and India.
In 2009, economically developed countries had promised to collectively provide $100 billion every year to poorer countries by 2020. But they failed to do so, and admitted as much at the UN climate talks in Glasgow last year.
This year looks set to extend the failure by another year. The latest report of the UN Standing Committee on Finance, dated 2022, estimated that poorer countries need at least $9 trillion by 2030 to meet their climate finance needs.
In his speech on Friday, US president Joe Biden cast the US as the world’s ‘climate leader’ – only for activists to point out that he made no mention of ‘loss and damage’ support, an important topic of discussion at the talks this year.
A recent analysis by Carbon Brief found that the US has contributed only 19% of what it should have to the 2020 climate fund – even as it’s the largest emitter of carbon dioxide to date.
Under the Paris Agreement as well, participating countries need to substantially enhance the $100 billion annual commitment and set a new target set for developed countries by 2024. In negotiations-speak, this target is called the new collective quantified goal (NCQG).
But now that the developed countries haven’t been able to keep their $100 billion a year promise, the US and many others want to shift the onus of delivering climate finance in the future onto private sector investments.
Several developing countries have already strongly disagreed with these arguments at COP27.
India – speaking on behalf of the group of Like-Minded Developing Countries – said, “The private sector may play a complementary role, [but] the commitment is on the developed countries to lead the mobilisation from various sources.” The representatives of both India and China also said that the public sector in developed countries have a critical role to play in climate financing.
The private sector problem
The UN FCCC, under which the Paris Agreement was drafted and ratified, requires developed countries to ensure climate finance is both adequate and predictable. Private investments today are neither.
Private investments also typically seek profitable ventures and markets. A large part of climate action won’t be profitable. (Many poorer countries that need the funds also seldom make for profitable markets.)
In addition, the private sector can’t be held accountable if it fails to deliver the funds as and where they’re required for climate-related work. The obligations imposed by international agreements lie on countries, not their respective private sectors.
South Africa raised this issue at COP27, demanding developed countries specify a time frame by which they will mobilise the promised funds. In a sharply worded intervention, the country’s representatives noted that apart from aligning finance with emission reductions, finance goals should also be set on an annual and a decadal bases.
This is purportedly to ensure the funds are predictable, allowing developing countries to plan their allocations better. As China pointed out, “developed countries should continue to improve the transparency and the predictability of climate financing.”
South Africa expressed a preference for multilateral development banks for climate finance over the private sector – provided the option is accompanied by “significant reforms to the terms and conditions” of the banks’ frameworks.
India chimed in saying climate finance should be “long-term, concessional, climate-specific and with equitable allocation between adaptation and mitigation projects.”
For now, a major share of the climate finance provided by rich countries is in the form of loans to poorer countries. Another big source of funds is international banks, which also provide money in the form of loans. But these loans are costlier for the poorer, an analysis by Energy Monitor this month found.
With the first week of COP27 talks coming to a close, there is both implicit and explicit pressure on countries to tackle climate finance with more urgency and commitment.
While the NCQG target itself won’t be set this year, negotiators will have to get a sense of how much work remains to be done on this front. Egypt, the COP27 host and holder of the presidency, has its task cut out to reconcile these differences.
Radhika Chatterjee and Mrinali are researchers with Land Conflict Watch, an independent network of researchers studying land conflicts, climate change and natural resource governance in India.