The most recent global conference saw a number of moves toward stronger Climate Finance mechanisms.
As COP26 drew to a close earlier this month, COP President Alok Sharma announced that the 1.5°C goal of the Paris Agreement has been kept alive, yet more rapid and collective actions by countries are required.
In a first for the annual conference, COP countries pledged this year to “phase down” coal. It was a last-minute change to the wording drafted earlier in the week, which called for a more stringent “phase out” of coal. Still, it represents a meaningful change. This the first time COP members have agreed specifically that the world needs to stop using coal in a just and inclusive way. Coal accounts for more than a third of all carbon emissions, and new investments in coal-fired power plants threaten to lock in those emissions over the next several decades.
Furthermore, 40 countries joined a pledge to phase out coal entirely in the next 15 to 25 years. In the process of energy transition, countries, especially those with a high share of coal in the energy mix such as India, which pushed for the watered down “phase down” language, and Poland, which pledged to phase out coal entirely, will require a tremendous amount of investment into cleaner energy sources. More technical and financial support is also desperately needed for developing countries including the Least Developed Countries (LDC), and Small Islands Developing States (SIDS) in order to secure stability in terms of energy supply and price.
Importantly, one thing that negotiators seem to be inching toward agreement on is that climate finance will be critical if we are to meet our climate goals.
That realization was included in the Glasgow Leaders’ Declaration on Forests and Land Use, an agreement to halt and reverse forest loss and land degradation by 2030. The Declaration was signed by 141 countries, which represent over 90 percent of the globe’s forested areas. The Declaration will “facilitate the alignment of financial flows with international goals to reverse forest loss and degradation, while ensuring robust policies and systems are in place to accelerate the transition to an economy that is resilient and advances forest, sustainable land use, biodiversity and climate goals,” according to its text.
Mobilize climate finance towards clean technology
Accordingly, several countries, including the UK, Netherlands, and Canada, among others, committed to mobilize investment towards countries in need. In addition, countries and international organizations are initiating new partnerships to better collaborate among related stakeholders for a country’s energy transition. For example, the United Kingdom, Denmark, and Germany with international organizations including World Bank, ADB, IEA, among others introduced a new partnership initiative, called the friends of Indonesia Renewable Energy (FIRE) Dialogues.
A group of 20 countries also pledged to end financing for “unabated” fossil fuel projects abroad, which include oil, gas, and coal projects that do not include carbon capture mechanisms. Notably, neither China nor Japan, two of the largest investors in foreign fossil fuel projects, participated in the pledge.
Meanwhile, developing countries protested the lack of outcome on loss and damage associated with climate change impacts. Developing nations have repeatedly called for assistance, including a dedicated fund, to address loss and damage, but COP26 failed to provide a resolution. The only outcomes were a strengthening of the UNFCCC’s Santiago Network, which provides technical assistance on loss and damage, and a commitment to a two-year dialogue, intended to help frame the best way to provide loss and damage funding.
In terms of adaptation, there was more progress. Developed countries pledged that by 2025 their contributions to adaptation would double from 2019 levels. US$800 million was pledged for adaptation during the course of the conference. The United States made its first-ever contribution to the Adaptation Fund, and additional pledges were made by Japan, Germany, and Spain, as well as other developed nations.
Catalyze climate finance: The need of private finance and innovative financial solutions
Yet, public finance will not be enough to fill the financial gaps. According to the Climate Policy Initiative, global climate finance flows were US$632 billion in 2019/20, which is far less than the required amount of annual investment of US$4.35 trillion by 2030. During COP26, several bilateral and multilateral organizations including GCF, ADB, EBRD, and Climate Markets and Investment Association (CMIA), the private sector representative, highlighted the need of stronger collaboration between the public and private sectors, particularly with more private sector engagement. To facilitate private sector engagement, a more simplified funding and accreditation process, better access to data, more rigorous climate risk assessment, financial innovation, and increased collaboration between public and –private sectors is required.
One ADB analyst proposed expanding investment opportunities beyond straight debt finance. For instance, expanded credit enhancement products or green bonds could help facilitate private financial flows. Furthermore, capacity building and knowledge sharing for commercial banks would be important to implement innovative climate finance instruments.
Finally, as for the multilateral climate finance commitments for the public and private sector in our region, the environmental and climate commitments of the main development banks were maintained, while the Inter-American Development Bank (IDB) announced a new ambition with a target to provide $24 billion in climate finance over the next four years. And for its part, the Development Bank of Latin America (CAF) announced that it will allocate US$25 billion over the next five years to promote green growth.
Many dialogues and commitments remain to be defined within the framework of the COP to ensure compliance with the 1.5°C target of the Paris Agreement and the financing of decarbonization plans to achieve a future of net-zero emissions by 2050. However, within an immediate crisis and an urgent call like the one we are experiencing today, it is necessary to focus our efforts on the integration and participation of the public sector, private sector, and civil society towards ACTION.
Samantha Youngeun Shin also contributed to this article.
This article was produced in conjunction with DecarBOOST.