Taxes on the profits of oil and gas, maritime and aviation industries, additional levies on leisure travel, and the cancellation of subsidies for any fossil fuel could offer the world enough financial resources to help vulnerable countries deal with climate impacts and developing economies transition to greener energy, an independent high-level expert group said in its report released on Monday.
The report by the Independent High-Level Expert Group on Climate Finance (IHLEG) was released by Barbados prime minister Mia Mottley, who is also the architect of the Bridgetown Initiative to address the needs of countries facing debt and liquidity challenges, at this year’s UN Climate conference (COP28) underway in Dubai.
In its efforts to redraw the climate finance mechanism, the Initiative presented a roadmap to reach $2.4 trillion in climate investment for developing nations outside China, outlining a variety of commitments that governments, private companies, multilateral funding institutions, and philanthropies can adopt to tackle costs associated with the climate crisis.
Mottley said two steps were now crucial to keep the world within the Paris Agreement target of limiting global warming to 1.5°C: reining in methane emissions, and fixing climate funding. “The objective first and foremost is not to breach 1.5 degrees. The best way to do that is by controlling methane. I make the call again for a global methane agreement because if we can adjust to a global minimum tax, then we can do this. And second, we must also get an understanding that if there is not enough public money, then let us give the opportunity to people to pay their fair share and transform their behaviour,” she said.
The expert group is co-chaired by economists Vera Songwe of Brookings Institution and Nicholas Stern, chair of the Grantham Research Institute at London School of Economics. Amar Bhattacharya, senior fellow at Global Economy and Development, Center for Sustainable Development at Brookings is the executive secretary of the group with NK Singh, chair of India’s fifteenth finance commission, as one of the advisers.
The COP26 and COP27 Presidencies extended the mandate of the IHLEG in July 2022 to prepare the report.
Mottley said the approach on financing needs to take into account people who may not be able to pay and must transform their behaviour – such as farmers — while those that can afford to, such as philanthropies, oil and gas companies, and people flying first class, must chip in with climate costs. “The point is we can get there if we accept that if we have a plan that is credible to live on mars then everyone has to pay their part through change of behaviour or contribution from their pockets,” Mottley added.
The group was tasked to assess how the climate finance system must change if it is to support the investment and actions necessary to deliver the goals of the Paris Agreement, where countries agreed to limit global warming to under 2°C compared to the pre-industrial era, and strive to keep it under 1.5°C. Their first report published last year at COP27 concluded that around US$2.4 trillion of investment a year would be necessary by 2030 (in emerging markets and developing countries outside China) across the priorities of a just energy transition, adaptation and resilience, loss and damage, and the conservation and restoration of nature. This is a four-fold increase from current levels of funding for these sectors.
“Failure to generate investment and finance of the scale and nature required is to fail on Paris. The consequences would be devastating, particularly for the poorest people. Seizing the opportunity would unlock the growth story of the 21st century. This is truly finance with a purpose,” the report said.
A core portion of the report focussed on the role of multilateral development banks (MDBs). Singh and American economist Larry Summers recently led efforts to suggest reforms in these banks, including on how to finance development and climate intervention.
“We are at a critical juncture today. We are off-track in delivering on both the climate commitments and sustainable development goals. There is a sense of urgency to make significant progress. There is great congruence and synergies in the reports of the Independent Expert Group (IEG) on Reforming Multilateral Development Banks, which Larry Summers, and I co-chaired, and the Independent High Level Expert Group (IHLEG) report. The latter recommends an integrated climate finance framework that boosts all sources of finance, namely – public and private, domestic, and international – and uses their complementary strengths,” said Singh.
During his speech at the COP28 finance session, he said MDBs must be at the centre “for climate and developmental finance, for creating an effective response and bringing diverse actors to support a shared agenda of transformative development…”
The report recommends tackling the immediate debt constraints and lack of fiscal space that are impeding the ability of many countries to invest, especially poor and vulnerable economies. Adaptation costs/needs are now estimated at around 10–18 times as much as current flows of international public adaptation finance.
The commitment by developed countries to provide $100 billion per year by 2020 was not met as of 2021, eroding trust, the report noted.
“We must therefore pursue all options, including carbon markets (compliance and voluntary), expanded rechannelling of special drawing rights, international taxation and a bigger role for philanthropy, including from the corporate sector,” the report concluded.
On Monday, at COP 28, UK, France, World Bank, Inter-American Development Bank (IDB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) and African Development Bank (AfDB) made new commitments to expand Climate-Resilient Debt Clauses (CRDCs) in their lending. In total 73 countries joined a call to action to donors to expand the use of these clauses by 2025. These commitments support countries to deal with climate shocks by ensuring they have fiscal space to invest in climate action. These are key elements of the COP28 UAE Declaration on the Global Climate Finance Framework to make climate finance available, accessible, and affordable. The Declaration is endorsed by India, France, Barbados, Kenya, Ghana, Germany, UK, USA, Senegal, and Colombia.