[Analyse] Private money to the rescue of the climate
Although significantly lower than the status quo, the costs of fighting climate change and repairing its past and future damage will be staggering. To face it, the rich countries will have to assume their responsibilities, but it will also be necessary to better know how to involve private investors.
24 hours from the end of the event, the 27e UN climate conference (COP27) entered its proverbial last sprint of negotiations on Thursday in Sharm el-Sheikh, which, if we are to believe its habits, should go into overtime. One of the stumbling blocks was the issue of financing linked to the devastation caused by climate change, and more particularly the financial reparations that should be offered to poor countries for the losses and damage inflicted by global warming which rich countries have been essentially responsible for almost 150 years.
Already recognized in the Paris Agreement in 2015, this remedy would apply to sudden climatic events, such as floods and cyclones, as well as to slower phenomena, such as sea level rise, which would attributable to the 1.2°C of global warming already in the bank, on which future actions to reduce greenhouse gas (GHG) emissions or adapt to climate change will have no influence. It would target not only economic losses, but also human lives, health, territory, cultural heritage and biodiversity.
Directly targeted, the rich countries did not want to talk about this issue this year in Egypt. They also believed that we had agreed, last year, at COP26, in Glasgow, that we would simply talk about it in parallel until at least 2024. But the poor countries did not hear it. disagreed and took advantage of the fact that the meeting was being held in Africa to force everyone to discuss it this year.
It must be said that the invoice in question could be salty. According to a study carried out in 2019, if we exclude the significant losses that rich OECD countries will also suffer, this amount could rise to around US$291 billion per year in 2030 and more than US$1.1 trillion in 2050. , if countries manage to at least deliver their promised reductions in Paris and limit global warming to 2.5°C, which would be well above the 1.5°C target.
These estimates seem very conservative when we know that the last catastrophic floods in Pakistan alone caused 1,700 deaths and more than 30 billion in damages.
The costs don’t stop there, however. Rich countries also committed in 2009 to help poor countries reduce their GHG emissions through funding that would increase to $100 billion per year from 2020, after which it could be revised increase from 2026. But this amount has still not passed the 84 billion mark. In fact, it is 1000 billion per year that developing countries (minus China) would need by 2025 and about 2400 billion by 2030, half of which will have to come from developed economies, warned the beginning of the month a group of experts led by the famous British economist Nicholas Stern.
However, this is not the only place where we are lagging behind in this area. According to a recent general picture of the situation drawn up by the specialized research group Climate Policy Initiative, « climate finance » probably amounted to between 850 and 940 billion last year, which would represent an increase of more than double compared to ten years earlier (364 billion). However, we are still a long way off, since this amount will have to be multiplied by four by 2030 (4300 billion per year) and by eight by 2050 (7600 billion per year) to have a chance of limiting global warming. planet at 1.5°C.
And it’s not just the total that counts, there’s also the way to reach it. In the past 10 years, three-quarters of this financing has been concentrated in North America, Western Europe and Asia, mainly China. Only 16% came in the form of free financial aid or cheap financing, which is another problem for most developing countries with limited borrowing capacity.
If the financial effort deployed in the renewable energy sector on the eve of the COVID-19 pandemic was already equivalent to more than a quarter (28%, at 323 billion) of the annual average that will be required in 2050 to reach the target of 1.5°C, we were much further from the target in the sectors of transport (6%), building and infrastructure (6%) or the management of agricultural land, forestry and fishing (3 %). From approximately 50 billion in 2019-2020 (19%), the financing of measures to adapt to the effects of climate change must, for its part, be multiplied by five by 2050.
Who’s the bill?
Faced with this waltz of billions, it is easy to get dizzy. But the 4.3 trillion dollars of funding per year allocated to the green transition and adaptation in 2030 will represent less than 5% of the global economy, argues the report by the Climate Policy Initiative.
But we won’t get there unless we find a way to better harness the tremendous economic power of the private sector, which currently accounts for only half the effort, experts say. .
Countries that do not apply sufficient carbon pricing could, for example, see their companies being forced to pay a tax at their borders, the proceeds of which would go to the green transition, proposed Nicholas Stern. But, more importantly, governments must send private actors the right political and economic signals and make better use of their own financial resources.
It is through rules and subsidies for research and marketing that the public authorities have enabled the development of a renewable energy sector which can now fly on its own commercial wings, welcomes the Climate Policy Initiative. This is also what is happening with electric transport and what could easily happen in several other sectors where the necessary technologies are at hand.
Private investors also need to see more clearly where their long-term financial interest will lie. To do this, governments must themselves move away from a piecemeal approach to adopt overall strategies, specify what is considered a green investment and participate in the development of indicators.
As well as incentivizing the private sector to help out, it could help governments spend their money smarter, for example by stopping subsidizing fossil fuels, experts say. Indeed, from 2011 to 2020, the total of such grants in just 51 countries exceeded all climate finance by 40%.
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