Climate change challenge

Funds mobilised are inadequate

The increasing frequency of extreme weather events and the intensity of heat waves in much of India is a reminder of rapid shifts in climate and its potential consequences for a country like India. While India is investing to increase the share of renewable energy in its energy mix, the problem of climate change cannot be addressed by individual developing countries. Notably, developed countries have committed themselves to providing financial support to developing ones. In this context, a new report by the Organisation for Economic Co-operation and Development highlights that after years of failing to meet climate-finance commitments, developed countries were able to mobilise $115.9 billion for developing countries, exceeding the annual $100 billion goal for the first time in 2022, two years later than the original target year of 2020. Predictably, the delay in fulfilling the pledge generated resentment and doubt among developing nations regarding future climate-funding promises. Surpassing the target is, therefore, being hailed as a small but significant step towards empowering developing countries to adopt adaptation and mitigation measures to counter climate change globally.

At the Copenhagen Climate Change Conference in 2009, the developed countries committed themselves to mobilising $100 billion per year by 2020. Further, while signing the Paris Agreement in 2015, the countries agreed to collectively mobilise $100 billion through 2025, before setting a new collective quantified goal (NCQG) to replace the existing goal of $100 billion per year. The NCQG will hopefully be adopted this year at the Conference of Parties (COP29) in Azerbaijan. Currently, public climate finance (bilateral and multilateral) accounted for nearly 80 per cent of the amount raised in 2022. Private climate finance grew recently but it remains far lower than public sources. About 60 per cent of climate finance is directed towards mitigation, especially in energy and transport sectors. The amount raised for adaptation finance is significantly less.

However, most of the support is in the form of loans, not grants and equity investment. This is against the concept of climate justice. As climate finance continues to be predominantly delivered as loans, a large share of which is non-concessionary, it adds to debt pressures across regions and income groups. Among the developing countries, lower-middle-income countries remain the main beneficiaries, followed by upper-middle-income countries. Besides, unfortunately, $100 billion a year is not enough compared to the support developing countries need to achieve climate goals in accordance with the Paris Agreement. In the United Nations Framework Convention on Climate Change’s recent analysis of financing needs, developing countries require about $6 trillion by 2030 to meet less than half their existing Nationally Determined Contributions, rendering the $100 billion target highly insufficient.

Clearly, the target was not needs-based. Rather, it acted as a political commitment that recognised developed countries’ responsibility to provide financial support to developing countries. Finance for fossil-fuel projects also continues unabated at more than $1 trillion annually to companies supporting new development projects, questioning the effectiveness of climate finance. While the NCQG promises to channel greater funds toward urgently needed climate action, countries must first reach a consensus on some of these foundational questions, from the dollar amount of the goal to the share of contribution by each country to tackling non-green projects.