Climate finance gushes in. Yet, it’s a Drop in the Ocean

“Finance must be the bedrock to scale-up climate action on all fronts,” reiterated Simon Stiell, Executive Secretary, UN Climate Change, as COP28 drew to a close in Expo City, Dubai.

The world is currently on track to warm by 2.7 degrees Celsius by the end of the century. Without drastic steps, limiting the temperature rise to 1.5 degrees Celsius above pre-industrial levels will become an impossible task – the message has been loud and clear. But action has been lagging.

Let’s get this straight - without climate finance there can’t be climate action. Climate action requires large-scale financial investments in renewable energy infrastructure, sustainable agriculture, climate resilient seeds and other measures.  While all the countries must reduce their emissions and adapt to climate change, many lack the resources and the technology to do so. This calls for international cooperation in funding mitigation as well as adaptation strategies. The world did come together at COP28 and opened the climate finance tap. But the fund flow stayed well below the targeted $100 billion annually.

Loss and Damage Fund

The 28th edition of Conference of Parties (COP) started off on the right footing. The Loss and Damage fund, a long-standing demand to fight climate vulnerabilities, was launched on the very first day. The operationalisation of the fund was a matter of climate justice. The Loss and Damage fund seeks to create a mechanism to bankroll developing countries for impacts of climate change that they have done little to cause.

The developing and under-developed nations have been bearing the brunt of the advances made in the developed ones. Industrialized countries such as the United States built their wealth by producing and burning  fossil fuels. Developing nations such as Colombia, Kenya, Pakistan and the Philippines, on the other hand, have contributed far less CO2 emission, but battle undue harm because of their smaller economies and geographic locations. And this is the biggest injustice of the climate crisis and has been impeding a just transition towards a sustainable future.

At the COP28 summit, the UAE and Germany pledged the seed money of $100m each to the Loss and Damage fund. While Italy and France promised $108m each, the US, historically the worst greenhouse gas emitter, pledged $17.5m. Japan offered $10m and Canada set aside $16m. Overall, the countries took the tally to over $800m by the end of COP28. 

Just 0.2% of the losses

However, the millions promised are just a drop in the ocean.  The $800m is equivalent to less than 0.2% of the economic and non-economic losses developing countries face from the climate crisis every year. Estimates for the annual cost of the damage have varied anywhere from $100bn to $580bn, say reports. These funds are to be utilized towards reconstruction, rehabilitation and relocation after an extreme climate event.

We are talking about rebuilding lives, salvaging communities, here. Experts opine the meager contributions from super powers signal a persistent indifference to the plight of the developing world. Activists have emphasised that the loss and damage fund should not be viewed as a charity but as an obligation and as a financial responsibility. Further, many questions such as – “Will the funds be renewed?”, “Who will get the money and what are the conditions to access the fund?” – persist over the operationalisation of the fund.

Multilateral funds

Besides Loss and Damage, a number of multilateral funds were announced, pooling contributions from countries, development institutions and businesses for energy transition, health care initiatives, technology investments, disaster relief and more. The UAE pledged $30bn to a new fund to invest in climate-friendly projects across the globe, with $5 bn for the Global South. The World Bank committed to increase climate funding to 45% of its total lending, which equates to an increase of $9bn annually. The Bill & Melinda Gates Foundation and the UAE pledged a combined $200m to help farmers in sub-Saharan Africa and South Asia build resilience and adapt to climate change. Brazil's national development bank launched a $205m effort to restore degraded or destroyed woodland in the Amazon by 2030.

The World Bank announced that 45% of its financing will go to climate by 2025 - partly for adaptation and partly for slashing emissions. Its President Ajay Banga laid out five target areas in climate finance - lowering methane emissions from waste management and farming; helping Africa with greener energies; supporting voluntary carbon markets and allowing developing countries hit by natural disasters to pause debt repayments.

Adaptation Fund

Funding for mitigation and adaptation are two sides of the same coin. The less we mitigate, the more we have to adapt. The Adaptation Fund, created in 2001, focuses on climate adaptation. According to the UN, all developing countries are eligible for funding. It allows developing country institutions to receive it by circumventing financial intermediaries.

The goal for 2023 was to raise $300m for the Adaptation Fund, but at COP 28 approximately $169m was pledged, a meager 56% of the intended amount.

Carbon taxes for climate finance

To generate funds for climate finance, developing countries are advocating for the implementation of new carbon taxes. The initiative aims to secure climate finance through taxes imposed on various industries such as fossil fuel companies, aviation, and financial transactions. This agenda has been a topic of discussion for years, but its economic influence has been relatively limited thus far!

A report published recently by the UN says developing countries need at least 10 times more money for adapting to the effects of climate change than what they've been getting. Another report by the Organisation for Economic Co-operation and Development (OECD) says developing countries will need around $2.4 trillion every year for climate investments between 2026 and 2030. Clearly, there is a long way to go!

Ehfaaz at COP28

It has been an exciting two-weeks for Ehfaaz Recycling. The team had the privilege of sharing the stage with world leaders and climate science experts at COP28. We were invited to share our expertise as part of multiple panels in the Blue and Green Zones. Ehfaaz also participated in the Climate Action Innovation Zone, where we showcased our climate solutions and contributed to conversations on ground-breaking innovation to help accelerate the transition to a more circular economy and thereby combat climate change. That’s not all, we unveiled multiple partnerships and collaborations over the course of the event.

We left feeling both enlightened and motivated. The lessons learned and connections made during this climate summit will drive our efforts to carry the momentum forward. We will come back with more details on this fantastic experience and our key learnings. Let’s keep the conversation going and turn these inspirations into actions.