Climate finance can help developing countries cut their emissions.



Climate Change

What is the Green Climate Fund and does it matter?

At COP15 in Copenhagen in 2009, rich countries promised to provide US$100 billion a year by 2020, which led to the formal establishment in 2010 of the Green Climate Fund with the aim to support developing economies to address climate change. Whatever metric or definition of climate finance you use, we have clearly not achieved the goal of US$100 billion a year yet. That figure will instead be reached in 2023 according to the latest estimates, though some at COP26 are more optimistic: both the EU’s Ursula von Leyden and US climate envoy John Kerry have said the goal will be met in 2022.

However, because there’s no clear definition of what counts as climate finance, there are huge discrepancies in estimates of what has been committed so far. The OECD estimate (which is what the COP26 climate finance delivery plan is based on) is at the upper end, while Oxfam estimates that just over one-fifth of what has been promised has materialised so far.

Early investments generate rapid cost reductions, while further delay simply slows innovation and compounds the climate crisis.

How much is actually needed

Estimates of the amount of finance needed to actually decarbonise the global economy range between US$50 trillion and US$90 trillion. With a thousand billions in a trillion, that US$100 billion everyone is referring to is merely a decimal point.

It is also near impossible to figure out exactly how much green finance will be needed, since the total amount required depends on where the money goes and how soon we spend it. Early investments in new technologies generate rapid cost reductions and will reduce asset stranding (wasted investments in already obsolete carbon-intensive infrastructure). Further delay simply slows innovation and compounds the climate crisis.

Climate change will shrink the economies of rich, poor, hot and cold countries alike and will make it more difficult and more expensive to raise the finance needed to decarbonise in the future. The cost of early action is far cheaper than the cost of delayed action.

We have just seen a comprehensive and coordinated cross-country policy response to the pandemic, with more than US$16 trillion of government support rolled out globally (and at super-fast speed). Climate change will require the same coordinated response, and the pandemic response shows that significant financing for decarbonisation can be relatively quickly mobilised.

The bottom line is that mobilising climate finance is a win-win for both the developed and developing economies. And in the context of what will really be needed to address climate change, that US$100 billion is really just a distraction.