Climate finance is the trillion-dollar issue that looms large at Cop28

Advocacy groups say developing nations need more help to transition to green economies and tackle climate change effects

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A landmark agreement on a loss and damage fund on the opening day of Cop28 has highlighted the critical role of climate finance in safeguarding the environment for generations to come.

The breakthrough deal will see rich nations financially support developing countries affected by climate change-linked disasters.

The wider topic of climate finance will continue to be a key issue under discussion at the UN conference over the coming days.

It centres on how countries will pay for mitigation – efforts to cut greenhouse gas emissions, and adaptation – adjusting to climate change.

So far it has proved a difficult subject, with concern high that developing countries are not being given sufficient help to transition to green economies and to reduce the impact of climate change.

Here, The National looks at all aspects of climate finance and considers the issues likely to be part of the negotiations at Cop28.

What is climate finance?

Climate finance encompasses everything from emergency aid to countries that have suffered a climate disaster, such as an extreme weather event, through to complex financial mechanisms to encourage green investment in electric car battery plants.

At the 2009 Cop gathering in Copenhagen – Cop15 – developed countries pledged to give $100 billion a year by 2020 to developing nations to help with mitigation and adaptation.

Mitigation includes assistance for countries to invest in renewable energy, while adaptation could involve construction of a sea wall to protect against rising sea levels and severe storm surges.

“The developing countries are potentially the big emitters for the next decade because they haven't yet caught up with the clean tech and clean energy,” Dame Heather McGregor, provost and vice principal of Heriot-Watt University Dubai and a former investment banker, told The National.

“If we want them to get there and we want them to stop emitting … let's get these people into clean tech. How are we going to do that and how is that going to be financed?”

Are poorer nations getting enough support?

While it is generally agreed that in 2020 the $100 billion funding target was missed, the Organisation for Economic Co-operation and Development (OECD) said in its recent report that $89.6 billion in climate finance was provided in 2021 by developed countries.

It said the $100 billion figure looks likely to have been met last year.

That target is separate from the loss and damage fund, which refers to harms from climate change that cannot be adapted to, like severe flooding, for example.

How much is really needed?

The $100 billion figure is just a fraction of the total climate financing needed by developing nations.

In a recent report, Scaling Up the Mobilisation of Private Finance for Climate Action in Developing Countries, the OECD said the amount needed “for climate action in developing countries alone” between now and 2030 was an estimated $2.4 trillion a year.

“These figures stand in stark contrast to the tens of trillions of capital globally, which could be tapped to close this gap,” the report said.

“Meanwhile, significant public resources and private investment continues to flow towards business as usual. Civil society studies estimate that the world’s 60 largest banks provided an estimated $742 billion of fossil fuel financing in 2021.”

To achieve climate goals, the amount that will have to be invested globally in clean energy alone by the early 2030s is as much as $4.5 trillion a year, Mark Carney, the former governor of the Bank of Canada and the Bank of England, wrote in The Economist this month. This compares to the $1.8 trillion likely to be invested this year.

Prof McGregor highlighted the importance of government action in helping to promote these types of investments, such as by ensuring that there is a universally agreed system of taxonomy, the set of criteria that indicate if economic activities are climate-friendly.

“Once you get to financing an individual gigafactory [for example], which is being built by a commercial entity … then you're into a commercial situation and you need governments to intervene to start to make all of this green finance run well,” she said.

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