Baku (Azerbaijan) | Just as a simple lever can move heavy objects, rich nations are hoping another kind of leverage — the financial sort — can help them come up with the money that poorer nations need to cope with climate change.
It involves a complex package of grants, loans and private investment, and it's becoming the major currency at annual United Nations climate talks known as COP29.
But poor nations worry they'll get the short end of the lever: not much money and plenty of debt.
Half a world away in Brazil, leaders of the 20 most powerful economies issued a statement that among other things gave support to strong financial aid dealing with climate for poor nations and the use of leverage financial mechanisms. That was cheered by climate analysts and advocates. But at the same time, the G20 leaders noticeably avoided repeating the call for the world to transition away from fossil fuels, a key win at last year's climate talks.
Money is the key issue in Baku, where negotiators are working on a new amount for aid to help developing nations transition to clean energy, adapt to climate change and deal with weather disasters. It'll replace the current goal of $100 billion annually — a goal set in 2009
Climate cash could be in the form of loans, grants or private investment
Experts put the need closer to $1 trillion, while developing nations have said they'll need $1.3 trillion in climate finance. But negotiators are talking about different types of money as well as amounts.
So far rich nations have not quite offered a number for the core of money they could provide. But the European Union is expected to finally do that and it will likely be in the $200 to $300 billion a year range, Linda Kalcher, executive director of the think tank Strategic Perspectives, said Tuesday. It might be even as much as four times the original $100 billion, said Luca Bergamaschi, co-founding director of the Italian ECCO think tank.
But there's a big difference between $200 billion and $1.3 trillion. That can be bridged with “the power of leverage," said Avinash Persaud, climate adviser for the Inter-American Development Bank.
When a country gives a multilateral development bank like his $1, it could be used with loans and private investment to get as much as $16 in spending for transitioning away from dirty energy, Persaud said. When it comes to spending to adapt to climate change, the bang for the buck, is a bit less, about $6 for every dollar, he said.
The World Bank president said all the multinational development banks could spend $125 billion on climate loans. Then those loans could be used as leverage for even more spending, several climate economics experts said.
“That's a big lever,” said Melanie Robinson, global climate economics and finance director at World Resources Institute.
But when it comes to compensating poor nations already damaged by climate change — such as Caribbean nations devastated by repeated hurricanes — leverage doesn't work because there's no investment and loans. That's where straight-out grants could help, Persaud said.
For developing nations, the talk of loans brings fear of debt
If climate finance comes mostly in the form of loans, except for the damage compensation, it means more debt for nations that are already drowning in it, said Michai Robertson, climate finance negotiator for the Alliance of Small Island States. And sometimes the leveraged or mobilized money doesn't quite appear as promised, he said.
“All of these things are just nice ways of saying more debt,” Robertson said. “Are we here to address the climate crisis, which especially small developing states, least developed countries, have basically done nothing to contribute to it? The new goal cannot be a prescription of unsustainable debt.” His organisation argues that most of the $1.3 trillion it seeks should be in grants and very low-interest and long-term loans that are easier to pay back. Only about $400 billion should be in leveraged loans, Robertson said.
Another method for funding climate finance could be an international tax. That could be on shipping, aviation or billionaires, experts, such as Robertson, suggested.
That would be politically difficult, but “the reality is that the world cannot tax up to $1 trillion of the taxpayers to make this happen, which is why we have to think about development finance and climate finance,” said United Nations Environment Programme Director Inger Andersen suggested.
Leverage from loans “will be a critical part of the solution,” Andersen said. But so must grants and so must debt relief, she added.
Bolivia's foreign policy director and chair of the Like-Minded Group negotiating bloc Diego Balanza called out developed countries in speech Tuesday, saying they have “squarely failed to provide committed support to developing countries.” “A significant share of loans has adverse implications for the macroeconomic stability of developing countries,” Balanza said.
Praise and worry about G20 statement
The G20's mention of the need for strong climate finance and especially the replenishment of the International Development Association gives a boost to negotiators in Baku, ECCO's Bergamaschi said.
“G20 Leaders have sent a clear message to their negotiators at COP29: do not leave Baku without a successful new finance goal,” United Nations climate secretary Simon Stiell said. “This is an essential signal, in a world plagued by debt crises and spiraling climate impacts, wrecking lives, slamming supply chains and fanning inflation in every economy.” But analysts and activists said they were worried because the G20 statement did not repeat the call for a transition away from fossil fuels, a hard-fought concession at last year's climate talks.
Veteran climate talks analyst Alden Meyer of the European think tank E3G said the watering down of the G20 statement on fossil fuel transition is because of pressure by Russia and Saudi Arabia. He said it is "just the latest reflection of the Saudi wrecking ball strategy" at climate meetings.
There's also debate in Baku about whether to reiterate last year's statement calling for transition away from fossil fuels.
