Establishing financial goals without the necessary revenues and systems to fulfill them is a potential source of disappointment. However, this year holds a historic and distinct significance. Climate finance has perennially been a key focus at the start of each year, but the current circumstances present a unique opportunity for either significant success or failure.<\/p>\n
The conclusion of the previous year marked a historic milestone as the UN climate negotiations, after over three decades, pinpointed the core driver of the climate crisis<\/a> \u2013 fossil fuels. A comprehensive strategy to phase out these fuels was outlined, demanding substantial investments.<\/p>\n The high-level expert group on climate finance estimates that, by 2030, developing countries<\/a> (excluding China) will require an annual climate investment of $2.4 trillion. Achieving this ambitious target poses considerable challenges.<\/p>\n Renewable energy<\/a> stands out as the most cost-effective form of electricity generation in a majority of countries. Forecasts suggest that its affordability will further increase, driven by technological advancements and economies of scale that contribute<\/a> to cost reduction.<\/p>\n They also offer greater price stability since they don\u2019t rely on fuel purchases. However, the upfront capital investment needed is often higher than for fossil<\/a> power plants. For many countries where market interest rates exceed 10 percent, this puts clean energy<\/a> ambitions out of reach.<\/p>\n On top of this, mounting climate impacts are hitting the poorest and most vulnerable communities<\/a> around the world. The cruel injustice of the climate crisis<\/a> is that those who did the least to cause the problem are hit first and worst by its impacts, and have the least capacity to invest in their resilience.<\/p>\n New finance foundations But there are three foundations governments<\/a> need to lay this year that can actually make an ambitious goal achievable: reforming multilateral development banks, addressing debt, and initiating innovative taxation.<\/p>\n Let\u2019s start with the oldest of the multilateral development banks<\/a> (MDBs). The World Bank<\/a> turns 80 this year and is notorious for its overbearing and cumbersome bureaucracy.<\/p>\n MDBs were created to provide financing to countries on more favourable terms than the market to invest in development<\/a>, but have grown long in the tooth.<\/p>\n The ideas for what needs to change are all there: fully aligning with the Paris Agreement\u2019s goals by ending financing for fossil fuels; reforming their blunt eligibility rules to allow middle-income countries to access cheaper financing for climate projects; and raising more capital through both conventional\u2014government contributions and bond issuances\u2014and unconventional means, such as rechanneling IMF Special Drawing Rights<\/a>.<\/p>\n Debt debates Underlying these countries\u2019 fiscal situations are the fingerprints of climate change<\/a>. Many developing countries face a climate investment trap: existing debts and high interest rates make it costly to borrow to invest in climate mitigation<\/a> and adaptation.<\/p>\n As a result, they are more vulnerable when disasters hit, meaning higher recovery costs and a hit to credit<\/a> ratings, making future investments even more expensive.<\/p>\n The United Nations Environment Programme\u00a0estimates<\/a> that climate change has raised average borrowing costs for vulnerable countries by 117 basis points, equating to an extra $40 billion in interest payments over the past decade. Countries need a way to break out of the climate investment trap if the world is to meet its climate goals<\/a>.<\/p>\n The current multilateral process for dealing with sovereign debt, the G20 Common Framework, is not delivering; as a piecemeal approach, it is neither common nor a framework. Major economies in the G20 need to acknowledge this and develop a new fit-for-purpose strategy<\/a> for dealing with debt.<\/p>\n A promising new initiative launched at Cop28 was the\u00a0Expert Review on Debt, Nature and Climate<\/a>. Led by Presidents Macron of France, Petro of Colombia and Ruto of Kenya, the review will bring together leading experts to independently examine how sovereign debt can hinder climate<\/a> ambition and explore solutions.<\/p>\n Once debt crises are addressed, more sustainable financing options must be made available<\/a> for countries, otherwise they are likely to fall back into crisis. Providers of climate finance must ensure that their finance is structured to best address country and project needs.<\/p>\n Too often it is the other way around: due to political constraints, contributors have preferences for debt-creating instruments and try to shape climate projects<\/a> to fit these in ways that may not deliver the biggest benefits for people or the planet.<\/p>\n New taxes<\/strong> Getting polluters to pay the costs of their actions\u2014such as taxing the fossil fuel industry\u2019s\u00a0$4 trillion-a-year<\/a>\u00a0profits, a levy on the emissions of the shipping industry, and surcharges on business and first-class flights\u2014offer much more equitable ways of raising revenues to finance the response to climate change.<\/p>\n Antigua and Barbuda, Barbados, France, Kenya and Spain have already come together to set up a\u00a0Taskforce on International Taxation<\/a>\u00a0that will look into these and other measures and agree on specific proposals for raising additional climate finance by Cop30.<\/p>\n Progress on all of these fronts is essential to lay the groundwork for a successful finance outcome at Cop29. We have to learn from history: setting climate finance goals without the revenues and systems to deliver on them is a recipe for disappointment. This time must be different.<\/p>\n
\n<\/strong>We know what needs to be delivered at Cop29 in Azerbaijan: all the way back in 2015 governments agreed to set a new climate finance goal, beyond the existing\u00a0$100 billion per year<\/a>\u00a0target, before 2025.<\/p>\n
\n<\/strong>On debt, governments have finally recognised the link between countries\u2019 fiscal space and their ability to undertake climate action, and emphasised the importance of low-cost financing to address this. The pandemic has turbocharged a sovereign debt crisis<\/a> that was already brewing before 2020. The IMF has\u00a0warned<\/a>\u00a0that 60 percent of low-income countries and 25 percent of emerging markets are in or near debt distress.<\/p>\n
\nLastly, the most controversial words in a major election year are going to be unavoidable: new taxes. We know that current government contributions to climate funds<\/a> have been a drop in the ocean until now.<\/p>\n