COP FOR CONSENSUS
- With climate finance as a priority for CoP29, the focus on supporting the Global South reflects the urgency of addressing the worst-affected regions, which include many developing nations. However, cooperation rather than confrontation between the Global North and Global South is essential to forge a practical path forward.
Growing Finance Needs:
- Rising Demands: The Global South now needs over $1 trillion annually, a significant jump from the $100 billion per year pledged back in 2009. Even though climate finance exceeded the $100 billion target for the first time in 2022, over half of it was in loans, burdening already debt-ridden economies. Many of these countries allocate around 40% of their budgets to debt servicing instead of climate adaptation.
- Concessional Finance Gaps: The cost of capital for green investments is far higher in developing countries than in wealthier ones, with countries like Germany enjoying much lower capital costs for renewable infrastructure than India or Sub-Saharan Africa, where risk perceptions further inflate costs.
Climate Justice and Funding Responsibility:
- The latest UN draft on the New Collective Quantified Goal proposes that nations with high emissions and economic strength should lead in funding contributions. However, China and India have voiced concerns, noting that their economies cannot throttle growth to offset historical emissions by developed countries. This sentiment is echoed by other BRICS nations, underlining the need for balanced responsibility.
Proposed Solutions
Incentivize Higher Returns for Investors:
- Boosting Profitability: Global South countries could raise investor returns to make projects more attractive. For example, increasing expected returns from 12-13% to around 17-18% on infrastructure projects could encourage investors to reinvest sooner. Tax breaks, innovative revenue-sharing, and subsidies in promising sectors, such as green hydrogen or electrified public transit, could further appeal to foreign investors.
- Volume Over Rate: Although individual project revenue might drop, increased investment volumes can more than compensate, boosting economic growth and green infrastructure.
Using Climate Finance as a Risk Backstop:
- De-risking Green Projects: Instead of loans or grants, climate finance could underwrite large-scale renewable energy projects, such as solar, wind, and hydropower, addressing lenders' risk perceptions. This measure could assure investors in high-risk markets that projects have financial backing.
- India as a Model: Given India’s proactive renewable energy policies, piloting this backstop approach could serve as a blueprint for the Global South.
Looking Ahead at CoP29:
- CoP remains a pivotal forum where countries negotiate climate commitments. With greater flexibility, especially on the part of the Global South, CoP29 could set a new standard for climate finance, building resilience and development pathways for the world’s most vulnerable regions.