The United Nations bills the gathering of 70,000 ministers, executives, investors, academics and other hangers-on as a “stocktake”: a formal check on progress in global decarbonisation since the landmark Paris climate conference in 2015. If that designation was supposed to inject a note of dynamism into proceedings, it hasn’t worked. So-called Nationally Determined Contributions – each country’s plan to reduce greenhouse gases – imply global emissions will only fall 2% by 2030 compared to 2019, the U.N. says. That’s way less than the 43% drop needed to keep temperature rises to a tolerable 1.5 degrees Celsius.
Rather than drawing attention to this paucity of ambition, al-Jaber wants states to commit to trebling global capacity of renewable energy by 2030. Helped by breakneck growth in China, solar panel capacity additions are ahead of what’s needed to help restrict warming to 1.5 degrees, according to the International Energy Agency. The U.S. and other developed countries are busily handing out subsidies for renewable energy.
Progress in China and the West is largely a function of cash: these regions accounted for 84% of the $1.3 trillion committed to global climate finance in 2022. Yet these achievements count for little without similar advances in developing countries, which are responsible for a third of the world’s energy-related carbon emissions and host two-thirds of the world’s population. The IEA reckons investment in clean energy in China and the West needs to double by 2030 if the world is to limit global warming to 1.5 degrees. By contrast, developing markets require a fivefold increase.
Economists including Professor Nicholas Stern, the British author of a landmark 2006 study on climate change economics, have been crunching the numbers. They calculate that by 2030, developing countries need to invest around $2.4 trillion a year in order to decarbonise their economies. About $1.5 trillion of that will build the wind turbines and solar panels that advance the energy transition, while another $600 billion will help these economies adapt to the hit from a hotter planet. The remaining $300 billion will maintain agriculture and protect natural environments as the climate heats up.
Stern reckons about $1.4 trillion of this can come from emerging economies themselves. But the remaining $1 trillion will have to be financed by external sources. Private investors might stump up about half that amount. But they will only write those cheques if multilateral lenders like the World Bank put up around $300 billion, while developed governments fork out the remaining $200 billion via such avenues as bilateral “concessional” finance, which lowers the risk on investment projects by advancing cash at below-market interest rates.
Right now, public and private investors in the rich world are facilitating just $200 billion a year, according to Stern’s data. To unlock the required $1 trillion, the private sector would need to put up five times more than it does today. Financing from multilateral lenders would have to triple. New World Bank boss Ajay Banga is trying to unleash private capital with the help of his new advisory body, which features luminaries like former Bank of England Governor Mark Carney, Prudential Chair Shriti Vadera and BlackRock boss Larry Fink.
The problem is that the developed world has consistently missed targets to channel climate cash to less developed counterparts. The latest, a fund to pay for current damage stemming from climate change agreed at last year’s COP27 summit in Egypt, currently only requires rich-world countries to fill it on a voluntary basis.
Examples of the few real-life projects that are under way do not inspire confidence. Take the Just Energy Transition Partnership (JETP) that Indonesia signed with the U.S., Japan and a host of other well-off states last year. Launched as a $20 billion scheme to retire coal plants early, delays have prompted Indonesian President Joko Widodo to question the commitment of his rich-world backers.
One problem is that rich countries have less to spend. Many are running big budget deficits, while higher interest rates have increased the burden of public debt. Yet the project’s latest update also suggests the JETP might shutter less coal-fired generating capacity than expected, raising questions about Indonesia’s own commitment. Other JETPs like South Africa and Vietnam are also proceeding slowly.
Meanwhile, nearly a quarter of emerging markets have annual borrowing costs 10 percentage points above those of the U.S., the World Bank has warned. That imperils their ability to come up with the $1.4 trillion of annual green investment Stern thinks they might handle themselves by 2030. And even a $1 trillion annual transfer to poorer states won’t be much use if it is priced at market interest rates, as was the case with over half of all climate finance in 2022.
Al-Jaber has one trump card: the UAE’s status as a leading oil producer. High crude prices mean the Gulf country has earned over $200 billion in net oil export revenues over the last two years. In September al-Jaber announced a $4.5 billion scheme to deploy UAE state cash and private sector resources to help Africa decarbonise. UAE President Mohammed bin Zayed al-Nahyan may unveil a larger plan at COP28, a person familiar with the situation told Breakingviews.
Even a pot of cash 10 times the UAE’s African scheme wouldn’t solve the inherent practical and political problems of investing huge resources overseas. Nor would it make reform of multilateral lenders any easier. But it would at least open up a different path to decarbonising the developing world. It would also give COP28 a better chance of having a lasting impact.
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(This article has been corrected in paragraph 12 to state that Mohammed bin Zayed al-Nahyan is president, not crown prince.)
CONTEXT NEWS
The 28th Conference of the Parties (COP28) will take place in Dubai between Nov. 30 and Dec. 12.
Editing by Peter Thal Larsen, Oliver Taslic and Thomas Shum
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