Who Funds the Efforts to Curb Climate Change?

More than 40,000 international experts are gathered in Glasgow to find solutions to curb global warming. Optimists hope that the agreements will allow the planet’s temperature to be kept 1.5 degrees above pre-industrial levels, which would help avoid many of the worst consequences of climate change. Pessimists, on the other hand, predict an increase of more than 2 degrees by 2050, which would bring about disastrous and irreversible consequences for global sustainability.

But one thing that both optimists and pessimists agree on, is that any solution to reduce greenhouse gas emissions requires financing. Forest and moorland conservation measures, for example, are unthinkable without financial resources to boost the competitiveness of local communities and ensure the preservation of natural spaces. Similarly, large investments are needed to obtain clean energy, for example, solar panels, wind farms and wind turbines, among others.

Globally, investments in energy projects need to be doubled to USD 5 trillion by 2030 to meet the challenge of being carbon neutral by 2050. At the same time, we need to invest USD 8.1 trillion by 2050 to protect natural ecosystems and biodiversity.

Green finance in Latin America reached nearly USD 8 billion in 2019, but we are still far from bridging the gap of at least USD 110 billion we need in order to adapt to climate change. To cope with these overwhelming numbers, we need to adopt new financial instruments that guarantee current financing while attracting new investment from the private sector.

At present, production systems continue to rely heavily on fossil fuels and polluting energies, and thus, becoming carbon neutral seems inconceivable without a profound transformation of productive industries. In this sense, multilateral banks will play a pivotal role in catalyzing funds and offering the security that investors need to make large disbursements that can change productive paradigms.

According to Stephany G. Jones, Director of Financial Markets at Columbia University’s IPD, at one of COP26 events in Glasgow, development banks play a key role in protecting investments, mitigating climate finance risks and fostering innovation.

On this front, one of the most dynamic players is the International Development Finance Club (IDFC), an organization with 26 members working together to deliver on the Paris Agreement, joining forces to promote and leverage investment in sustainable development around the world. Over the past six years, the IDFC has mobilized more than USD 1 trillion in green financing.

One of the most promising trends for climate finance is the carbon market, i.e. countries engaging in transfers of emission reductions voluntarily or bindingly between them. These markets are not yet regulated and the agreement between the countries at COP26 will be essential for reactivation.

“Carbon markets are a great opportunity for Latin America and the Caribbean, as they are an efficient system to achieve climate finance. The region’s vast natural ecosystems play in our favor, as they are fundamental to preserving the global climate balance,” says Jorge Arbache, Vice President of the Private Sector at CAF.

Some good news that came out of COP 26 in Glasgow is the pledge of various stakeholders, especially multilateral agencies, to commit their financial resources. In this sense, CAF announced that it will allocate USD 25 billion over the next five years to finance green operations that help the countries of the region honor their environmental and climate commitments. The agency has set out to become the green bank in the region, and is currently accredited with the main green funds for global financing, such as the Adaptation Fund, the Global Environment Facility (GEF) and the Green Climate Fund (GCF).

One of the agency’s first actions was the contribution of USD 1 million to support conservation efforts of the Eastern Tropical Pacific Seascape, an ecosystem shared by Colombia, Costa Rica, Ecuador and Panama, which generates USD 3 billion annually mainly from fishing, tourism and maritime transport.

“At this rate of financing, we will not become carbon neutral by 2030. We need to raise more capital, and that will only be possible with the integration of new financial instruments, such as the carbon market,” noted Arbache.