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Friday, December 3, 2021

Global Climate Finance Falling Short of What Is Needed, Report Suggests

Global investment in climate-change-related projects rose in 2019 and 2020, but remained far below the level that would be needed to finance the transition to a low-carbon economy and minimize the impacts of climate change, new data showed.

The Climate Policy Initiative, a nonprofit research group that publishes a survey of climate finance every two years, identified $623 billion of climate-related investment in 2019 and $640 billion in 2020. Those were record figures, but growth has slowed, according to the CPI. It monitors a broad spectrum of public and private spending, spanning areas such as electric-car purchases and infrastructure funding.

The CPI said no sector is getting enough investment to shift to a low-carbon economy in line with the goals of the Paris agreement, the 2015 international treaty aimed at limiting climate change. In areas such as construction and vehicle sales, the CPI said low-carbon options get far less investment than high-emitting options. Stepping up investment is a key aim for the United Nations’ COP26 climate-change conference soon to be held in Glasgow.

“Climate investment should ideally count in trillions,” the CPI said. “Over the past few years, we’ve seen a flurry of initiatives targeting net-zero emissions and aligning finance with the Paris agreement. However, real economy investment volumes and emission trends are yet to show.”

The message echoed that of the International Energy Agency, which said this month that investment in clean energy would have to triple over the next decade for the world to reach net-zero greenhouse-gas emissions by 2050.

The CPI said the slow pace of growth is especially concerning because the full impact of the pandemic on national budgets hasn’t yet played out. On the other hand, it said Covid-19 stimulus packages have the potential to hasten the phaseout of fossil fuels.

Some 51% of global climate finance was provided by the public sector in 2019 and 2020, roughly in line with previous periods, the CPI said. More than two thirds of the public funding came from development finance institutions.

Within the private sector, the share of investment provided by commercial financial institutions more than doubled from the previous two-year period, driven by banks in the U.S., China and Western Europe stepping up funding for renewable energy. The CPI said banks are playing a more prominent role as providers of sustainable finance, and noted a sharp increase in banks setting climate-related targets in advance of the COP26 conference. The CPI noted some other areas where private-sector participation has increased, for instance in providing funding for green electricity grids.

The East Asia and Pacific region received far more climate-related investment—$292 billion—than any other region, with more than 81% of that investment in China. More than half the money invested in the region came from the public sector—a contrast with the U.S. and Canada, where 95% of funding was provided by private actors. The data showed most climate finance is invested in the region where it originated. The outlier was sub-Saharan Africa, which is highly dependent on flows of capital from outside.

Climate-change mitigation—renewable-energy projects and other investments designed to curb climate change—attracted the lion’s share of the funding. Adaptation funding rose by more than 50% from the previous two-year period, but was far short of the level that experts say would be required to make communities resilient to extreme weather, rising sea levels and other manifestations of a warming climate.

Funding for climate-change adaptation projects reached $92 billion across 2019 and 2020, nearly all of it from public sources, the CPI said, due in part to increased spending on water-management infrastructure. The annual adaptation costs of developing countries alone could hit $300 billion by 2030, according to estimates published by the United Nations Environment Program this year.

The CPI said gaps in the data could make it harder to coordinate the policy response to climate change. It said figures on public-sector spending and investment requirements aren’t universally available, while reliable figures for private-sector investment in areas such as green buildings and low-carbon industrial processes also are hard to come by.

Write to Ed Ballard at [email protected]

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