By Sameh Shoukry, COP27 President-Designate and Egyptian Minister of Foreign Affairs
This year’s annual meetings of the World Bank and the International Monetary Fund have taken on more than their usual significance. At stake is the world’s very ability to cooperate on climate, and to work together to achieve a just and low carbon and climate resilient transition.
The Paris Agreement guiding international climate action is a ‘grand bargain’, whereby developing countries agree to make their fair contribution to tackle a crisis, they did not cause, in return for the financial support they need to complement their domestic action, while also pursuing their sustainable development and poverty eradication objectives.
But as we approach the UN Climate Summit this November in Egypt, this bargain has been thrown into question, and is undermining its prospects for success.
It is in that context that this month’s Annual Meetings take on a special meaning, as it provides a chance to change the way we think and talk about climate finance, how to provide it, through which instruments and access modalities. If we do so, we can breathe new life into global climate action. If we fail, a rising sense of injustice may be further exacerbated, fragile trust eroded, and make a difficult task even harder.
I recognize that the agenda is full. Spiraling food and energy prices, geopolitical tensions, and a growing public finance crisis in many countries all demand attention.
Yet the climate crisis is overriding. Heatwaves and droughts, fires, storms, sea level rise, land degradation and desertification, floods, are devastating societies around the world and erasing many development gains. Millions are facing famine, agricultural collapse, and an intensifying battle for resources. And this is at 1.1°C warming. With every extra tenth of a degree, the impacts will get worse, with a differentiated impact specially on those who are still developing and lack the resources and means.
So let us start by acknowledging this reality. There can be no fulfilling the missions of the Bretton Woods institutions and wider IFIs without addressing climate change, and there is no addressing climate change without restoring financial justice to our international system and a focus to deliver on a just transition.
More than a decade ago, in 2009, developed countries pledged to provide $100bn a year in climate finance by 2020. Today, that promise remains unfulfilled – and is only a fraction of what is needed. According to the Standing Committee of Finance of the UNFCCC, the cost of implementation of NDCs at developing countries is estimated at about USD 5.8 trillion until 2030.
Developed countries must also honor the Glasgow pledge to double adaptation finance by 2025 – so we can prepare and protect ourselves from the climate impacts already locked in. And the time is well overdue to address the massive loss and damage from climate change suffered by people who did the least to cause it. This is contentious, yet no strengthened faith in and credibility of the global climate agenda can be achieved without it.
The good news is that the investments we would make to tackle climate change can also play a role in attaining sustainable development. And the tools and techniques at our disposal are becoming more effective all the time. Investment in climate tech is booming, from renewables, to new carbon removal technologies, to electric transport. Clean energy gets cheaper every year.
Climate investment also makes sound financial sense. According to the IMF’s World Economic Outlook for 2022, the near-term costs of cutting carbon emissions enough by 2030 to reach net zero by 2050 are both manageable, and smaller that the costs of inaction and delay.
This is both the case for developed countries, and for the Global South. Yet developing countries have fewer resources to do this, and the costs will likely be higher. So, supporting them is both good policy, and the morally right thing to do. It is unfair to ask countries who contributed least to the climate crisis to shoulder the costs of transition.
So how can international financial institutions help? First, they must continue to underline the imperative for just climate action in their public statements: there can be no doubting the primacy of this task, clear messages and clearer policies are much needed now.
Second, they must revisit their policies in terms of access, risk appetite and funding instruments and seek ways to provide additional, highly concessional grant-based climate finance to the Global South. These annual meetings are a chance to think more creatively about how to adapt services and practices to our climate reality – both to achieve emissions cuts, and, urgently, for adaptation too.
Over recent weeks, there has been growing scrutiny of the global financial architecture. On the margins of the UN General Assembly in New York, developing countries called for the redistribution of special drawing rights, a suspension of interest surcharges for heavy borrowers in need of funds, consider ways for debt relief and provide concessional funding for climate-resilient infrastructure.
There have also been calls for the IMF and World Bank to revisit their recommended debt-to-GDP ratios, in the context of borrowing to tackle climate change and its effects.
Without taking a specific position on these demands, their direction seems sensible. If the IFI’s are to stay relevant in the 21st century, they must do more to address these challenges – and that means evolving how they do business.
So let us take this opportunity and help set the international financial system on a new course – one which fully recognizes the climate crisis, and our mutual interest in helping each other overcome it. If we do so, we stand a chance of building a more just and sustainable world together.
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