BELEM (Brazil), Nov 12 — Countries seeking to shift to clean energy while preparing for extreme weather and other effects of a warming planet will need vast sums of money. As the costs and risks of global warming rise, the debate over climate finance has become increasingly tense.
Here’s what you need to know:
What is climate finance?
This refers to all funding from governments, development banks, private investors and philanthropies aimed at helping countries cut greenhouse gas emissions or adapt to climate impacts — for example, through renewable energy projects or flood defences.
Why does it matter?
Without climate finance, poorer countries will struggle to decarbonise their economies and protect vulnerable populations. Because these countries contributed the least to global emissions, the 1992 UN climate treaty states that they should bear less of the burden in addressing the crisis.
Climate finance has become a litmus test for trust in international climate negotiations, with the amount committed by wealthy nations seen as a measure of their seriousness in tackling the problem.
What are the main disputes?
Countries disagree about who should pay for climate finance, how much is needed and how the funds should be distributed. Historically, only industrialised countries such as the US, Japan and European nations have contributed, but pressure is growing on fast-developing, high-polluting countries like China, India and the Gulf states to also chip in.
Beijing insists it should continue to be treated as a developing nation under the UN climate treaty.
Developing nations — many already struggling with heavy debt — are also demanding more grants rather than loans. A World Bank report in December showed that external debt held by low- and middle-income countries had risen by more than US$205 billion (RM850 billion) in 2023 to a record US$8.8 trillion.
Which goals have been set and met?
The first global climate finance targets were set in 2009, with wealthy countries pledging US$30 billion annually. In 2010, that figure was raised to US$100 billion by 2020, though the full annual amount was not reached until 2022.
Separately, multilateral development banks channelled about US$137 billion in climate finance in 2024, with 62 per cent — or US$85.1 billion — going to low- and middle-income countries. A year earlier, the total stood at around US$125 billion.
Last year’s COP29 agreement merged the two donor groups to set a new annual target of US$300 billion by 2035. Until then, the target is assumed to remain at US$100 billion, though this is not explicitly stated in UN documentation.
How much money is involved?
Funds from wealthy governments increasingly serve as seed money to attract private investment in climate-friendly projects.
The non-profit Climate Policy Initiative estimates that global climate finance flows reached about US$1.46 trillion in 2022, roughly half from private investors, and rose to nearly US$1.6 trillion in 2023.
At COP29 in Baku, countries agreed to work on boosting annual funding to at least US$1.3 trillion, with finance ministers producing a “Baku-to-Belem Roadmap” of recommendations.
However, this remains far below the US$7.4 trillion the CPI estimates is needed each year through 2030 to meet global climate goals.
For developing countries outside China beyond 2030, the Independent High-Level Expert Group on Climate Finance puts the annual requirement at US$2.4 trillion, rising to US$3.3 trillion by 2035.
What now as countries scale back?
Rich nations have reduced development aid in recent years amid concerns over energy security, economic stability and rising costs from war and artificial intelligence. Last year’s overseas development aid totalled US$212.1 billion — a drop of more than seven per cent from the previous year, according to preliminary OECD estimates.
This shift is turning attention to ways of drawing more private money, through reforms to financial regulations, credit ratings and multilateral lending, as well as new financial instruments.
One proposed approach is “blended finance”, where governments and philanthropies absorb losses or accept lower returns to encourage private investment by reducing risk.
Brazil is urging countries at COP30 to contribute to the newly launched Tropical Forests Forever Facility (TFFF), which aims to raise US$25 billion in public and philanthropic funding to mobilise another US$100 billion in private capital. — Reuters