- Can you explain what ‘climate finance’ means for the uninitiated?
Climate change is a global threat and perhaps the most challenging issue faced by countries all around the world. It induces not only economic and social costs but sometimes an unbearable cost on peoples' lives - for example just in the last few months we have seen several “once-in-a-century” floods occurring in Germany and China.
The severity and the urgency of these issues require countries, particularly developing countries, to shift away from fossil fuels and invest heavily in “green” infrastructures in the next decades. Such shifting is expensive; hence we need “climate finance”, which refers to the financing of projects specifically related to climate change, and the allocation of adequate financial resources to mitigate climate risks and reduce the impact of a changing climate.
- Where does the money come from?
A large number of climate-related projects are financed by the public sector. For example, the UK government established a committee, the International Climate Finance (ICF), to support developing countries in their response to the challenges and opportunities of climate change.
In addition, the private sector also plays an important role in financing low-emissions and climate-resilient projects. This is partly driven by policy interventions, and also because investors have been raising awareness of climate-related issues as well as the potential losses induced by climate risks.
- Are certain countries leading the way?
Developed countries, because of their historical emission of carbon dioxide, bear greater responsibilities in leading climate-related actions from a “climate justice” perspective. Also, they have significantly greater financial resources, instruments and channels, in other words capabilities, to address climate-related issues.
Based on the Paris Agreement, developed countries pledged to mobilize 100 billion USD annually in climate finance to support the need for developing countries.
The UK has a great opportunity to show leadership by hosting COP26. COP is important to assess the progress in addressing climate change and plan subsequent actions. COP26 could be particularly important because it is the first COP since the pandemic – and many governments are making plans on how to rebuild the economy in a post-pandemic era.
The UK’s leadership is largely dependent upon whether it can orchestrate related parties to come up with actionable plans and whether the UK itself is ready to make adequate climate-related investment. Increasingly, large emerging economies are showing their willingness to support climate-related projects, and so for a number of reasons including but not limited to, addressing their own environmental concerns.
For instance, China has invested heavily in renewable energy such as solar and wind power in recent years, and has pledged to stop financing coal energy plants abroad, potentially directing capital to renewable energy projects.