If this was the finance COP, where is the finance?
The 29th Conference of the Parties to the UN Framework Convention on Climate Change (COP 29) in Baku, Azerbaijan was hyped up in advance as the ‘finance COP’. High on the agenda for COP 29 was a revision of the ‘New Collective Quantitative Goal’ (NCQG) – effectively, a quantitative target for total climate finance from global north to global south.
The results look encouraging on the surface. The headline is a major increase in the NCQG from the USD 100 billion per year target agreed at the Paris COP in 2015, to USD 1.3 trillion by 2035. Campaigners and countries in the global south, however, have been sharply critical of the outcome.
Scratch the surface and it’s not hard to see why. Only USD 300 billion (or, less than a quarter) of that USD 1.3 trillion is meant to come in the form of grants and low interest loans from rich countries -- and even this is probably an overly charitable reading of an ambiguous clause which seems to suggest that the money will come from a mix of public and private, bilateral and multilateral sources. The remainder is to be made up of ‘innovative’ fundraising measures, gesturing at windfall levies on fossil fuels or taxes on frequent fliers, and that old standby, ‘mobilizing private finance’.
Mobilizing private finance
There is little reason to think this will work. Efforts to plug ‘finance gaps’ by encouraging private investors to invest in development projects have a long history. They have rarely worked, even on their own terms. To take perhaps the most pertinent example, the much-discussed USD 100 billion annual target agreed in Paris included the target of mobilizing 33 billion annually in private climate finance for developing countries. This sub-target was scarcely half-met. The money that has been ‘mobilized’ as such, has long been starkly uneven. To take the example of ‘blended finance’ transactions in particular – even advocates are forced to admit that very little blended finance reaches the poorest countries. Estimates from the OECD based on a survey conducted in 2018 found that only 12 percent of total blended funds, and 7 percent of commercial funds invested in blended finance vehicles, were directed to least-developed countries. A follow-on survey in 2020 found that the volume and proportion of blended finance directed to LDCs had in fact fallen in the intervening years, concluding that ‘to date, blended finance has not been able to attract significant financial resources to LDCs’. Industry advocates Convergence note, commenting on similar data, that ‘Challenges arise when applying blended finance in LDC contexts, in part due to the relative … appetite from commercial investors’. The NCQG seems to suggest that close to USD 1 trillion annually can be mobilized by such means.
This is, put simply, fantasy – it would represent something not far off a hundred-fold growth in actually-existing private north-south climate finance. (I’m not sure it materially changes the point if we assume that half of the leftover trillion will come from ‘innovative’ sources.) As Advait Arun has recently put it, institutional investors are ‘structurally unequipped’ to finance climate mitigation and adaptation on the scale necessary. The obstacles, moreover, are to be found not only at project level, but rather in the overarching portfolio management strategies pursued by these firms.
Equally, even if it were possible to hit the kind of numbers envisaged by the NCQG, the thing about private investment is that almost by definition it can only fund activities that generate revenues, and hence potential profits. A priori, a reliance on private finance for potentially three quarters of climate finance rules out using those resources for anything that doesn’t produce fees or other income. There are, as Brett Christophers has recently masterfully pointed out, quite significant profitability constraints inhibiting investment in the production of renewable electricity. But electricity generation in marketized systems at least comes with a plausible pathway to revenue. They are unlikely to attract private investment on the scale necessary, but might at least attract investment under the right conditions. Things like, say, flood defences, or the freely accessible water infrastructure necessary to stop informal and agricultural workers dying of heat stress in increased numbers, or indeed the expanded systems of social protection needed to cope with increasingly disrupted livelihoods, are difficult to fathom as investible at all. And this is to say nothing of all the assets that must be stranded (disproportionately in underdeveloped countries) in order to draw down fossil fuel use.
A Potemkin Loss and Damage Fund
If pledges on climate finance in general have been underwhelming, this is nothing compared to the complete and utter failure to fund climate losses. Announced with much fanfare in a dramatic eleventh hour agreement at COP 27 in Sharm-el-Shaikh in 2022, the Loss and Damage Fund (LDF) was systematically watered down by developed countries over the course of 2023. By COP 28, the LDF had been reduced to a fund financed by voluntary contributions and hosted at the World Bank. Not long after COP 28 it was being described, inter alia by Emmanuel Macron, as a vehicle for mobilizing innovative forms of private insurance.
The LDF has been described in a press release issued during COP 29 as ‘fully operationalized’ and ‘ready to begin disbursing funds in 2025’. (The accompanying graphic, seemingly without irony, sought to frame this as a ‘#BakuBreakthrough’.) The trouble with this claim, quite simply, is that there is still nowhere near enough money in the fund. Sweden pledged USD 19 million to the fund in Baku, bringing the total funds in the LDF up to roughly USD 720 million. In effect, the LDF is a Potemkin fund – it has all the institutional trappings of a fund to compensate for climate losses, but none of the money with which to do so.
To give a sense of scale, recently published conservative estimates, based on extreme weather events over the last twenty years, suggest that past and present climate damages approach USD 143 billion per year. Another frequently cited estimate suggests that all told, loss and damage to developing countries due to climate change already exceeds USD 400 billion annually. We could quibble over the details. Whichever of these estimates we might pick, though, the LDF as it exists inarguably holds no more than a fraction of one percent of the resources needed.
Here again, the idea that private markets will step in and fill the gaps is patently ludicrous. Decades’ worth of climate-linked insurance schemes targeting people and countries in the global south have, by now, failed.
In fact, the LDF has a kind of fraternal twin, whose failures to date are perhaps telling on this point. At Sharm-el-Shaikh, a few days before the announcement of the LDF, Germany together with the V20 countries had launched what they called the ‘Global Shield Against Climate Risks’. Global Shield was intended to catalyse the development of new forms of insurance for people, businesses, and countries in the global south against emerging climate risks. It was perhaps overshadowed at the time by the announcement of the LDF shortly afterwards, but it was set up and operationalized quite quickly and has been pledged about half the amount of money that has gone towards the LDF. To date, Global Shield has managed to disburse EUR 5.2 million -- premium support for sovereign disaster risk policies for Ghana and for a handful of undisclosed Pacific island countries. While there are a handful of other projects in the pipeline which have been hampered by bureaucratic delays, historically climate insurance schemes have been more often than not undersubscribed in similar ways.
The upshot is quite clearly that, with about USD 1 billion pledged between the LDF and Global Shield, a voluntary approach to loss and damage based on hopes of catalyzing markets for insurance appear to be even more far-fetched than the idea of mobilizing USD 1 trillion in private finance.
Alternatives
In a way, the alternatives are quite simple. The private sector, quite simply, will not and probably cannot plug the gaps in global climate finance. Wealthy states will have to do so themselves. The US, UK, Germany, and other rich country governments will need to commit much more money, in the form of grants rather than loans, towards the Loss and Damage Fund and towards paying for climate mitigation and adaptation projects. The World Bank and IMF will need to find ways of making more finance available, on much more generous terms and without conditionalities attached. (Although it’s more reasonable at this point to ask whether these are institutions that can, in fact, be reformed in such a way – more likely they need to be abolished and replaced.)
The COP 29 text perhaps gestures at some of this, including references to levies on fossil fuels and frequent fliers. These measures would no doubt be welcome, but neither is likely to be sufficient on its own, and the COP agreement includes no meaningful requirement or commitment to actually implementing them.
Developed country governments have pled poverty at COP, suggesting that the amount on offer was the most they could possibly afford under budgetary constraints at home. But the reality is that there are many places this money could come from. The US alone spends nearly a trillion dollars annually on its military (contributing heavily to global carbon emissions in the process). If abolishing or substantially defunding the military is perhaps controversial (even though it’s a necessary measure which quite apart from fiscal or even climate impacts would make most of the world safer!), there are plenty of lower-hanging fruit. Direct and indirect subsidies to fossil fuel production, according to IMF estimates, run in the trillions. Cutting down on tax avoidance and evasion by multinational corporations and wealthy individuals could raise hundreds of billions per year. Wealth taxes on the richest households are also an option. One recent estimate suggests that a modest tax on individual wealth above GBP 500,000 in the UK alone would raise GBP 250 billion over five years. Developing countries find themselves in widespread debt distress. Low income countries spend twelve times more on debt service than they do on climate mitigation and adaptation. Meaningful debt cancellation, including haircuts to private bondholders, would contribute to vastly raising the capacity of developing countries themselves to fund climate action. 90 percent of debt contracts involving developing country governments are governed by English law, meaning that British policymakers have disproportionate say in how and on what terms these contracts are enforced. (As a bonus, most if not all of the above measures would probably themselves lead directly or indirectly to reductions in carbon emissions.)
I could go on, but we’re comfortably into the trillions of dollars already without even needing to get into interrogating the austere logic of ‘balanced budgets’ or proposing farther-reaching reforms of existing financial architecture. So, suffice it to say: The money is out there. At the moment, governments in Europe and North America are either spending their money other things, or leaving in the hands of wealthy individuals and companies to a historically unusual degree.
The catch is this: The simple solution is rather a complicated one politically.
I don’t just mean this in the sense that fossil capital has systematically captured the COP process (although, this is not untrue), nor that the ‘simple’ solutions are difficult to advance because they run directly counter to the interests of some very powerful people who undoubtedly have the ear of powerful governments (although, this again, is not untrue).
I mean instead (or perhaps in addition) that the very institutional frameworks through which responses to the climate crisis are articulated are not up to the task. The repeated charade of COP ‘breakthroughs’ reveal with particular acuity the ways that the state and the interstate system as they exist at the present are not capable of directly challenging capital accumulation in the ways necessary to respond to the climate crisis. That rich country governments will repeatedly look at the ‘simple solutions’ – which are, no doubt, as visible to them as they are to me – and opt instead for what they surely know is a nonsense about ‘mobilizing private finance’ should tell us a lot about what’s possible within the present conjuncture. That peripheral governments will continue to turn up, and indeed to participate quite actively at times in fantasies about mobilizing private finance, rather than adopt the kind of delinking strategies no doubt also readily visible to them, perhaps tells us something about postcolonial states as institutions too. At present, the COP reveals annually, and rather brutally, that the simple solutions are unthinkable for the states that would need to implement them.
This is not to say ‘there is no alternative’, but rather that making the simple solutions possible requires more than convincing policymakers of their desirability, or ‘recapturing’ the state. It is at bare minimum about the political work of ‘constructing’ majorities (per Stuart Hall’s oft-invoked aphorism) of the kind that would enable a quite radical democratization of production.