Abstract
During COP28, the significance of climate finance as the “great enabler for climate action” took center stage in discussions, emphasizing its central importance (COP28 UAE, 2023). This analysis explores the outcomes of COP28 on climate finance, underscoring a collective commitment to climate resilience, emissions reduction, and support for vulnerable nations in their climate action endeavors. The outcomes of COP28 showcase a substantial commitment of $57 billion across various climate sectors, including health, energy, and nature. Additionally, notable developments include the operationalization of the Loss and Damage Fund, the introduction of the UAE Declaration on a Global Climate Finance Framework, reinforced commitments from Multilateral Development Banks, and the emergence of private and blended climate funds.
Margherita Camurri (Head Researcher G.E.O. Environment)
Introduction
During COP28, the significance of climate finance as the “great enabler for climate action” took center stage in discussions, emphasizing its central importance (COP28 UAE, 2023). The significance of funding global climate action has been a recurring topic of discussion in past COPs, stemming from the understanding of its crucial role in helping nations mitigate greenhouse gas emissions and achieve the 1.5°C limit before 2030. This support primarily extends to vital initiatives like the advancement of renewable energy sources, such as wind and solar power, and aiding vulnerable communities in adapting to the adverse effects of climate change.
In this context, both public and private finance play pivotal roles. Public finance, sourced from government funds and backed by taxpayers, is indispensable for supporting initiatives that lack private financing, especially those directed towards public goods like reinforcing riverbanks or promoting innovation in recycled construction materials. At the same time, private finance becomes essential in funding crucial projects in the green economy and aligning with climate goals, as investors prioritize clean, renewable energy over carbon-intensive fossil fuels (UN, 2023).
In essence, achieving global climate goals depends on strategic investments. Without these investments, the world risks surpassing a 1.5-degree Celsius temperature rise, leading to severe climate impacts on health, jobs, and well-being. As highlighted by the United Nations, from many points of view, “climate finance, when it is sufficient and invested in the right ways, is a path to climate justice” (UN, 2023).
The outcomes of COP28 on Climate Finance
During the initial days of COP28, governments, businesses, investors, and philanthropies have collectively announced a remarkable $57 billion across the climate agenda, including food, nature, energy, and health.
Notably, there was a commitment of $3.5 billion to replenish the Green Climate Fund, $2.7 billion pledged for health initiatives, $2.6 billion dedicated to food systems transformation, and an equal amount committed to safeguarding nature. An additional $467 million has been announced for urban climate action, and $1.2 billion has been committed for relief, recovery, and peace efforts. In the realm of energy, $2.5 billion has been mobilized for renewables, alongside $1.2 billion allocated for methane emission reduction. Moreover, $568 million has been pledged to drive investments in the manufacturing of clean energy (COP28 UAE, 2023).
a. An Agreement for the Operalization of the Loss and Damage Fund
Following the establishment of the Loss and Damage Fund during COP27, COP28 was setd to place a significant emphasis on operationalizing and securing substantial contributions for this fund. During the inaugural day, on November 30, nearly 190 nations concluded negotiations on the terms outlining a framework for a fund designed to address the “economic and non-economic loss and damage incurred by developing countries associated with the adverse effects of climate change” (COP Transitional Committee, 2023).
A significant compromise involved the decision to entrust the World Bank with the management of the Fund, scheduled for a four-year period starting in 2024. Initial pledges to the Fund were disclosed at COP28, with commitments including $100 million from both the UAE and Germany, £40 million by the UK for the Fund and an additional £20 million for other arrangements, $10 million from Japan, and $17.5 million from the U.S (Bussiere et al., 2023).
Nevertheless, despite the UAE President at COP28 celebrating the agreement as “historic”, the initial financial commitments from developed nations still fell considerably short of the estimated annual requirement. Furthermore, crucial aspects remain undefined. For instance, there is no specified threshold for damage and loss, leaving ambiguity regarding what qualifies for repair through this fund. The distinction between "developing" and "developed" countries, determining which should provide aid to the other, also remains unclear. Notably, countries like China are not held accountable, despite having high emissions (Dinneen, 2023).
b. The UAE Declaration on a Global Climate Finance Framework
The COP28 UAE Declaration on a Global Climate Finance Framework marked a substantial advancement in reshaping the global climate finance structure. Launched at the World Climate Action Summit at the beginning of COP28, the Declaration unveils a roadmap for making climate finance available, accessible, and affordable. Endorsed by over 10 nations including India, France, Barbados, Kenya, Ghana, Germany, the UK, the USA, Senegal, and Colombia, the Declaration outlines fundamental principles for a climate finance architecture designed to benefit all.
Firstly, the Declaration urges global leaders to seize the growth opportunities of this generation, drawing on initiatives like the Bridgetown Initiative, Accra-Marrakesh Agenda, G20 New Delhi Leaders’ Declaration, and African Leaders’ Nairobi Declaration on Climate and Call to Action. Secondly, it emphasizes the urgent delivery of commitments, including mobilizing $100 billion for developing countries, replenishing the Green Climate Fund, and addressing funding arrangements for loss and damage, underscoring the importance of accessible and affordable finance. Thirdly, the agenda demands an international finance architecture capable of handling more frequent and profound shocks, empowering developing nations for climate action while managing debt distress. It also proposes innovative financial mechanisms to widen concessional finance for climate action. Additionally, the agenda outlines strategies for just, country-owned transitions, emphasizing inclusivity and the capture of real economy opportunities. It stresses the value of country-led, coordinated support and investment around climate goals, encourages Multilateral Development Banks to enhance their climate action support, and calls for robust policy frameworks and incentives to mobilize domestic resources. The agenda places a focus on unlocking private finance to meet climate goals and advocates for high-integrity carbon markets adhering to key environmental principles (COP28 UAE, 2023).
In order to support the implementation of the Declaration, the UAE has launched the Global Climate Finance Center (GCFC), a private sector think tank committed to research and capacity building focused on encouraging low-carbon, high-growth investments both globally and regionally (Mbuthia, 2023).
c. Stronger Commitments from Multilateral Development Banks
A group of ten Multilateral Development Banks (MDBs) issued a collective statement detailing their commitment to amplifying the magnitude of climate finance through strengthened collaboration (IDB, 2023). Building on this pledge, at COP28, numerous MDBs have committed substantial financial resources to address the challenges of climate change, collectively unlocking over $180 billion in climate finance.
Key announcements include the Inter-American Development Bank's pledge to triple its climate finance to $150 billion over the next decade, with an additional $5 billion for sustainable projects in the Amazon. Simultaneously, the World Bank committed to increasing its climate finance target to 45% by 2025, amounting to $40 billion annually by then, with an extra $9 billion per year for the next two years. Other MDB commitments include the Asian Development Bank's $10 billion climate finance for the Philippines, the Islamic Development Bank's $1 billion for climate adaptation in conflict-affected countries, and the African Development Bank's initiatives for green infrastructure and climate insurance for farmers. Additionally, the World Bank announced support for methane emissions reduction programs and certification of carbon credits for forestry (COP28 UAE, 2023).
These commitments align with UAE's COP28 Declaration on a Global Climate Finance Framework, which stresses the significance of “Better, Bigger, and Bolder MDBs”.
d. Private and Blended Climate Funds
At COP28, various private and blended funds focused on different climate initiatives were announced.
During the Business & Philanthropy Forum, the Green Climate Fund, Allied Climate Partners, and Allianz Global Investors jointly declared $5 billion in public and private financing, distributed across three distinct funds. Furthermore, the Copenhagen Infrastructure Partners are in the process of raising $3 billion for a new fund dedicated to greenfield renewable projects in emerging markets.
These revelations complement the already established $30 billion ALTÉRRA fund and the $750 million investment under the Innovate for Climate Tech platform. The introduction of blended-finance structures, exemplified by these initiatives, holds the potential to expand the reservoir of capital dedicated to risk mitigation for climate projects.
e. Other Financial Pledges Announced during COP28 Finance Day
Overall, COP28 Finance Day was marked by substantial commitments in the reform of international climate financial architecture to support low-income and vulnerable countries to fight climate change.
Notably, major international financial institutions and countries, including the UK, France, World Bank, Inter-American Development Bank (IDB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), and African Development Bank (AFB), have committed to providing climate-resilient debt clauses (CRDCs) in their lending. These clauses allow debt service to be paused during climate-related disasters. A total of 73 countries urged donors to expand the use of CRDCs by 2025.
Key announcements during COP28 Finance day also included the UK introducing the first climate-resilient debt clause to Senegal, the IDB offering $1.2 billion in loans covered by CRDCs, and the World Bank initiating the provision of CRDCs in existing loans, covering transaction costs. Additionally, AfDB, EBRD, and the French Development Agency announced plans to integrate these clauses in sovereign loan agreements. Japan committed to supporting the AfDB and IDB's innovative facility leveraging Special Drawing Rights (SDRs) for climate and development, while France pledged support through a guarantee, and Spain and the UK expressed willingness to explore this solution. AfDB and IDB introduced a hybrid capital-based mechanism to channel unused SDRs through MDBs, allowing wealthy countries to lend SDRs to MDBs, multiplying available capital (COP28 UAE, 2023).
Conclusion
In conclusion, COP28 witnessed significant strides in climate finance, with governments, businesses, investors, and philanthropies collectively pledging a substantial $57 billion across various climate initiatives. This funding encompasses critical sectors such as health, energy, nature, and food systems transformation.
Key highlights include replenishing the Green Climate Fund, operationalizing the Loss and Damage Fund, and the COP28 UAE Declaration on a Global Climate Finance Framework, endorsed by over 10 nations. These steps signify a significant step forward in reshaping the global climate finance landscape. Additionally, Multilateral Development Banks demonstrated their commitments by pledging over $180 billion, aligning with the collective call for "Better, Bigger, and Bolder MDBs." Private and blended funds, exemplified by the Green Climate Fund and Copenhagen Infrastructure Partners, alo played a crucial role in expanding capital for climate projects. COP28 Finance Day also featured commitments in climate-resilient debt clauses, reflecting a collective effort to support vulnerable countries in mitigating the adverse impacts of climate change.
Overall, while there are opinions suggesting that these pledges may still be insufficient to achieve the objectives set out by the Paris Agreement, COP28 marked significant advancement in global climate finance, underscoring a collective commitment to advancing climate resilience, mitigating greenhouse gas emissions, and supporting vulnerable nations in their climate action efforts.
Bibliography
Information Content | ||
1 | Confirmed | Confirmed by other independent sources; logical in itself; coherent with other information on the topic |
2 | Presumably true | Not confirmed; logical in itself; coherent with other information on the topic |
3 | Maybe true | Not confirmed; reasonably logical in itself; coherent with some other information on the topic |
4 | Uncertain | Not confirmed; possible but not logical in itself; no other information on the topic |
5 | Improbable | Not confirmed; not logical in itself; contradicts with other information on the topic |
6 | Not able to be evaluated | No basis to evaluate the validity of the information |
Trustworthiness of the source | ||
A | Trustworthy | No doubt about authenticity, reliability or competence; has a history of total trustworthiness |
B | Normally trustworthy | Small doubts about authenticity, reliability or competence, nevertheless has a history of valid information in a majority of cases |
C | Sufficiently trustworthy | Doubts about authenticity, reliability or competence; however, has supplied valid information in the past |
D | Normally not trustworthy | Significant doubt about authenticity, reliability or competence, however has supplied valid information in the past |
E | Not trustworthy | Lack of authenticity, reliability or competence; history of invalid information |
F | Not able to be evaluated | No basis to evaluate the validity of the information |
Bussiere S., et al. (2023). Loss and Damage Fund Agreement Reached. Cadwalader Climate. Retrieved from: https://www.natlawreview.com/article/cop28-update-agreement-reached-loss-and-damage-fund (B-2)
COP28 UAE (2023). COP28 Finance Day Unlocks Innovative Financial Mechanisms to Support Vulnerable Countries Fight Climate Change. Retrieved from: https://www.cop28.com/en/news/2023/12/COP28-Finance-Day-unlocks-innovative-financial-mechanisms (A-1)
COP28 UAE (2023). COP28 Mobilizes over $57 Billion in the First Four Days, Setting the Pace for a New Era in Climate Action. Retrieved from: https://www.cop28.com/en/news/2023/12/CP28-mobilizes-over-57-billion-in-first-four-days (A-1)
COP28 UAE (2023). Declaration on a Global Climate Finance Framework. Retrieved from: https://www.cop28.com/en/climate_finance_framework (A-1)
COP28 UAE (2023). Multilateral Development Banks announce over $180 billion in new climate finance commitments through multi-year programs at COP28. Retrieved from: https://www.cop28.com/en/news/2023/12/Multilateral-Development-Banks-announce-over-180-billion-in-new-climate-finance (A-1)
Dinneen J., (2023). Loss and Damage Fund Agreement Reached. New Scientist. Retrieved from: https://www.natlawreview.com/article/cop28-update-agreement-reached-loss-and-damage-fund (B-2)
IDB (2023). Statement of the Heads of Multilateral Development Banks Group: Strengthening Our Collaboration for Greater Impact. Retrieved from. https://www.iadb.org/en/news/statement-heads-multilateral-development-banks-group-strengthening-our-collaboration-greater-0 (A-1)
Mbuthia W., (2023). A look at the UAE Declaration on a Global Climate Finance Framework. Nation. Retrieved from: https://interactive.nation.africa/2023/cop28/a-look-at-the-uae-declaration-on-a-global-climate-finance-framework.html (B-2)
United Nations, (2023). Finance & Justice. Retrieved from: https://www.un.org/en/climatechange/raising-ambition/climate finance?gclid=Cj0KCQiA1rSsBhDHARIsANB4EJbD-Qite03P-MWmT_9z35PGri7BIt9o-7OmVFKDMcbET9-zwy4NSMEaAoeuEALw_wcB (A-1)