In 2016, more than 70 percent of climate finance was devoted to mitigation efforts, while 21 percent went to adaptation. While no country is immune from the impacts of climate change, developing countries are especially vulnerable and face disproportionate risks. For these reasons, CPI’s Climate Finance program focuses on driving low carbon investment at scale. Here are some of the highlights of the climate finance debate:
Private finance mobilization has not taken off as fast as it had been expected. While developed countries aimed to raise $33 billion in private financing for climate change, less than 15 billion had been mobilized by the end of 2019. In order to improve the efficiency of climate finance, USAID and its partners use monitoring and evaluation indicators to measure performance. Through these measures, we can ensure that every dollar is working to support climate outcomes and has the intended impact.
Governments can increase the amount of climate finance they provide to developing countries to reduce emissions and adapt to climate change. However, current funding flows are very concentrated in the United States, Western Europe, Canada, and East Asia. Developing countries such as Africa, South Asia, Latin America, and Central Asia depend on international climate finance to address the effects of climate change. This massive investment gap must be addressed with new public sources of climate finance. To address the funding gap, governments can use financing vehicles to derisk private investment and accelerate the implementation of policy actions.
Increasing the amount of climate finance in the United States is an important strategy for developing countries. By providing attractive investment packages to developing countries, the U.S. can enhance its credibility internationally, while maintaining its global influence. Further, integrating climate considerations early on in development plans helps the poorest and most vulnerable communities. Lack of climate finance could erode development gains and lead to dangerous global warming. This is why climate finance is so critical. If the United States does not fully support climate finance, the U.S. will not be able to meet its commitments to reducing emissions.
The government should promote green-banking functions and implement innovative climate finance products. These instruments can help project developers cross the “valley of death” and replicate projects at scale. The European Investment Bank is already implementing a green-banking mechanism in Mongolia, which lends to local financial institutions. Developing countries should consider investing in green-banking instruments, which can help create a climate finance ecosystem locally. There are many benefits to this approach.
While climate finance has increased in recent years, the amount is still far less than the amount needed to reach global goals. Oxfam, a nonprofit organization, recently revealed that wealthy nations are not meeting their climate finance pledge. This is concerning because they are not contributing nearly as much as they should to combat the effects of climate change, yet they bear out enormous costs from disasters associated with the climate. This funding must be improved. If we want the world to meet its climate goals, we must invest in climate finance in order to avoid a major catastrophe.
