There is no lack of understanding in how such funds would be put to good use: Our Investment Vision Guide developed last year offers a template for how investment, once delivered, can be strategically applied.
Less wealthy countries need financial support in order to cut emissions and protect themselves from the dangerous implications of climate change. This was reaffirmed at the United Nations COP26 climate summit in Glasgow, November 2021. The urgency and significance of wealthy countries supplying resources to climate-vulnerable nations with developing economies was emphasised. At the 2009 UN COP20 in Copenhagen, wealthy countries had committed to mobilising $100 billion a year, until 2020, to help less wealthy nations deal with climate change. At COP21, where the Paris Agreement was created, this was extended to 2025.
All assessments to date have found delivery falling short of the annual $100 billion promised. The OECD measured $US52.4 billion in 2015, $US71.1 billion in 2017 and $US79.6 billion in 2019. Numbers are not yet in, but it is expected the latest totals will have stalled, in part due to the COVID-19 pandemic.
Even if $100 billion is mobilised each year, it falls far short of the $2.6 trillion per year over this decade that less wealthy countries are estimated to need if they are to achieve outcomes in line with both the 2030 Agenda for Sustainable Development and the Paris Agreement. Countries facing some of the greatest threats from climate change have the least means available to address it – and largely, have limited responsibility for producing the emissions driving it.
Significantly scaling up climate finance is vital to keeping 1.5 degrees alive. If unlocked and targeted at appropriate interventions, climate and development goals can become reality. But how do governments in less wealthy countries identify which investments will best meet their country’s needs in building climate resilience, reducing emissions and supporting socio-economic development? Where and how should governments direct their own finite fiscal resources along with development finance, to best leverage private sector investment?
In 2020, after extensive consultation with stakeholders across the global development finance sector and national governments, Climateworks developed a framework for achieving this.
Illustrated through a five-part process, the ‘Growth through transformation – Investment Vision Guide’ explains how to translate existing net zero climate commitments and long-term strategies into an investment pipeline, and an environment that will enable the flow of green finance.
Vitally, low-carbon growth for sustainable and inclusive outcomes means more than merely quantifying the investment needed for the transformation of a country’s economy. It also requires thinking about the structural and social adjustments of the transition, the policy and economic conditions that make a country ‘investable’ and thus steer finance from brown to green. Risks need to be considered so that they can be effectively managed, as well as opportunities that come with the transition. And in the wake of the COVID-19 pandemic, enhancing attractiveness for international and private finance will be critical to less wealthy countries’ economic recovery.
The guide applies best-practice approaches, tools, resources and case studies, to show what is needed for climate-safe green growth, including:
- creating a political context to support the transition
- understanding action at a granular level
- what trade-offs need to be managed
- ensuring policy and financial systems support unlocking investment, and directing it towards the right green infrastructure and technologies.
The challenge with implementing a whole-of-economy transformation of the kind outlined in a long-term strategy (or any long-term transformation plan), is understanding where to start with implementation. No country is decarbonising in a vacuum: policy change, business and community transition and infrastructure investment must all happen at significant scale, and across all sectors of the economy. And yet this must be achieved in a way that does not stall or undermine economic development.
In many contexts, this process needs to happen in a specific order, if inefficiencies such as over-investment and emissions ‘lock-in’ are to be avoided. For example, electricity grid infrastructure needs to be upgraded before or in parallel with large-scale renewable energy rollout. Failure to do so can result in widespread curtailment of intermittent renewable energy, reducing the profitability of clean energy investments – and thus attractiveness of these options for future investments. As another example, rolling out electric vehicles at significant scale can deliver major benefits for air quality and human health. But it can also place a significant burden on the electricity system, creating a risk that coal-fired power generation becomes locked-in long term to ensure sufficient short term supply. Equally, transitioning too rapidly away from emissions-intensive sectors, without adequate planning, can place jobs and the livelihoods of entire communities at risk.
On the upside, many decarbonisation focus areas can deliver co-benefits and create jobs quickly. This is particularly important as the world recovers from the COVID-19 pandemic. For example, clean energy creates more jobs than fossil fuels per megawatt of installed capacity, low-skilled rural jobs can be created through restoration of natural landscapes and incentivising energy efficiency also creates local jobs across a range of skill levels.
The Investment Vision Guide aims to support countries to consider and effectively manage these tensions, trade-offs and opportunities, to arrive at a clear pipeline of specific, investment-ready projects that can catalyse transition this decade. This pipeline presents potential funders with a well ordered and strategic shopping list of investment needs that can support better donor coordination to deliver positive development outcomes. Doing so can not only generate inclusive economic growth in the short term, it ia also be key to unlocking more finance in the future and managing the longer-term economic transition.
The guide steps through planning and actions in a logical and cumulative order, but also always for flexibility as each country has a unique context. It is iterative, acknowledging that countries should plan to review, assess and update their investment vision at regular intervals, in line with reviews of their long-term strategy and Nationally Determined Contribution to the Paris Agreement.
At Glasgow COP26, less wealthy countries made it more clear than ever: they are committed and ready. But the scale and urgency of investment required is unprecedented. How deeply and quickly wealthy countries step up and invest will determine whether we stall once again and watch climate impacts mount, or set forth on an effective path towards 1.5 degrees, creating a safe climate for all.
Countries who have made an ambitious long-term climate commitment and are ready to maximise their ability to attract their fair share of the $100 billion commitment are encouraged to now develop their own investment vision plan. For support in doing so, get in touch with Meg Argyriou (Head of International and Country Context) at Climateworks.