Covid-19 and the Global Climate Change Financing

Two years down the lane, Covid-19 pandemic has entirely changed the dynamics of today’s world. From states to global institutions and organizations, every actor is devising transformative policies to adapt to these seismic changes. Encompassing all other systemic shocks, global climate financing has also seen a major setback attributable to Covid-19 as the global economic growth stunts and the developed economies shift towards inward development trajectories away from their climate commitments. It is worth mentioning here that the pandemic strikes the world at a time when there is a decade left to get the global economy to the course of restraining global warming to 1.5°C above pre industrial level. In the period preceding the crisis, experts had already been raising concerns about the insufficiency of climate funding to meet the Paris commitments. The pandemic has now further widened these concerns. However, experts do suggest that if caution decisions are taken, the setback can be transformed into an immense opportunity.  

Covid-19 and the Global Climate Finance Landscape.            Covid-19 has struck a major blow to the world economy. The enormity of this impact can be gauged by the 1.3% to 5.8% losses in Global GDP in 2020. Consequently, this adverse economic outlook has drastically changed the context in which the efforts aimed at combating climate change were taking place particularly by affecting the availability, accessibility and execution of global climate finance. The $100 billion per year commitment in climate finance by 2020 and its extension for another five years (2025) by the developed world has been a vital part of the Paris accord since 2009 and played an integral role in upholding the climate pledge while acting as a source of encouragement for the Emerging Markets and Developing Economies (EMDEs). 

Whilst the general course of global climate finance had been in an ascending direction by recording a 51% increase between 2013 and 2018 and reaching about $78.9 billion in 2018, the preliminary predictions suggest that the goal of $100 billion climate finance is likely to not have been met in 2020 although the final data on the total flows in 2020 is expected by 2022. This reflects the announcements by the Multilateral Development Banks (MDBs) suggesting that the scaling up of the financial support to the developing world to help them tackle the crisis has consequently challenged the sustenance and expansion of the support for climate-oriented investment. Similarly, a recent briefing by the Overseas Development Institute identifies that the International climate finance which falls under the Official Development Assistance (ODA) stands to be reduced in absolute terms attributable to the recent falls in donors’ Gross National Income (GNI). As a case in point, the UK government was set to become a significant contributor to the International climate finance but the recent evidence suggests that the aid programs for climate resilience are now being required to reduce budgets by up to 30%. 

Additionally, the pandemic has hit the developing and the climate vulnerable countries the hardest with the recent UNDP’s projection estimating the developing economies to lose at least $220 billion in income. The World Bank has also expected around 150 million people to plunge back into extreme poverty. Moreover, with the IMF terming the crisis as a debt pandemic, 54% of less developed countries are expected to fall into a vicious circle of debt crises. This adverse economic outlook would reduce the fiscal capacity of LDCs to invest in climate resilience with the protection of livelihoods and the stabilization of the economies acquiring priority. 

Given such an outlook, it is discernible that Covid-19, and the resultant capacity constraints and shift in priorities has had adverse ramifications on the delivery and demand of global climate finance. 

Climate-Aligned Pandemic Response: Pathway towards a Sustainable Recovery.       Experts while acknowledging the repercussions of Covid-19 on the global climate financing nevertheless suggest that the crisis also provides an opportunity in disguise that can not only offset the setback to global climate financing but also enhance the latter and subsequently accelerate the transition towards a net zero carbon world if the globalCovid-19 recovery finance is aligned with the climate objectives. This opportunity can be analyzed by the fact that 2020 marked a record year for foreign aid which amounted to an all-time high of $161 billion while aid providers have indicated that they would continue to help the developing countries address the social and economic repercussions of the pandemic in the medium term. The latter funding can conveniently be made more climate compatible. In addition, experts indicate that the costs of meeting the Paris targets will be lowered given that many developing countries had guaranteed a decrease in emissions below a Business-as-usual (BAU) scenario for a particular growth outlook which has been reduced amid the pandemic from the underlying BAU estimate. 

Fortunately, the policy debates have already begun to direct attention towards capitalizing this opportunity. Contextually, as the recent Aid-for-Trade (AfT) stocktaking event of the WTO called on the donors to mobilize Aid-for-Trade finance aiming at enhancing LDCs production capacity and trade-related infrastructure, the speakers also underscored the need to embrace a climate friendly development pathway. It now needs to be ensured that this commitment is fully operationalized through adapting AfT in a way that promotes investment in cleaner and efficient technologies, and builds LDC’s capacity to negotiate agreements on the exchange of green goods and services or the climate mitigation and adaptation. Similarly, all other financial stimulus to the EMDEs during- and post-pandemic needs to meaningfully support a climate-aligned recovery through enabling long-term low GHG emission development strategies (LT-LEDS) and a just transition away from fossil fuels. For the donors and lenders, this means phasing out all high-carbon investments and lending, while providing financial, policy and regulatory support in a way that enables and encourages the recipient states to embark on a climate-oriented development pathway. For the EMDEs themselves, this means designing green policies and projects to meaningfully employ the bilateral and multilateral finances. Evidence suggests that every dollar invested for the purpose of achieving climate resilience leads to between $2 and $10 in net economic benefits while green projects can generate additional employment.

Conclusively, a more risk informed decision making while embracing a climate resilience lens and vulnerability of future pandemic is needed. Governments and concerned stakeholders should identify financing gaps as per the new realities to ensure nationally determined commitments (NDC) and donors and lenders having financial capacity need to cover the expected deficits in climate finance by embracing climate-informed lending, donating and investment practices. Since, the IMF director has already said, “this is the high time to lose or revive the Paris agreement”- a well-informed policy-action should be adopted that would outweigh the loss of dual (covid-climate) calamities.