Social Europe

politics, economy and employment & labour

  • Themes
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Fixing climate finance

Jeffrey D Sachs 17th November 2021

Finance was at the heart of the COP26 rupture between developed and developing countries—it’s time for a new approach.

climate finance,developing countries,$100 billion
All in this together—the rich world needs developing countries to help supply global public goods (petrmalinak/shutterstock.com)

The United Nations Climate Change Conference in Glasgow (COP26) fell far short of what is needed for a safe planet, owing mainly to the lack of trust which has burdened global climate negotiations for almost three decades. Developing countries regard climate change as a crisis caused largely by the rich countries, which they also view as shirking their historical and ongoing responsibility for the crisis. Worried that they will be left paying the bills, many key developing countries, such as India, don’t much care to negotiate or strategise.

They have a point—indeed, several points. The shoddy behaviour of the United States over three decades is not lost on them. Despite the worthy pleas for action by the US president, Joe Biden, and the climate envoy, John Kerry, Biden has been unable to push Congress to adopt a clean-energy standard. Biden can complain all he wants about China but after 29 years of congressional inaction, since the Senate ratified the UN Framework Convention on Climate Change in 1992, the rest of the world sees the truth: America’s broken and corrupt Congress remains in the pocket of Big Oil and Big Coal.

Finance is at the heart of the geopolitical rupture on climate change. Developing countries are already reeling under countless pressures: the Covid-19 pandemic, weak domestic economies, increasingly frequent and severe climate-related disasters, the multiple disruptions of the digital age, US-China tensions and high borrowing costs on international loans. They watch the rich countries borrow trillions of dollars on capital markets at near-zero interest rates, while they must pay 5-10 per cent if they can borrow at all. In short, they see their societies falling even further behind a few high-income countries.

Promise not honoured

Against this background of high economic anxiety, developing countries see the rich countries refusing to discuss forthrightly the financing crisis they face when it comes to climate-change mitigation and adaptation or other urgent needs. They see rich countries spending an extra $20 trillion or so on their own economies in response to Covid-19 but then failing to honour their promise—dating from COP15 in 2009—to mobilise a meagre $100 billion per year for climate action in developing countries.

Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content.


We will never send you spam and you can unsubscribe anytime.

Thank you!

Please check your inbox and click on the link in the confirmation email to complete your newsletter subscription.

.

Of course, Biden’s reticence on climate financing for developing countries is understandable. He would be lambasted in the nationalistic US media if he called for more help for developing countries and would gain nothing for it in Congress. With US global influence waning, America’s nationalists have turned even more aggressively against the rest of the world. ‘America firsters’ in Congress would block any new appropriations.

Many governments in Europe are in roughly the same position, perched precariously between nationalist and internationalist parties. And with budget deficits in European countries generally high in the wake of Covid-19, many parliaments have little taste to do more—especially given that the European Union already devotes a far higher share of gross national income (roughly 0.5 per cent) to official development assistance than does the US (just 0.17 per cent).

Global public goods

That leaves us stuck between the reality of a devastating global climate crisis and rich countries’ nationalist politics, with climate finance based on voluntary contributions by the rich. The result is the chronic, deep under-financing of global public goods such as a safe climate, the Sustainable Development Goals and Covid-19 vaccines. Leaders such as Biden may plead with their legislatures to be responsible but the legislators find it more politically expedient to rail against ‘undeserving’ foreigners.

The financial failures at COP26 are both tragic and absurd, going beyond the overarching failure to mobilise the promised $100 billion per year. Consider that the much-vaunted Climate Adaptation Fund, established to help developing countries meet their adaptation needs, collected all of $356 million in pledges at COP26, or roughly five cents per person in the world’s developing countries. Financing for ‘losses and damages’—that is, to recover and rebuild from climate disasters—fared even worse, with rich countries agreeing only to hold a ‘dialogue’ on the issue.

This financial voluntarism needs to end. We need a global formula that assigns responsibility to each rich country. At least in that case, the global community would have a benchmark to demand action from laggard countries such as the US.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

Workable approach

Here is one straightforward and workable approach. To help fund the clean-energy transition (mitigation) and climate resilience (adaptation) in developing countries, each high-income country would be levied $5 per ton of carbon dioxide emitted. Upper-middle-income countries would be levied $2.50 per ton. These CO2 levies would start as soon as possible and rise gradually, doubling in five years.

Countries could easily pay such modest sums from the proceeds of carbon taxes and auctions of emissions permits, both of which will have much a higher price per ton of CO2 than the levy. High-income countries currently emit around 12 billion tons of CO2 per year and upper-middle-income countries are emitting around 16 billion tons annually, so the carbon payments would add up to roughly $100 billion at the start and double after five years. The funds would be directed to low-income and lower-middle-income countries, as well as to particular countries with special climate vulnerabilities (such as small-island states facing rising sea levels and more intense tropical cyclones).

Suppose that half of the funds (initially $50 billion) were distributed as outright grants and the rest injected into the world’s multilateral development banks (MDBs), such as the World Bank and the African Development Bank, as new capital to back climate financing. The MDBs would use the new capital to raise funds in capital markets, leveraging the $50 billion into perhaps $200 billion in green bonds, which they would lend on to developing countries for climate projects. In this way, the modest carbon levy would raise around $250 billion in new annual climate financing, doubling to around $500 billion after five years.

To fund losses and damages, an additional levy would be applied, not to the current emissions but to the sum of past emissions, to align today’s losses and damages with the historical responsibility for today’s climate change. The US, for example, is responsible for around 20 per cent of all CO2 emissions since 1850. If a new Global Losses and Damages Fund sought to raise, say, $50 billion per year, the annual US share would be $10 billion.

Rules-based system

Agreeing on such revenue principles will of course not be easy, but it would be far better to struggle over a new rules-based system than to bet the planet’s future on voluntarism. COP26 showed definitively that asking national politicians to vote for voluntary funds for global public goods is a dead end. The rich-country politicians had a dozen years to get the promised climate financing in place, but they failed.

A rules-based system, with fair and transparent burden sharing, is the way to secure the financing we need for planetary safety and fairness.

Republication forbidden—copyright Project Syndicate 2021, ‘Fixing climate finance’

climate finance,developing countries,$100 billion
Jeffrey D Sachs

Prof Jeffrey D Sachs is director of the Center for Sustainable Development at Columbia University and president of the United Nations Sustainable Development Solutions Network. He has served as adviser to three UN secretaries-general and currently serves as a Sustainable Development Goals advocate under António Guterres.

Home ・ Ecology ・ Fixing climate finance

Most Popular Posts

Boris Johnson, Brexit, Conservative,conservatism Boris Johnson: blustering onPaul Mason
deglobalisation,deglobalization,Davos Getting deglobalisation rightJoseph Stiglitz
schools,Sweden,Swedish,voucher,choice Sweden’s schools: Milton Friedman’s wet dreamLisa Pelling
world order,Russia,China,Europe,United States,US The coming world orderMarc Saxer
south working,remote work ‘South working’: the future of remote workAntonio Aloisi and Luisa Corazza

Most Recent Posts

public services,public service,women,public service workers Public services should not be the victims of inflationIrene Ovonji-Odida
gdp,gross domestic product Let’s count what really mattersJayati Ghosh
green transition,just transition,fossil fuel,energy transition,Ukraine,Russia Ukraine and the geopolitics of the energy transitionBéla Galgóczi and Paolo Tomassetti
energy,efficiency,generation,solar,price,inflation From subsidising energy to reducing dependenceHans Dubois
SPO,Rendi-Wagner,Austria,social democratic,social democrat,social democracy A social-democratic decade ahead?Robert Misik

Other Social Europe Publications

National recovery and resilience plans
The transatlantic relationship
Women and the coronavirus crisis
RE No. 12: Why No Economic Democracy in Sweden?
US election 2020

ETUI advertisement

ETUI/ETUC conference: A Blueprint for Equality

Join us at the three-day hybrid conference ‘A blueprint for equality’ (22-24 June).

The case against inequality has already been strongly articulated. Inequality is not just incidental to a particular crisis but a structural problem created by an economic model. Now is the time to explore what real equality should look like.

As a media partner of this event, Social Europe is delighted to invite you to this three-day conference, organised by the ETUI and ETUC. More than 90 speakers from the academic world, international organisations, trade unions and NGOs will participate, including the economist Thomas Piketty and the European commissioner Nicolas Schmit.


MORE INFOMATION HERE

Eurofound advertisement

Minimum wages in 2022: annual review

Nominal minimum wage rates rose significantly in 2022, compared with 2021. In 20 of the 21 European Union member states with statutory minimum wages, rates increased. When inflation is taken into account, however, the minimum wage increased in real terms in only six member states. If current inflation trends continue, minimum wages will barely grow at all in real terms in any country in 2022.


AVAILABLE HERE

Foundation for European Progressive Studies Advertisement

EU Care Atlas: a new interactive data map showing how care deficits affect the gender earnings gap in the EU

Browse through the EU Care Atlas, a new interactive data map to help uncover what the statistics are often hiding: how care deficits directly feed into the gender earnings gap.

While attention is often focused on the gender pay gap (13%), the EU Care Atlas brings to light the more worrisome and complex picture of women’s economic inequalities. The pay gap is just one of three main elements that explain the overall earnings gap, which is estimated at 36.7%. The EU Care Atlas illustrates the urgent need to look beyond the pay gap and understand the interplay between the overall earnings gap and care imbalances.


BROWSE THROUGH THE MAP

Hans Böckler Stiftung Advertisement

Towards a new Minimum Wage Policy in Germany and Europe: WSI minimum wage report 2022

The past year has seen a much higher political profile for the issue of minimum wages, not only in Germany, which has seen fresh initiatives to tackle low pay, but also in those many other countries in Europe that have embarked on substantial and sustained increases in statutory minimum wages. One key benchmark in determining what should count as an adequate minimum wage is the threshold of 60 per cent of the median wage, a ratio that has also played a role in the European Commission's proposals for an EU-level policy on minimum wages. This year's WSI Minimum Wage Report highlights the feasibility of achieving minimum wages that meet this criterion, given the political will. And with an increase to 12 euro per hour planned for autumn 2022, Germany might now find itself promoted from laggard to minimum-wage trailblazer.


FREE DOWNLOAD

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us on social media

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube