As world leaders meet in Glasgow on Sunday to debate how to keep the planet livable, a critical bone of contention between more mature and developing economies continues to be how to finance the battle against the climate crisis.
Al Jazeera Senior Producer Megha Bahree discussed this issue with Arunabha Ghosh, Founder and CEO of the New Delhi-based Energy, Environment and Water Council (CEEW), one of Asia’s leading policy research think tanks.
Ghosh discussed the wide divide between richer and poorer nations, the need to be much more ambitious with current net zero goals, and even offered pragmatic solutions to help developing countries secure the funding. they need to meet climate goals.
This interview has been edited for clarity and length.
Megha Bahree: What is the goal of the next United Nations Climate Change Conference (COP26)? And what are the different negotiating positions?
Arunabha Ghosh: The most important goal of COP26 is that it provides the means by which countries can actually achieve the [climate] goals they set for themselves.
There is another goal here, which is to raise the ambition of what countries can do. These two objectives are projected by different groups of countries.
The developed world would like COP26 to focus primarily on implementing the means by which existing commitments can be met. And this is where the dilemma lies. Because if the planet has a unique carbon budget, each country wants its fair share in order to be able to develop.
Mo: Is the debate about what the fair share is?
AG: The debate is not even on it. The debate is on: are you going to recognize that the planet is in danger and therefore increase your ambition, against, are you going to recognize that the planet is in danger and therefore provide the finances so that we become more sustainable.
Thus, all parties recognize that the planet is in peril. But the solutions there range from the here and now to the very long term.
Mo: Can you define which are the two positions?
AG: One position is that the only way to keep the planet on a sustainable path, that is, to have a chance of keeping temperatures less than two degrees or 1.5 degrees above pre-industrial levels, is that all countries now raise their ambition beyond what they promised in 2015. And that increased ambition should include things like a target year for net zero emissions and also what they would do in the short term.
The other argument is that developing countries can only achieve their ambitions if they have adequate investment and access to technology. Some of this funding is to come in the form of grants. But what developing countries are also asking for is real, hard investment to build the clean energy infrastructure their economies need. And if that investment is not available, if the technologies are not accessible, if the interest rates are too high, then promising higher ambitions is really a moot point, because you can keep saying whatever you want. do without having the resources to do it.
Mo: Is there an approximate amount of resources needed? and for what purpose?
AG: One estimate is that the developing world needs around $ 3.5 trillion until 2030 alone to cut emissions, build renewable energy infrastructure, and so on. Each country offers its own calculations of the quantity needed.
What is clearly evident is that the pledge of the developed world – to pay developing countries from 2010 an amount that was to be raised to $ 100 billion a year – has not only been kept, but it has also been kept. should be a floor, not a ceiling for the type of climate finance needed.
Mo: It’s quite alarming that there is such a big gap and there doesn’t seem to be a way to narrow it.
AG: Indeed. What has happened is that we are trapped in what I call a negotiated maximum and a delivered minimum. So we continue to insist on this $ 100 billion rather than thinking about what will be the innovative mechanisms through which this much larger amount of money can flow.
The cost of financing in emerging economies around the world is very high as investments in these areas are considered risky. Not because the technology is unknown. It is the same solar panel in Norway as in New Delhi. But investors believe that the implementation of renewable energies, electric mobility or energy efficiency in industrial projects in developing countries will face all kinds of risks, including monetary, political, political, etc.
And if you tried to cover all of that, the cost of financing would become extremely high. So, you need an international mechanism that manages to reduce the risks of investments.
Mo: How it works?
AG: The idea here is that you are creating a mutual fund that would manage to offer a first loss guarantee against risks associated with currency fluctuations or a policy or policy change over which a project developer has no control.
Then your financing cost goes down, then your price for solar power or battery storage or electric mobility goes down. This allows international institutional investors to enter emerging markets as well and provide a significant volume of capital.
Mo: What you just explained sounds simple enough – that you take care of this problem and that should open the floodgates. Why is this not happening?
AG: There are two reasons for this. One is an emerging economy blind spot among institutional investors because most of them, whether they are pension funds established in Norway or pension funds established in California, are essentially seeking to invest in their home country or in regions they know well even though 88% of new electricity demand over the next two decades will come from emerging markets.
The second reason is that although multilateral financial institutions have offered risk reduction solutions in the past, they have done so in country-specific contexts and do not review all countries.
Mo: You work with governments around the world. What do they say when you suggest this idea? Isn’t that interesting?
AG: The short answer is, it’s interesting, and we had a version of the Common Risk Mitigation Mechanism that was officially endorsed by President Macron. [France] and Prime Minister Modi [India] and President Kagame of Rwanda in 2018. And there is a realization that something fundamentally different has to happen on harm reduction. And yet, we need a first political engine, or a set of first political engines. Until the political signal comes, the technocratic cogs do not start to turn.
Mo: What are they waiting for?
AG: I think this refers to the fundamental variation of the objectives of COP26 as I outlined them at the start. Because if you’re basically coming from the camp that says the only way to save the planet is to raise ambition, then you don’t think about how you achieve that ambition. On the other hand, if you are from the camp that says the only way to save the planet is to get money, then you are focusing on that $ 100 billion marker rather than thinking about what it will take to get a much larger reserve of money. get into those. Accordingly, the most pragmatic responses to this challenge lie between the gap between these two different political narratives.
Mo: What do you expect from this COP26?
AG: I like to call it a wish list.
First, I want developed countries to say that we will reach net zero emissions long before 2050. Because if the planet is to reach net zero in 2050, then developed countries cannot reach net zero in 2050 as well, because in this case , the law of averages will not work and everyone will then have to reach net zero in 2050. It is like saying that everyone wins the marathon at exactly the same time.
Second, this $ 100 billion should be treated as a floor, not a ceiling. And there should be some sort of mechanism to increase the public funds associated with it in the years to come.
Third, we need a finance deal that focuses on reducing risk, because otherwise you will never get the significant amount of institutional capital needed to curve the curve.
Fourth, we need some kind of insurance cushion against climate shocks. Because today, if a pandemic of just one year can send 100 million people back into poverty, climate risks will worsen year after year. And the poorest communities in the poorest countries have nothing to fall back on. And when a perfect shock storm hits, you have a public health shock, then you have a food shock and you have a natural disaster shock, you can’t expect a country in sub-Saharan Africa to suddenly spit. all this money is in non-existent tax reserves. I call it a global resilience reserve fund to be disbursed to bolster the fiscal reserves of countries that are affected by shocks that they never did anything to create.
And finally, we need a very different way of thinking about technology. For example, if you look at something like hydrogen, a lot of the research on it is in Europe. However, much of the demand will come from Asia. But Asian countries are almost completely absent from any kind of hydrogen-related technology partnership. We need to bring together the technology developers and the markets.
Likewise, when we think of technologies that are cheaper, that are aimed at the poor, we don’t have mechanisms by which you can reduce the cost of a solar powered textile unit, or a flour mill. solar power or solar plant – motorized irrigation pump. The market opportunity for these runs into tens of billions of dollars. In India alone, distributed energy can power livelihoods in a $ 53 billion rural market. In sub-Saharan Africa, solar irrigation alone represents an opportunity of nearly $ 12 billion. But for this to take off, working capital and consumer credit must be made easily accessible to small entrepreneurs, small households in rural areas.
Mo: What are the chances that they will see some of this?
AG: I still hope that at least some elements of this type of agreement, some of these packages can still be put together. But it’s also possible that everyone will linger and then, of course, it’s a lost opportunity.