The Need for Increased Climate Finance from Developed Nations

The Need for Increased Climate Finance from Developed Nations

Sub :Env

Sec: Int Conventions

Why in News

• At COP29 in Baku, Avinash Persaud, a leading climate economist, has urged developed nations to significantly increase their climate finance commitments. He emphasizes that without a substantial rise in funding, the credibility of global climate finance efforts will be undermined. This call comes as the current $100 billion-a-year climate finance mechanism is set to end, and a new target for climate finance is being established.

Need for Increased Climate Finance:

• Developed nations are currently expected to contribute $100 billion annually for climate finance.
• The $100 billion goal has not been consistently met, leading to concerns about credibility.
• The existing $100 billion annual mechanism will end next year, with nations required to replace it with the New Collective Quantifiable Goal (NCQG).
• Climate experts emphasize the need to increase contributions to $300 billion or more to ensure credibility and encourage global participation.

Funding Needs of Developing Nations:

• Developing nations estimate a requirement of over $1 trillion annually for a just transition to a lower-emission economy.
• Climate finance from multilateral development banks (MDBs) is seen as a crucial component, leveraging every dollar up to 7-8 times.
• Despite MDBs’ efforts, there is a shortfall, and funding often does not reach the most vulnerable regions. In 2023:
• • 44% of MDB climate finance was allocated to Europe.
  • Sub-Saharan Africa received only 14%, and Asia-Pacific 21%.

Challenges in Climate Finance Allocation:

• A significant portion of climate finance has been directed to projects with questionable environmental impacts, such as:
• • Waste-to-energy plants emitting greenhouse gases.
  • Projects involving captive coal, leading to increased debt for already burdened countries.
• There is a call for improved allocation to ensure that funds support genuinely sustainable and low-emission projects.

Article 6.4 and Global Carbon Markets:

• Article 6.4, a key component of global carbon markets, has faced criticism for favouring untested technologies like carbon capture.
• Article 6.4 of the Paris Agreement establishes a mechanism for carbon crediting aimed at helping countries achieve their climate goals through international cooperation.
• This provision is part of a broader set of tools under Article 6, which allows countries to engage in carbon markets or other cooperative measures to enhance climate ambitionand reach emission reduction targets.
• Article 6.4 enables the generation of carbon credits through projects that reduce greenhouse gas emissions. These projects must adhere to specific standards of verification and transparency to ensure integrity.
• Verified emission reductions can then be used by countries to meet their Nationally Determined Contributions (NDCs) under the Paris Agreement.
• Supervisory Body:A dedicated Supervisory Body oversees the mechanism, ensuring that all activities meet the set requirements. It is responsible for validating and verifying emission reduction projects, making sure they follow established standards.
• The international market for carbon credits remains underdeveloped due to:
• • Lack of enforcement mechanisms for cross-border carbon transactions.
  • Low carbon prices in voluntary markets, reducing incentives for investment in integrity and evaluation.
  • Existing voluntary carbon markets are shrinking due to low demand and minimal impact.

Proposed Solutions for Effective Climate Finance:

• Increase thecredibility of climate finance by ensuring developed nations meet or exceed the target of $300 billion annually.
• Utilize multilateral development banks MDBs to multiply financial contributions.
• Establish enforceable mechanisms for cross-border carbon trading to ensure higher prices and effective market functioning.
• Focus on transparent and equitable carbon border adjustment systems to avoid disproportionately impacting developing economies.