The war in Ukraine, inflation and measures to combat man-made global warming: financial resources are currently needed on many fronts around the world. Where that money should come from and how countries particularly affected by climate change can best be supported will be discussed at a finance summit in Paris on Thursday and Friday. French President Emmanuel Macron invites to the French capital around 50 heads of state and government, representatives of the World Bank, the International Monetary Fund, the United Nations, the OECD and the European Union. Private finance options for energy transition investments should play an important role.
“We really need trillions of dollars to make these investments, and it can’t happen through state subsidies alone. So we have to see how we can engage with the private sector, see how we can finance the phase out of coal, for example.” , said Axel van Trotsenburg, vice president of the World Bank, on Monday night at ZIB2.
The credibility problem
What this might look like in concrete terms, however, has remained open. “The poorest countries often lack credibility, which means they usually don’t receive money from international financial markets. However, so that they can still finance themselves, they often access funds from development banks. These resources usually come as subsidies with conditions and work programs for the country”, says economist Klaus Friesenbichler, from the Austrian Institute of Economic Research (WIFO).
However, these funds are not enough to fund measures against man-made global warming, which is why private funds are being squeezed. One problem with this lies in the level of development of the respective countries. “A greater development of a country can only come from the country itself. Establishing a reasonable economic system that is self-sustaining, inclusive economic policy, legal security, such as property rights. These are the basic prerequisites for private investors to be interested”, says Wifo expert on international economics.
A group of developing countries want to put more measures on the agenda for Thursday and Friday, from debt relief to financing measures to tackle the climate crisis. Ideas put forward by Mia Mottley, Prime Minister of the Caribbean island of Barbados, under the “Bridgetown Initiative” proposal include liquidity support, poor countries’ debt restructuring and private sector investment. Specifically, the document demands that the International Monetary Fund immediately lift the requirement for additional interest rates imposed on heavily indebted countries for two to three years. The “Bridgetown Initiative” also calls for the G20 creditor countries to redesign their common framework for paying poor countries’ debt, accelerating debt relief negotiations.
In addition, a fund of $100 billion a year is being demanded, which United Nations member states should set up to compensate for climate-related losses and damages in developing countries. As early as 2009, industrialized countries agreed to mobilize $100 billion a year from 2020 onwards for climate protection and adaptation in developing countries. Six years later, at the Paris climate conference, it was also decided to secure this by 2025 and then set a higher target. “Austria is not fulfilling these commitments under international law and the state of Austria is not alone in this. There are very few that actually fulfill this,” says Friesenbichler, addressing the unfulfilled promises of industrialized nations.
Developing countries particularly affected by the climate crisis
However, it has always been known that island states and developing countries such as Barbados are particularly affected by man-made global warming. “As historical causes of climate change, industrialized countries bear a great responsibility. However, the goals of the Paris Agreement can only be achieved with the help of developing and emerging countries. Their climate policy efforts depend on one hand on their climate policy ambitions and, on the other hand, in the reliable, predictable and reliable support of the industrialized nations”, said the director of the German Institute for Development Policy, Anna-Katharina Hornidge, in September 2021.
At this year’s World Economic Forum, the Deloitte Center for Sustainable Progress (DCSP) calculated how much “inaction” costs: over the next 50 years, climate change could cost US$178 trillion, which corresponds to a drop in domestic product gross global GDP) by 7.6% in 2070 alone if no action is taken. The impacts on humanity, such as food and water shortages, deteriorating health and general well-being, and a lower standard of living across the world, cannot be measured in numbers, but can also be found in the DCSP report.