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Long Term Climate Finance

posted 11 Jul 2012, 06:47 by Smita Nakhooda   [ updated 11 Jul 2012, 06:49 ]

 

Estimates of the costs of addressing climate change in developing countries vary substantially from $480 billion to $ 1.5 trillion per year. Understanding growing needs for finance to help developing countries address climate change was the first item on the agenda at the workshop on Long Term Finance  hosted by the UNFCCC secretariat this week.

 How much money do we need?

There are significant differences in the approach and assumptions underlying estimates of the cost of climate change, which make World Bank, McKinsey and UNFCCC  numbers difficult to compare. Many estimates are based on investment needs, rather than the amount of international financial support needed. Global studies provide a useful reminder of the scale of climate finance that we need, but these aggregate figures are too abstract to guide investment choice.  It is difficult to know how to start to meet needs, when confronted with a trillion dollar estimate.

We need to break big numbers into manageable pieces

Different countries have different needs for finance, and different priorities. In 2010 the subsidiary body on implementation of the UNFCCC supported the NEEDS project, which worked with 11 countries to analyse need. The findings revealed great differences in scale from $340 million of estimated need in Ghana, to $11 billion in Mali; however each study took very different approaches to measuring needs.
Better structured bottom up analysis that emerges from developing countries’ efforts to chart a response to climate change, can support a process of prioritising how to best to use scarce climate finance to meet real needs.  More detailed work is getting underway in many countries: for example, the government of Colombia has been working to understand the costs of climate change to its economy, and analyse options to finance mitigation. Such processes can help countries identify appropriate roles for public and private sector institutions, and associated finance – particularly international finance mobilised under the UNFCCC.

There is little time to waste

Part of the challenge is that needs change. The costs of many renewable energy technologies have decreased substantially over the past few years, and the rate and scale of deployment of low carbon technology has been 5 – 7 times higher than many estimates forecast. If we succeed in fostering innovation, and reducing the costs of low carbon technology through the effective use of finance, then mitigation may be less costly than we fear.  On the other hand, if we delay action, the impacts of climate will be more severe, and pose much higher costs.

We will need to work together

There is a growing body of work on these issues, however, and one of the objectives of the Long Term Finance process will be to synthesise this analysis and create a repository of information.  It will take creativity and collective effort to overcome the many challenges to meeting the needs for climate finance, and a willingness to look past political differences. 
 
Smita Nakhooda is a senior research fellow in the Climate Change Environments and Forests, and moderated the discussion on climate finance needs at the workshop on Long Term Finance hosted by the UNFCCC in Bonn this week.
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