If You Don’t Think Climate Finance Is Scary, You Don’t Understand It

A major conference this week in Paris will underscore how badly unresolved is a major vexing world problem–paying for clean energy for the poor. The Summit for a New Global Financing Pact, convened by French President Emmanuel Macron, aims “to build a new contract between the countries of the North and the South to address climate change and the global crisis.” Discussions will highlight the need for more development, especially clean power development, in the world’s poorer countries, and the responsibility of rich countries to help.

Americans have a quaint habit of believing that only what happens in our country matters. When it comes to climate, even many who profess great concern think that if we just drive EVs and recycle a little more, and maybe if we’re really serious stop mowing our grass, we can lick the problem. It’s not so. Global warming is global.

While it remains urgent for the U.S. to reduce greenhouse gas emissions, in the long run it’s going to matter more what happens in the planet’s poorer countries. Of the world’s 8 billion people, more than 5.1 billion live in developing countries, excluding China. It’s both a moral and political imperative that those countries develop quickly in coming decades. But that development will inevitably use lots more energy. As it stands now, much of that growth will be in dirty fossil fuel plants. Said International Energy Agency (IEA) chief Fatih Birol at the Columbia University Global Energy Summit in April: “The biggest and most tough challenge is how we will grow renewable technologies in developing countries.”

For many in such places, the situation is dire. The UN calculates that almost a billion people don’t even yet have electricity; over 800 million go to bed hungry every night; and 2.7 billion remain unconnected to the internet. Would you really expect such people to be focused on climate change, when they’re worried about simply surviving?

So in countries like Bangladesh, Bolivia, and Botswana–getting more energy is often a higher priority than combatting global warming. But it’s to everyone’s benefit if new energy sources in such countries are renewable and non-emitting. So richer countries have to help them.

The signs are not promising. The wealthy nations of the world committed, way back in 2009, to fund developing world climate projects and renewable energy, to the tune of $100 billion a year, starting in 2020. That promise was renewed in 2015 at the signing of the Paris Climate Accords, but has not yet ever been met. And even if it were, it wouldn't be nearly enough. The IEA calculates that if the world is to reach its collective goal of net zero greenhouse gas emissions by 2050, then by 2030 we need to be investing about $4 trillion each year in clean energy, mostly in the developing world.

A just-completed UN climate conference in Bonn, intended to help set the stage for more final discussions at the COP28 conference later this year in UAE, underscored just how huge a global failure this remains. Negotiators for numerous countries failed to make meaningful progress on climate finance. And the failure of wealthy companies to step up is getting activists angry. “Without honouring their financial pledges—directly tied to their historical role in driving the climate crisis—these affluent nations lack the moral authority to exert pressure on poorer countries," wrote Harjeet Singh on Twitter last week about the Bonn event. Singh is head of global political strategy at Climate Action Network International, an umbrella group of over 1900 climate nonprofits in 130 countries.

It has failed to sink in on leaders and the public in developed countries that without rapid renewable energy growth in developing countries, the world will utterly fail to meet its climate change targets of limiting global warming to less than 2 degrees celsius by 2050, as set in the Paris Accords. “If we don’t have investments in developing countries, forget about the climate,” Mafalda Duarte told the Financial Times this week. Duarte is about to take over the $12 billion Green Climate Fund, established as part of the Paris Accords. “Are we doing enough to have a good amount of the population understand what this means?” Duarte asked, speaking of rich countries. “It means you have to invest elsewhere.” (While the FT did not include an exclamation point at the end of that sentence, they probably should have.)

But those who are attempting to do such investing report that it is not easy, especially without extensive support from governments. At the Economist Sustainability Week conference in Washington in May, Mark Wiedman , a senior executive at investing giant BlackRock, explained what happened when that company tried to get involved. In partnership with the French and German governments, BlackRock raised $800 million to invest in decarbonization projects in emerging markets. “Three years later,” Weidman said, “we’ve been able to do just two things—solar and wind in the Philippines and Kenya. We’ve struggled to put together $200 million a year…The problem is putting the money to work in something that can have credible real world returns.”

I spoke with Anita Otubu of Sustainable Energy for All (SEforALL), a nonprofit that works on this issue. On the one hand, she expressed optimism that there is a will in Africa, where she has mostly worked. “Nigeria’s doing a fantastic job incorporating renewable energy tech into the mix,” she told me. “There are plans to have at least 30% of its energy supply made up of renewables like solar. They’re showing it in their actions.”

But she also said that to achieve results in much of Africa, “you need a lot more patient capital. You can’t treat it like investment projects in developed countries.” SEforALL uses funding from nonprofits like the Rockefeller Foundation or the Ikea Foundation to subsidize local energy projects, particularly in areas with no electricity whatsoever. But it’s not easy for outsiders to invest and expect a profit in such projects, she says, for a variety of reasons. For example, they might invest dollars but get paid back in local currencies, which fluctuate in value. In addition, Otubu says outside investors in developing countries have to always keep in mind that what most matters to local people is the development of their economies. So if a project doesn’t create local jobs, for example, it may not be welcomed.

When BlackRock’s Weidman summarized what he believes needs to happen if we are to address this challenge at scale, his words at the Economist event were dire: “Without multilateral development banks being willing to take first loss positions of hundreds of billions of dollars, with subsidies from the rich world, we’re not going to get there.”

To be clear, where we won’t get is to the world’s climate goals. Similarly, Green Climate Fund’s Duarte emphasizes that if we fail on this, we can “forget about the climate.” Climate finance sits at the heart of the world’s climate challenge. If we don’t help poorer countries build renewable energy at scale, all of us are in trouble.