Money: It’s the most contentious subject at the international climate talks this week in Baku, Azerbaijan. How much? From where? What for?
Getting big cash commitments would be hard enough without wars, a pandemic and inflation having drained the reserves of rich countries that are expected to help poorer ones cope with climate hazards.
It just got even harder. The election of Donald J. Trump as president of the United States all but guarantees that the world’s richest country will not chip in. (Mr. Trump has said he would withdraw from the global climate accord altogether, as he did during his first term.)
So now what?
Several creative ideas are circulating to raise money for countries to invest in renewable energy and adapt to the dangers of climate change. They include levying taxes, tackling debt and pushing international development banks to do more, faster.
The new proposals come with steep hurdles of their own, but the traditional way of raising money — passing around the hat and asking donor countries to make pledges — has failed to meet the need.
The last time a climate finance goal was established, in 2009, rich countries promised to mobilize $100 billion a year by 2020. They were two years late in meeting that target, and about 70 percent of the money came as loans, infuriating already heavily indebted countries.
At the Baku climate talks, known as COP29, negotiators aim to set a new climate finance target. One expert group puts the number needed at $1 trillion a year, which is about one percent of the global economy. Without a large money pledge, emerging economies may well balk at demands to clean up their climate pollution more quickly, which would ultimately harm the citizens of rich countries.
“Let’s dispense with any idea that climate finance is charity,” the United Nations’ climate agency leader, Simon Stiell, said on Monday. “An ambitious new climate finance goal is entirely in the self-interest of every nation, including the largest and wealthiest.”
In the developing world, anger is mounting. Last year, low-income countries shelled out an estimated $847 billion on interest payments alone, far exceeding funds they received from developed countries for climate finance.
Rajiv Shah, president of the Rockefeller Foundation, said wealthier countries must find new ways to invest “at a scale that helps developing economies begin climate transitions that can better lives and prevent climate change’s worst.”
Here’s what’s on the table as countries hunt for new money.
Taxing the problem
The simplest formula is a global price on carbon. That idea has been around for a while, but made no progress. There are more recent, narrower versions as well.
Several island nations support a two percent tax on ships that burn dirty fuel oil. The International Monetary Fund has backed a tax on shipping and aviation — which together contribute around 3.5 percent of global greenhouse gas emissions. The U.N. secretary general, António Guterres, has called for a tax on the windfall profits of oil and gas companies in the aftermath of the Russian invasion of Ukraine.
Then there is perhaps the most politically difficult proposal: a two percent wealth tax on the world’s billionaires. The idea is to set a minimum share that billionaires should pay — not unlike the effort to implement a floor for corporate tax rates across the world. According to the Brazilian government, a supporter of the proposal, it could rake in up to $250 billion a year, including for climate finance.
Easing debt
Reeling from a pandemic, a recession and increasingly from extreme weather hazards, many low and middle-income countries face debt burdens so high that they are hard-pressed to pay for basic health and education services. When they are clobbered by a drought or flood, they end up borrowing more money to recover.
“Addressing high and unsustainable debt levels is a precondition for securing a livable planet for all,” wrote the authors of an expert review commissioned by the governments of Colombia, France, Germany and Kenya.
A number of relief measures are underway, albeit at small scale.
One is a provision that allows a country to defer its loan payments in the aftermath of an extreme weather disaster. The World Bank has incorporated a debt pause clause for 10 small countries. St. Vincent and the Grenadines invoked it after a hurricane hit this year. There’s pressure on the International Monetary Fund to expand a similar mechanism.
Then there’s debt relief in exchange for protecting nature: Development banks back a new loan with friendlier terms. In exchange, the country commits to conservation or climate projects, like restoring coral reefs, as Belize did recently. Although such deals have been criticized for not reducing costs enough for developing countries, a coalition of nonprofits aims to scale up the deals to create $100 billion in funding.
Supercharging development banks
Lenders like the World Bank and International Monetary Fund have been under pressure to offer much more money as grants and low-interest loans. That requires the banks’ donor countries to pony up more money.
The Bank is currently taking pledges to replenish the pot of money it uses to dispense aid to the poorest nations. Contributions have shrunk over the past decade, including from the United States, one of its largest donors. It’s not clear how the current round will shake out.
“The most important thing is long-term cheap finance,” said Kevin Gallagher, a climate finance expert at Boston University.
The International Monetary Fund has another card to play: a financial instrument called “special drawing rights,” which are allocated to the Fund’s members and can be redeemed for cash. In the wake of the pandemic, the I.M.F. allowed countries in need to dip into the unused funds. Advocates say those reserves could provide at least $200 billion a year for climate resilience. The governing board of the I.M.F. has not agreed to go that far.
Nudging private investment
Private investors supply nearly as much climate finance as governments and development banks, usually for moneymaking energy projects, according to a review by the Climate Policy Institute. They could invest much more, experts say, and countries should make it easier for them to do so, by reforming markets and redirecting subsidies away from fossil fuels, for instance.
Another potential funding source: companies that want to offset their own emissions, either as part of a domestic carbon tax system or to fulfill voluntary commitments. These markets have had their problems, but still funnel billions of dollars a year to developing countries.
