Financing the Energy Transition: Private Sector Engagement and Climate Aid Summit in Paris

2023-06-21 04:45:00

The war in Ukraine, inflation and measures to combat man-made global warming: there is currently a need for financial resources on many fronts worldwide. Where this money should come from and how countries particularly affected by climate change can be best supported is to be discussed at a finance summit in Paris on Thursday and Friday. French President Emmanuel Macron is inviting 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 to the French capital. Private financing options for investments in the energy transition should play an important role.

“We really need trillions of dollars to make these investments, and that can’t just happen through state subsidies. So we have to look at how we can engage with the private sector, look at how we can finance the coal phase-out, for example,” said Axel van Trotsenburg, Vice President of the World Bank, on Monday evening in the ZIB2.

The problem of creditworthiness

What this could look like in concrete terms, however, remained open. “The poorest countries usually have no creditworthiness, which means that they usually don’t get any money from the international financial markets. However, so that they can still finance themselves, they usually access funds from development banks. These funds usually come as subsidies with conditions and work programs into the country,” says the economist Klaus Friesenbichler from the Austrian Economic Research Institute (Wifo).

However, these funds are not sufficient to finance measures against man-made global warming, which is why private funds are being pushed. One problem with this lies in the level of development of the respective countries. “Further development of a country can only come from the country itself. Establishing a reasonable economic system that is self-sustaining, inclusive economic policy, legal certainty, such as property rights. These are the basic prerequisites for private investors are interested,” says the Wifo expert for international economics.

A group of developing countries want to put further measures on the agenda on Thursday and Friday, from debt relief to financing measures to combat the climate crisis. The ideas put forward by Mia Mottley, Prime Minister of the Caribbean island of Barbados, under the “Bridgetown Initiative” proposal include liquidity support, debt restructuring of poor countries and investments in the private sector. Specifically, the paper demands that the International Monetary Fund should immediately suspend the demand for additional interest rate premiums imposed on highly indebted countries for two to three years. The “Bridgetown Initiative” also envisages that the G20 creditor countries redesign their common framework for debt repayment of poor countries by speeding up debt relief talks.

In addition, a fund worth 100 billion dollars a year is being demanded, which the member states of the United Nations should set up to compensate for climate-related losses and damage in developing countries. As early as 2009, the industrialized countries agreed to mobilize 100 billion dollars a year from 2020 for climate protection and adaptation in developing countries. Six years later, at the Paris climate conference, it was also decided to ensure this by 2025 and then to set a higher goal. “Austria is not fulfilling these commitments under international law and the state of Austria is not alone in doing so. There are very few who actually fulfill that,” says Friesenbichler, addressing the unfulfilled promises of the 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 hard hit by man-made global warming. “As the historical causes of climate change, the industrialized countries bear a great deal of responsibility. Nevertheless, the goals of the Paris Agreement can only be achieved with the help of the developing and emerging countries. Their climate policy efforts depend on the one hand on their climate policy ambitions and on the other hand on credible, predictable and reliable support from the industrialized nations off,” said the director of the German Institute for Development Policy Anna-Katharina Hornidge back in September 2021.

At this year’s World Economic Forum, the Deloitte Center for Sustainable Progress (DCSP) calculated how much “inaction” costs: In the next 50 years, climate change could cost 178 trillion US dollars, which corresponds to a decline in global gross domestic product (GDP) by 7.6 percent in 2070 alone if no action is taken. Impacts on humanity, such as food and water shortages, a deterioration in overall health and well-being and a lower standard of living worldwide, cannot be measured in numbers, but can also be found in the DCSP report.

#Climate #crisis #poor #energy #transition

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