Parsa Venkateshwar Rao Jr | Tap private sector for climate change goals
There was huge disappointment across all developing countries at the deal which finally emerged at the COP29 climate summit in Baku, Azerbaijan, late last month. The developed countries had agreed to increase the fund commitment to help developing countries to green their economies from $100 billion annually, made at the landmark 2015 Paris summit, but which was not fulfilled consistently, to $300 billion annually. The demand from the developing countries was for $1.3 trillion if Net Zero emissions were to be achieved by 2050 and the global temperatures kept below 1.5 degrees Celsius above the pre-industrial era levels.
The assurance was given by the developed countries that the gap in funding -- between $300 billion and $1.3 trillion -- would be covered by tapping sources other than governmental funding, including multilateral development banks and private investors.
There was justifiable scepticism on the part of the developing economies whether this target would ever be reached.
The scepticism on the part of developing economies is indeed justified because raising funds from the market to meet climate change goals is unrealistic because the private investors look for returns in a reasonable time frame. The debate about the participation of the private sector in playing a substantial role in responding to climate change challenges has been going on for quite some time. An argument was offered during the
COP28 summit in Dubai in 2023 that the private sector’s global carbon emissions were 70 per cent, and that it had a responsibility to help with the task of supporting projects which will help de-carbonise the economy. It is an argument that needs to be kept alive and many of the private sector players are willing to do their bit. Again, there is scepticism how sincere and effective the private sector efforts would be.
In this either-or situation, there have been some interesting developments in Africa. They have not received enough attention, and they have not been talked about. The African leaders and policymakers feel that they should not depend any longer on the largesse of the developed world to meet the challenge of sustainable growth and climate change. They feel that they should find their own ways of raising funds collectively in Africa and turn to the markets in Africa and across the world.
The African Development Bank has joined hands with the Climate Investments Funds’ Capital Markets Mechanism, and the CIF has announced its bond listing at the London Stock Exchange. The announcement was made in Baku on November 12. The CIF has been in existence since 2008 and it has been supporting climate change projects across countries. But the fund’s value is a mere $12 billion, which can be termed a drop in the ocean. But it opens the door to a global market which should be of great importance as the century passed and the challenges posed by climate change would only increase.
It must be recognised that the long-term trend is that of declining growth in the developed economies due to a variety of reasons, including the shift in manufacturing base away from these countries and to Asia. So, the ability of the governments of the advanced economies would shrink in the future. Their responsibility as the largest polluters remains undisputable and it is borne out by the cumulative CO2 emission figures, with the share of the United States at 29 per cent (457 billion tonnes) and that of Europe, technically referred to as EU 28, at 22 per cent (353 billion tonnes), with China at a relatively distant third position at 12.7 per cent (200 billion tonnes) and India’s miniscule three per cent (48 billion tonnes). Russia, with its cumulative CO2 emissions at six per cent (101 billion tonnes), stands between China and India.
At the Africa Climate Summit held in Nairobi in July this year, releasing the third edition of the United Nations Development Programme’s Africa Investment Insights Report, Maxwell Gomera of UNDP Africa Sustainable Finance Hub said: “Through the UNDP Africa Investment Insights Report, we turn Africa’s climate challenges into investment opportunities for the private sector, as per the continent’s own ambition captured in national NDCs.”
Africa’s trust in the markets might look naïve given the fact that the global markets have been under stress even since the worldwide financial recession of 2007-08 and the Covid-19 pandemic interruption of 2020-22. Countries are struggling to get back to pre-Covid-19 levels of growth. The general sentiment across the globe, among the youth, farmers and workers, is against free markets and in favour of protected markets behind tariff walls. It is clear that governments cannot bear the burden of providing basic services to the people if the markets do not flourish. The socialist utopia simply cannot be resuscitated. The private sector must recover its animal spirits, and it must be pressed into the service of combating climate change as well. India and China and many other emerging market economies have successfully tapped the private sector to spur growth. So, the private sector can be an effective pathway to sustain the climate change action plan. The example of the African Development Bank with the Climate Investment Fund shows that there can be collaboration between governments and the private sector.
The challenge is to make de-carbonisation a profitable venture. This would require a smart strategy of making it demand-driven. People now understand the hazards of climate change, from droughts and floods to heat waves and cold waves. They are feeling the pain and the discomfort. When people demand change, things happen. As long as developing countries depend on the developed economies, the developed economies will continue to call the shots. The technological breakthroughs for the green economy should now flow from the developing economies. Funds for research and development must be stepped up in these countries. This could also lead to the advanced economies turning to the Asian, African and Latin American countries for technology transfers. This is not a wholly unrealistic expectation. It needs intellectual and entrepreneurial breakthroughs. With a bit of daring, it can be done. Call it the Christopher Columbus spirit. Set out to reach the old eastern ideal of ecological and economic balance and you will end up at a new place, and new horizons open up.
