Raising the necessary funds to combat the climate crisis doesn't have to be a strain on already stretched government budgets, as leading economists have emphasized. The amounts required - approximately $1 trillion annually by 2030 - are attainable without disrupting the global economy and can lead to greener economic growth in the future.

Expert Insights on Climate Finance Feasibility

Amar Bhattacharya, a senior fellow at the Brookings Institution and a visiting professor at the London School of Economics, who serves as the executive secretary of the UN's independent high-level expert group (IHLEG) on climate finance, states, "Is it feasible? The answer is undoubtedly yes. Is it politically challenging? The answer is also yes. But I do believe it can be achieved." Without such investment, the world faces a future of economic harm, rampant inflation, and the reversal of progress made in recent decades to lift poor countries out of poverty, as the UN has warned.Simon Stiell, the UN's climate chief, explains, "When nations can't make their global supply chains climate-resilient, every nation in an interconnected global economy pays the price. And I mean literally pays the price, in the form of higher inflation, especially in food prices, as savage droughts, wildfires, and floods ravage food production."The governments of nearly 200 countries are engaged in a heated debate over how to allocate the funds needed to assist poor nations in reducing their greenhouse gas emissions and coping with the effects of extreme weather. However, the two-week Cop29 summit in Azerbaijan's capital of Baku, which is scheduled to conclude this Friday, has been stalled for several days as rich countries have thus far refused to specify how much they are willing to contribute.Well-established research indicates that around $1 trillion per year in climate finance for the developing world will be necessary by 2030 to achieve the core goal of the Paris agreement, which is to limit global warming to 1.5 degrees Celsius above pre-industrial levels. According to a recent update by the IHLEG, composed of leading global economists, this cost will increase to approximately $1.3 trillion per year by 2035.

Source of Climate Finance

Not all of this funding needs to come from rich countries' governments. Approximately half should originate from the private sector, which can finance projects like building solar and wind farms in developing countries. About a quarter of the $1 trillion should come from multilateral development banks, such as the World Bank, which are ultimately funded by the rich world. Around $80-100 billion should directly come from rich countries in the form of aid - roughly double the current amount. The remainder could mainly come from new sources of finance, such as taxes on fossil fuels, frequent flyers, or shipping.The sums may seem large, admits Nicholas Stern, the economist and co-chair of the IHLEG, but they are not when considering the global economy, where $1 trillion is only about 1% per year. According to the International Energy Agency, the world already spends more than $3 trillion per year on energy, with two-thirds of that going towards renewables and clean forms of power. Global pension assets total approximately $56 trillion.Developing countries are already investing billions in their own green infrastructure to make their societies and economies more resilient to the impacts of the climate crisis and to rescue communities during disasters.

Challenges and Concerns

Some civil society groups are worried about including private sector investment in the "new collective quantified goal" (NCQG). There are also concerns among developing countries that relying on private sector finance will lead them further into debt. Lidy Nacpil, the coordinator of the Asian Peoples' Movement on Debt and Development, says, "To provide climate finance through loans not only goes against the principle of acknowledging historical responsibility; it is deeply unjust to force impoverished countries to take on more debt to address the climate emergency. It is not enough for the amount of climate finance to be adequate. The $5 trillion that the global south is owed should be public, non-debt-creating, new, and additional, and provided without any conditions."Economists interviewed by The Guardian believe that recruiting the private sector to build green infrastructure, such as wind and solar farms, electric vehicles, low-carbon transport, and other amenities, makes sense as these are profitable activities that can attract investment. Many poorer countries struggle to attract private sector investment or are forced to pay a high price for it because they are considered high-risk. Setting up a solar farm in Africa can cost three times as much as in Europe, even though more energy would be generated in Africa.Developed countries can play a crucial role in reducing this perception and thus lowering the cost of capital for the poor, often with little expense, such as by providing loan guarantees. Several economists told The Guardian that measures like this should also be part of the NCQG, although it may be more difficult to quantify than standard definitions of overseas aid.Private investors also tend to avoid projects that help countries adapt to the impacts of the climate crisis, such as droughts, floods, and heatwaves. For this reason, several influential figures believe that the portion of the $1 trillion that comes directly from developed country budgets, preferably in the form of grants rather than loans, should be mostly or entirely dedicated to adaptation projects rather than carbon reduction efforts.Avinash Persaud, a former economic adviser to the prime minister of Barbados, Mia Mottley, who is now a special adviser to the president of the Inter-American Development Bank, says, "Using public funds to finance adaptation is practical. About $300 billion per year would cover adaptation."Patrick Verkooijen, the chief executive of the Global Center on Adaptation, states, "Adaptation is underfunded, and directing public resources from the developed world to this would make a significant difference and make sense - it would enhance the stability of the involved countries."