The plan to save the planet is leaking: it will cost 120 billion euros until 2050

There are both political and financial issues with the effort to combat climate change. The situation is not any better in the economic chapter, as only between a fifth and a third of the funds considered necessary to achieve net zero emissions by 2050 are being raised. The latest assessment of national plans to reduce greenhouse gas emissions by the United Nations climate change department revealed that the planet is on the verge of failing to comply with the Paris Agreements.

The main issue is that few private investments are made in green projects in underdeveloped nations. At times, a dropper delivers the money to them.

It can be inferred from the comments of a dozen researchers and experts from the public and private sectors who were interviewed for this report that the biggest barrier is the significant debt that many of these states have taken on to deal with COVID-19, in addition to the fact that collaboration structures between the two sectors (public and private) have never been sufficiently widespread. Paul Rosane, an analyst at the US think tank Climate Policy Initiative, believes that this situation can only be resolved through greater collaboration: "The climate goals will not be met without a massive mobilization of private capital, because development banks they do not have sufficient financial capacity to close the gap.

Because of this, the entire public sector must take all reasonable steps to lower the risk profile of operations, including increasing public-private co-investments and providing projects with technical assistance grants and guarantees. The task is very large.

The International Energy Agency estimates that until 2025, it will cost 2.45 trillion euros annually to pay the energy transition bill, which will total 125 trillion dollars (120 trillion euros), or 1.3 times the global GDP. According to the breakdown produced by the Campaign towards Zero Emissions, a project that unites more than 10,000 businesses and non-state public actors, emissions will decrease by 3.6 between 2025 and 2050.

There are some numbers that contrast with the actual investment. Between 2016 and 2020, between 600,000 and 900,000 million dollars were raised annually, which is between 22 percent and 33 percent of what was estimated to be required, according to measurements of the most important climate finance reports available, collected and analyzed by Citi in the document Perspectives and Global Solutions.

One of the authors of this document, Elizabeth Curmi, believes it is imperative that at least 70% of the resources be private, but they currently only make up about 49%. Additionally, they are practically nonexistent in places like Africa where only 85% of investments have been made.

The most obvious barrier—although not the only one—is debt. According to the researcher, "The investor does not always have sufficient knowledge of the markets, and occasionally the projects are so small that they do not exceed the threshold from which the fund managers begin to consider them.".

It is because of this accumulation of bottlenecks that blended financing development is "essential". The phrase describes various public-private joint venture plans, ranging from those based on insurance or guarantees to those that prioritize the public good or philanthropic interests over the interests of the private investor.

Experts in this type of financing argue that the most important thing is to expand these structures, which also achieve direct involvement in projects by commercial banks and other private investors. In light of announcements like the one from the most recent climate summit, held in November in Sharm el Sheikh (Egypt), in which developed countries agreed to create a fund to compensate those who suffer the most from the effects of climate change for damages and losses, experts in this type of financing. These methods don't compete with one another.

Since the Copenhagen Summit in 2009, when they agreed to allocate $100 million annually until 2020—a commitment that has since been extended until 2025—developed countries have been heavily distributing climate funds to developing ones. Part of this funding is already being structured through mixed-mode financing. However, organizations like the OECD confirm that large investment flows are far from sufficient, particularly because there is a shortage of capital participations.

"In cases like Nigeria, 90% of the funds raised are debt, which is particularly concerning because it is a country whose resources are primarily derived from oil and gas exports," claims Rosane. In any case, there are obvious incentives.

Up to 49% of the world's energy capacity in 2050 will come from solar and wind installations in non-OECD nations, according to fund manager BlackRock, and the international initiative The New Climate Economy, supported by several governments, predicted in 2018 that the world economy could add €24.5 trillion in economic value by 2030 with bold climate action. This estimate is based on the fact that if governments can raise 2 point 65 trillion euros annually from carbon taxes and reductions in energy-related subsidies contaminants, it will be possible to prevent 700,000 pollution-related deaths and create 65 million low-carbon jobs.

Convergence, a company that studies blended investments, supports climate partnerships like the one that allowed BlackRock to raise 673 million dollars (635 million euros), of which a quarter is public or philanthropic financing and the rest private, in order to scale environmental blending. The fund, whose name combines insurers, sovereign wealth, and pension funds, has twenty states, foundations, corporations, and institutional investors as partners and is specifically targeted at emerging economies.

According to the analysis company's website, "It exceeds the $500 million threshold set by some investors, a rarity in climate or development finance; five of its founders have put up more than $100 million, something else that is very unusual; and the presence of climate organizations guarantees that it is not an instrument to launder a green image.". The instrument will enable the manager, which is criticized by environmentalists for not sufficiently promoting the green transformation of the companies it has in its portfolio, to lower the risk of investments that are already successful in developed countries.

According to Aitor Jauregui, head of BlackRock for Iberia, "it will operate from four axes: the generation of clean energy, the development of infrastructure to store it, the promotion of energy efficiency in buildings and the development of electric transport.". According to Juan Carlos Villena, director of Cofides' alliances area, this initiative will distribute funding to projects in Africa, Asia, and Latin America and will center around the so-called first-loss capital, a "fundamental instrument for scaling climate financing.".

One of the financiers of the Huruma Fund, which aims to achieve the financial inclusion of farmers in Latin America, the Caribbean, Sub-Saharan Africa, and Asia and is endowed with 120 million euros, is this Spanish state company, which has a division for development and another to support the internationalization of Spanish companies. In this project, the European Commission is in charge of providing coverage, which has made it possible to collect private funds to invest in banks or non-profit organizations that can provide these workers with financial support.

They don't stand alone as a crucial tool. The continuation of Villena's statement is, "Guarantees, especially those that are on first demand, that is, those that are already executed just by showing non-payment, and technical assistance also accelerate investment.".

This final concept alludes to various actions that increase the capabilities of actors acting as intermediaries or as beneficiaries of financing flows. They can also be a part of a combined financing project, but frequently they are merely tools for studying projects or training potential energy regulators, to cite two common examples.

You may come across examples that seem absurd, such as paying for an industrial cold chain to act as a conduit for electricity that is intended to be produced using renewable energy sources. Villena continues, "The range of the imaginative is very broad.

In order to support the expansion of these tools, according to Rafael Matos, director of sustainability at Cofides, the public sector of the receiving countries should work on four fronts. "The first is fixed regulatory frameworks that are transparent and allow for income anticipation.

As was the case in Spain up until the mid-1990s, the best way to draw a promoter of renewable energy is with a market where the State sets the electricity bill directly. Finally, there should be clear plans for cooperation and risk allocation.

If they are already required for photovoltaic parks, they are also necessary for more expensive projects like concessions for electrified public transportation systems. Less restrictions should be placed on foreign investment, third.

Project aggregation is the final step. Fragmentation is extremely prevalent in nations like Lesotho.

The time is of the essence. Ulrich Volz, director of the Center for Sustainable Finance at the University of London, wrote an article for the US think tank Brookings Institution that stated that the amount of capital needed to close the north-south gap is so high that, if flows do not significantly increase, a sizable portion of the world's population is at risk of becoming "trapped in a spiral of climate vulnerability and unsustainable debt loads.".

He makes reference to the fact that the cost of accessing capital increases in direct proportion to a country's exposure to climate change, and that the nations that experience the worst weather are also the ones that are already struggling with debt. Up to 60% of the least developed nations have reached or are on the verge of reaching a compromised position, according to the IMF, and Bloomberg predicted in July that several emerging nations, some the size of Egypt and Pakistan, could follow Sri Lanka's example and declare themselves in default. Sri Lanka declared itself in default in April.

Debt swaps for climate action, a financial strategy that dates back to the debt crisis that hit Latin America in the 1980s and allows states to lower debt in exchange for committing to preserve natural parks or ocean environments, are being supported by an increasing number of countries in this situation. Alberto Fernández, the president of Argentina, called for a global system to carry out these swaps during the penultimate climate summit, which took place in Glasgow in 2021. This idea was also one of the most talked about during the climate summit that African nations held in August.

Barbados was one of the last nations to reach a swap agreement. The inter-american development bank (IDB) and The Nature Conservancy (TNC), two charitable organizations dedicated to the preservation of biodiversity and the natural environment, provided guarantees totaling 100 million dollars and 50 million dollars, respectively, for this small island in the eastern Caribbean in order to obtain a loan in September to pay off more expensive debt.

In return, it received the institutional promise to dedicate the 50 million dollars in savings that it anticipates generating from the conversion operation to the protection of its 30 percent of territorial waters. Gianleo Frisari, a senior economist at the IDB who specializes in climate change, believes that this is a tool that will become more important given the current environment of rising rates and credit restrictions.

Furthermore, he thinks that guarantees aren't even necessary for these operations. "Mere advice is already a very powerful tool," he asserts from Washington, pointing out that in the previous five years, the IDB had promoted more than 70 thematic emissions, a denomination that also includes the social ones, totaling 30,000 million dollars. "States sometimes have access to credit markets, and what they need is to know how to place sovereign bonds as sustainable," he adds.

Green bonds are still a very small portion of the market, but the Climate Bonds Initiative, a global organization for climate finance, predicted that in 2021 their emissions would rise by 89 percent to 578,000 million dollars (546,000 million euros), representing a very small but growing portion of the market. a boom that is emerging concurrently with the increase in businesses signing up for the Science-Based Targets, a multi-foundation initiative supported by the UN to encourage climate practices in businesses.

Up until August, 1,340 large companies—representing 20% of the market capitalization, or roughly 20 billion euros—had agreed that their operations would not cause the temperature to rise by more than two degrees. But if there is an exchange that distills the advantages of this financial instrument, it is the one conducted by Belize.

By repurchasing a 553 million dollar Eurobond that was listed at a discount, this Central American country was able to lower its public debt by more than 10 percentage points, to 74 percent of its national GDP. Due to the State and TNC's 364 million dollar blue bond issuance, which was supported by a guarantee from the primary US development bank and allowed for very favourable conditions, the operation was made possible.

In return, Belize agreed to dedicate $4,000,000 annually to marine conservation up until 2041. The agreement implied financing debt owed to private investors by turning to another class of private investors, according to the IMF, which emphasized the operation's claim that the bond market itself offered a lower interest rate.

A fundamental issue persists despite the wide range of financial instruments: the majority of funding continues to go toward projects that reduce emissions, also known as mitigation, rather than adaptation, which is the term for measures taken in response to the damage that climate change is already causing. Typically, adaptation measures include building up coastal defenses or infrastructure to bring water to areas that are experiencing a drought. Citi's data only considers the former, despite the fact that in places like Africa, the latter requires an additional 58,000 million euros annually in addition to the 200,000 needed for the energy transition.

In fact, according to Juan José Nieto, director of Ciifen, an international center that studies the phenomenon of warming in the eastern equatorial Pacific, known as El Nio, from Guayaquil, "climate change is above all a matter of adaptation" in some regions. Although the rise in polluting gases is not the only cause of this event or La Nia, its cooling phase, they are having an impact on their spawn cycles.

Reduced rainfall, which can destroy entire rice plantations, is La Nia's main effect along Ecuador's coast. Normally, it happens every seven years, but over the past three years, it has happened three times in a row. "In order to adapt, we need more accurate weather predictions, innovative ways to connect with farmers, and various seed species.

"," laments Nieto. In the upcoming years, there will be an increase in the need for adaptation.

Despite the Paris Agreement's mandate that the increase in global temperature be kept "well below" 2 degrees and its designation of a rise of 1 point 5 degrees as a "preferable" goal, the World Meteorological Organization warned in May that there is a 50% chance that this lower limit will be exceeded between 2022 and 2026 due to feedback from climatic phenomena (the increase is already at 1 degree). Even if the goals set by the States were achieved, the United Nations' climate agency came to the conclusion in August that the increase would be 2 point 5 degrees in 2100.

The planet's emissions haven't even reached their peak yet; in fact, the most common ones, carbon dioxide, increased by 0 points per million in 2021 to reach 415 points per million. Additionally, there is a cascade rather than a proportional relationship between tenths of an increase and intensification of climatic phenomena.

The climatic situation that Ecuador and the Caribbean countries have been dealing with for a few years is described by Nieto using a phrase typical of the fight against the coronavirus, the new normality. "A series of changes are being made that are completely changing the profile of all activities.

Despite the fact that we have a lack of resources and a climate debate that is overly focused on the energy transition, we still find ourselves in the construction, agricultural, and fishing industries. Additionally, developed regions are falling short of their goals for the financial climate.

Europe should aim to capture 500,000 million euros annually until 2025, after which it should increase that amount to 800 million. However, according to market research firm BloombergNEF, only 200,000 million euros are actually captured annually. United States, barely 70,000 million euros per year, less than a fifth of what is estimated to be necessary, even though it is mostly private capital, and that anticipates that with the 348,000 million euros in strategic investments that will be mobilized by the Inflation Reduction Act (IRA), the largest climate initiative in the country's history, that amount will increase.

The project clashes with the climate model of the Twenty-seven, which is based not on direct incentives but rather on the trading of polluting emissions and the regulation of polluting sectors. The project has generated a commercial launch with the European Union (EU) as a result of its protectionism, which limits, for example, tax credits for buying electric cars to those manufactured in the country. Regardless, both partners have committed to achieving net zero emissions by 2050: the EU, by reducing emissions by 55% by 2030 compared to 1990 levels, and the US, by 50% to 52% compared to 2005 levels on the same date.

The situation is different in China, the top polluter on the planet and the source of 27% of greenhouse gases, which plans to achieve climate neutrality in 2060 while continuing to build coal-fired power plants. It adopted its own carbon market in 2021, but unlike the European one, which monitors 11,000 plants from a range of industries and airlines to account for 50% of the continent's emissions, it does not impose an emissions ceiling.

It only tracks how quickly it becomes contaminated, giving points to businesses that are more productive than the industry as a whole. This has prompted some experts to point out that its goal is to close the least efficient facilities rather than reduce emissions.

Even though it only includes power generation plants, which are responsible for 40% of national emissions, its enormous size—triple that of the European one—makes it an important tool in the global fight against climate change. According to Lucie Qian Xia, an environmental policy researcher at the London School of Economics, "it is one of the key pieces with which China aspires to meet its climate commitments." However, she believes that it currently has a very limited capacity because of a second flaw: "Allocations to emit are granted free of charge, therefore it may not be effective to achieve the transition to renewables.".

"The advantage that emissions trading systems have over other instruments is that they provide a reliable source of income. Additionally, they offer States the option of allocating them to green financing on a silver platter.

The European generated 31,000 million in 2021, and the Commission is working to ensure that 25% of its annual collection is put toward the EU budget in order to co-finance a social climate fund intended to address poverty that could be brought on by the energy reform of buildings or the electrification of mobility. But as energy policy researcher Thibaud Vota of the French Institute for International Relations, a think tank, points out, "what works in the EU may not work in the US or Brazil, and vice versa.

And if we're talking about a system that eliminates polluting industrial activity, it won't be the best option for nations that rely on it and don't have a lot of income from other sources. Solutions like the Just Energy Transition Partnership, through which the US, UK, France, Germany, and EU give South Africa 8,000 million in subsidies and low-interest loans to encourage its decarbonization, are emerging as a result of this.

The instrument, which is also being used in Indonesia and was created for other countries like Senegal and Vietnam, aims to stop these workers from being excluded from employment in a nation where there is a 30 percent unemployment rate and the mining industry employs 200,000 people. In order to reduce emissions in developing nations, Vota believes that it is crucial to address the fact that doing so destroys jobs more quickly than it creates them.

She claims that the process entails closing facilities and leaving people stranded, which causes unhappiness and protests, and she thinks that government officials can repeat what happened in developed countries where large segments of the population were confined to irrelevance of employment by using tools like these. The social and labor aspects of the policies are taken into account by the funds and formulas they offer for energy transition programs.

The analyst believes that the US and China need to combine their models, which he doesn't think will happen, as this is what he considers to be the fundamental issue. The IRA has two drawbacks: it was the result of protracted negotiations, so its primary goal is to combat inflation rather than the weather; and the next administration could easily decide to abandon it.

Beijing is in the opposite situation; despite having the necessary tools, its plan is not ambitious enough in light of its emissions. It's the only thing that's good.

Ulrich Volz, director of the Center for Sustainable Finance at the University of London, wrote an article for the US think tank Brookings Institution that stated that the amount of capital needed to close the north-south gap is so high that, if flows do not significantly increase, a sizable portion of the world's population is at risk of becoming "trapped in a spiral of climate vulnerability and unsustainable debt loads.