Financing Climate Change: Mitigation and Adaptation in Developing Countries

Abstract

One of the most critical pushes to address the climate crisis is getting public and private finance flowing to climate action, especially in emerging markets and developing economies. This working paper attempts to quantify the scale and possible composition of the international financial assistance required to help developing countries fulfill their climate change mitigation and adaption targets and suggests how this might be agreed upon in international negotiations. First, Ahluwalia and Patel provide a brief historical review of how the commitment to provide financial assistance has evolved since the start of the negotiations in the UNFCCC in 1992. Second, they review estimates emerging from different studies of the additional investment that developing countries will have to make to meet the challenge of containing global warming to 1.5°C above preindustrial levels. Third, they recognise that although international financing has a big role to play, it is unrealistic to think that all the additional investment needed must come from international sources. They argue that developing countries should realise that at least half the additional investment will have to come from domestic sources, with the rest coming from international sources both official and private. In this context, they reason that multilateral development banks (MDBs) have a critical role in leveraging private finance to raise the amount of financial flows to the required level. Finally, the authors provide recommendations for developing countries to organize themselves for more realistic financial commitments, and, through the G20 forum, push for an agreement with the G7 on increasing the capital base of the MDBs to enable the banks to lend at the scale needed.