At CoP29

At CoP29, securing better climate finance for the Global South is a key objective. The need for climate funding has surged dramatically, as the Global South bears the brunt of climate change impacts. However, there are significant challenges regarding the adequacy, terms, and accessibility of these funds, leading to tensions between the Global South and the Global North over climate justice and financing arrangements.

Growing Finance Needs and Inequities

• Escalating Climate Finance Demands: The Global South’s financial requirements to address climate change have skyrocketed to over USD 1 trillion annually, a sharp increase from the USD 100 billion per year promised in 2009. Despite this, climate finance only surpassed USD 100 billion for the first time in 2022, and a significant portion of it was in the form of loans rather than grants, deepening the financial strain on already indebted nations.
• Debt Servicing and Its Impact: The debt burden in the Global South is severe, with some of the poorest nations spending up to 40% of their national budgets on servicing debt. This leaves little room for investing in critical climate adaptation and clean energy projects. Many countries face higher borrowing costs due to perceived investment risks, with nations like India facing 3-4 times higher capital costs compared to wealthier countries like Germany.
• The Reluctance of Rich Countries and Investors: Climate change is impacting both the Global North and South, with developed countries also facing severe weather events. However, investors remain hesitant to lend to developing countries due to the perceived risks, which has hindered the flow of necessary funds to the Global South for climate resilience and renewable energy development.

Proposed Solutions and Pathways for Cooperation

• Encouraging Higher Returns for Investors: To attract more private investment into climate projects, Global South nations, particularly India, may need to offer higher returns on infrastructure projects. By increasing potential returns—say to 17-18% for projects like green hydrogen or electrified public transport—the attractiveness of these markets to foreign investors could increase. This would enable quicker recoupment of investments and incentivize reinvestment into other climate projects.
• Leveraging Climate Finance as a Backstop for Lenders: One strategy could involve using climate finance as a backstop to reassure private and public lenders, especially for projects like solar, wind, and hydropower, which may face output curtailment and perceived risk. By providing an underwriting mechanism from international climate funds, countries like India could unlock more concessional financing for such renewable energy projects, provided the national policy environment supports renewable capacity expansion.
• Negotiation and Concessions at CoP29: CoP29 offers a critical platform for negotiations, where both the Global South and the Global North must make concessions. A more generous approach from the Global South—such as offering to improve returns for investors—could foster cooperation and lead to a more successful climate finance framework. This could be a significant step in advancing global climate goals while addressing equity concerns.

Practice Question

Q. The financing needs of the Global South for addressing climate change have surged dramatically, but the terms and accessibility of funds remain a challenge. Critically analyze the current climate finance gap and propose strategies that could enhance funding flow to the Global South. How can the negotiations at CoP29 address the concerns of both the Global South and the Global North?