THE OPEC FUND’S RESPONSE
A silver lining, especially for EMDCs, is the opportunity to “leapfrog the dirty and destructive phase of fossil-fuel growth of developed countries and build cleaner, safer, more energy-secure, more resilient and more bio-diverse ways of living and working,” as the experts put it. Renewables investments and savings from the replacement of fossil fuel use would go a long way. But not long enough. While global efforts to tackle climate change are increasing, EMDCs are facing various setbacks. These include the shift to clean energy in supply and use, enhancing adaptation and resilience, addressing loss and damage, protection and restoration and ensuring a just transition. This backsliding is also borne out in numbers: Global clean energy investments reached an all-time high in 2023, but more than 90 percent of the increase took place in advanced economies and China. Low- and lower- middle income countries accounted for only 7 percent of clean energy spending in the previous year. Adaptation needs are estimated at around 10-18 times as much as current flows of international public adaptation finance, the IHLEG report says. Although EMDCs account for an estimated 90 percent of the investment opportunity in protecting and restoring nature from 2020-2030, 80 percent of the financing remains in developed economies. International public finance commitments for adaptation in EMDCs fell by 15 percent in 2021. The IHLEG report concludes: “There are important shortcomings from the perspective of EMDCs: climate finance is concentrated in developed economies and China, and in mitigation rather than adaptation. Private finance is insufficient. Climate finance is primarily delivered in the form of debt. And most financing remains in its country of origin.” Doing nothing costs a lot Despite a global increase in climate financing – mostly benefitting rich nations – the amounts are still far from what is needed and also what is spent on other purposes. According to the International Institute for Sustainable Development, an independent think tank, governments provided a record high
of over US$1.7 trillion in public money in 2022 to support fossil fuels, despite 91 percent of global CO2 emissions originating from fossils fuels. This amount dwarfed the US$1.27 trillion of global climate finance committed in 2021/22. In addition to raising more funds, it is also imperative to act faster. When the groundbreaking Stern Review on “The Economics of Climate Change” was published in 2006 it provided a first substantial estimate, suggesting that stabilizing greenhouse gases, if action were taken promptly, would cost 1 percent of global GDP. For lack of action that estimate today has more than doubled. In other words, the world has learned the hard way that the cost of inaction far outweighs the expense of mitigation. A new study by the International Institute for Applied Systems Analysis in Laxenburg, Austria, finds that if global warming continues to 3°C, global GDP will decrease by up to 10 percent – with the worst impacts in less developed countries. “When it comes to climate variability and extremes, it is crucial that we can understand and quantify their financial impacts and how those will change over time,” says co-author Jarmo Kikstra. “Our results suggest that climate change comes at a substantial cost to populations around the world.” The IHLEG report also warns against the “cost of inaction” and calls instead for a “comprehensive strategy to deliver bigger, better and faster climate finance.” One of the pillars of this approach are multilateral development banks. A G20- mandated Independent Expert Group calls for a tripling in sustainable annual lending levels by MDBs to US$390 billion by 2030.
T he OPEC Fund is taking on a growing role in the delivery of climate action. It adopted its first Climate Action Plan in 2022, setting ambitious targets of increasing climate finance to 25 percent by 2025 and 40 percent by 2030 of all new financing. The OPEC Fund also committed to seeking alignment with the goals of the Paris Agreement. The OPEC Fund’s approach focuses on three key areas: 1. Climate finance and energy mitigation, 2. Food security and climate adaptation, and 3. Nature-based solutions – in other words, the protection of ecosystems and biodiversity. In order to assess its delivery, the OPEC Fund introduced an annual accounting of its climate financing in 2021. It follows the methodology adopted by other multilateral development banks (MDB). This harmonization represents a major step forward towards joint efforts in response to climate change. In accordance with the practices of the Joint Report on MDB Climate Finance, the OPEC Fund publishes details of the climate finance measures for its approved portfolio (excluding trade finance) retrospectively from the previous year. The first annual Climate Finance Report, released at COP29 in Baku, provides a detailed overview. The OPEC
“When it comes to climate variability and extremes, it is crucial that we can understand and quantify their financial impacts and how those will change over time.”
Jarmo Kikstr, International Institute for Applied Systems Analysis
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