COP27 and Climate Finance: Renovated Debates, Same Old Dilemmas

The world needs new norms of financing that account for the historical responsibilities of developed countries in causing climate change and, at the same time, deal with their fiscal problems.

Scholars from the University of Pennsylvania are on the ground at COP27 in Sharm El-Sheikh, Egypt. Follow their updates from the climate conference and tune into a special podcast series from Energy Policy Now.

The beginning of COP27 brought about many expectations regarding how governments would act considering two critical facts: the 1.5-degree goal that likely will not be met; and the energy crisis triggered by the war in Ukraine. These problems put forth the issue (again) of who should bear the costs of quicker responses to climate change while guaranteeing energy security. Although the beginning of the conference was auspicious regarding the problem of climate finance—for the first time parties agreed to introduce loss and damage funding as an agenda item—such encouragement was diluted as time went on.

In a recent article, Aklin and Mildenberger defined the problem of climate change as a distributional conflict. Framing climate change as a problem of collective action is wrong, they assert since countries decide whether to adopt environmental policies regardless of the existence of international treaties. Instead, the authors define the conflict in purely distributive terms: decisions regarding decarbonization are based on the evaluation of the material costs.

The conflictive nature of the problem of climate change has prevailed in the discussions at COP27. Indeed, the discussions regarding climate financing were characterized by the presence of four actors with interests in tension: developed and developing countries and multilateral and private organizations.

Developing countries emphasized the need to rethink new forms of financing that account for the historical responsibilities of developed countries in causing climate change and, at the same time, deal with their fiscal problems. The representatives of these countries demanded that developed nations invest more money in regions that are more relegated and heavily exposed to natural catastrophes and that such investment should not be in the form of loans. 

For instance, Mia Mottley, the prime minister of Barbados, underscored the importance of concessional funding and called for reforming the Bretton Woods system. In response to such demands, developed countries highlighted how much they support mitigation and adaptation programs, and some emphasized the diversification of their financing towards loss and damage issues. Scotland and New Zealand, for example, announced new grants supporting such projects in regions with disproportionate climate change impacts. However, as even these governments recognized, these contributions are not enough to fully combat the problem. Faced with this challenge, developing countries asked for more involvement from multilateral organizations, like the World Bank and the IMF.

In response, World Bank Group Chairman David Malpass stressed that they spent $32 billion in climate finance in 2021. Yet, while multilateral organizations affirmed the need to increase such contributions, they emphasized that increases must fall on the private sector. In multiple side events during COP, representatives of the private sector did not deny their role in promoting greater investment in developing countries. However, they demanded institutional changes and better rules to guarantee economic profits.

There is a common but unrecognized topic underlying these interventions: the need for cooperation to advance climate change solutions. The best way to frame the discussion is to accept that all but especially the most powerful actors will have to give up something and face certain economic and institutional losses. As UN Secretary-General Antonio Gutierres stated at the beginning of the summit: “humanity has a choice: cooperate or perish.” The change will be expensive. And although the resources exist, what lacks is political will. Political and economic leaders of the richest nations need to understand that the costs of not acting will be incommensurate with the initial investment they might have made.

Santiago Cunial

Graduate Fellow
Santiago Cunial is a graduate fellow, doing research and drafting policy digests on energy topics in Latin America. Santiago is currently a Ph.D. candidate in political science.