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USD $64 billion available for energy transition after week one of COP28. Trillions more could be redeployed.
Released this week, COP 28’s Climate Finance Commitment Tracker indicates that a current pledge of USD 6.8 billion has been made to support energy financing. However, research by the Secure Energy Project has estimated that up to USD 63.85 billion in new pledges made during COP28 could be directed towards financing the energy transition.
A surprise success story of COP28, the tripling renewable energy and doubling energy efficiency goals have received endorsement from at least 123 countries, with the total expected to rise to 130 today*. Since the launch of the pledge by COP President Sultan Al Jaber, on Saturday 2nd December, the “3xRE and 2xEE” goals have been widely lauded and written into a draft text for the global stocktake.
Of the many new financial pledges that could be made available for transitioning to renewables and energy efficiency, the largest commitment comes from the COP28 hosts, the UAE, who pledged USD 30 billion with a mission to “Drive forward international efforts to create a fairer climate finance system, with an emphasis on improving access to funding for the Global South.”
Even this sizable USD 64 billion is dwarfed by the need identified by the International Renewable Energy Association (IRENA), who have determined USD 35 trillion is required by 2030 to finance the energy transition. Many global south countries are still wondering where the money for the energy transition will come from.
However, not all USD 35 trillion needs to come from the public purse, because public funds would act as concessionary support and guarantees that ‘derisk’ greater private investment into clean energy systems in the global south. Nonetheless, the world’s governments will need to find more money for energy transition.
● Clean Energy Transition Partnership (CETP) – USD 28 billion
In its first year CETP signatories already moved USD 6.5 billion out of fossil fuels and USD 5.2 billion into clean energy. If implemented in full, the CETP has the potential to shift a total of USD 28 billion to clean energy annually.
● Just Energy Transition Partnerships (JETPs) – USD billions
A JETP is a “blended finance vehicle” which allows countries to use public grants and guarantees to attract greater private investment. As of today there are live JETP agreements operating in South Africa, Indonesia, Senegal and Vietnam. The most recent, Vietnam, is worth a total of USD 15.5 billion, but only USD 321.5 Million, or 2.1%, come in the form of grants. The more advanced JETP in South Africa received an initial USD 8.5 billion from the International Partners Group (IPG). But the country has since struggled to find the USD 80 billion needed for the full transition plan, and the JETP is coming under fire from activists and fossil fuel lobbies alike.
● Mia Motley’s Bridgetown Initiative – USD 100 billion
The Bridgetown Initiative asks that UN member states should fast-track the transfer of USD 100 billion in so-called ‘Special Drawing Rights’. This would see the IMF and other multilateral development banks “cut the excessive macro-risk premia on developing countries with $100 billion per year of foreign exchange guarantees”, for financing in more volatile domestic currencies rather than the dollar or euro. Hopes are high that the recent changes of leadership at the IMF and World Bank could see a proposal in this vein.
● Redeployment of fossil fuel subsidies – USD 120 billion
The head of the IMF, Kristalina Georgieva, today named fossil fuels subsidies as a potential source of financing: “We have been slow on a very important policy thought, which is the incentive for investors, by still tolerating high levels of fossil-fuel subsidies.”
If governments were to take just 20% of total fossil fuel subsidies (on average USD 610 billion per year globally over the last five years) into clean energy we could find USD 120 billion a year.
● Redeployment of investments of state-owned oil companies (NoCs) in line with IEA – USD 425 billion
If state-owned oil companies shifted their planned investments away from oil and gas, in line with the International Energy Agency’s’ forecasts of future demand, this could free up USD 425 billion for renewable energy projects.
● Redeployment of global military budgets – USD 110.4 billion
The military is responsible for 5.5% of all global emissions. By diverting just 5% of global military budgets we could find USD 110.4 billion for climate finance.
● Redeployment of a small percentage of GDP – USD 1.3 trillion
If all countries that signed this pledge contributed just 2% GDP (which is less than many countries spend on their military – US spends 3.1%) we could deploy USD 1.3 trillion per year.
Leila Aly El Deen, Executive Director at the Secure Energy Project said:
“To say that we can’t fund the energy transition is a failure of imagination – Now is the time to spend big on wind and solar. Private finance is ready to pour into renewables – governments simply need to underwrite it.
The global north is accelerating their renewables build, but they can only meet their targets if they enable the global south to do the same, and support them to build a new clean manufacturing industry. If we shift our financing from propping up old to stimulating new energy industry, and invest in a future of new wind and solar, we will create millions of jobs and stimulate global investment where it’s needed”
Sean Rai-Roche, Policy Advisor at E3G said:
“It’s great to see more than $60 billion pledged already via various initiatives at COP28, but we need to go much further, much faster. A global transition to clean energy will cost a lot more than what has been committed at COP28, but it is encouraging, especially for developing countries, that the amount of financial support being offered by rich countries is slowly growing.
Developed countries should get imaginative and consider all their financial options to come up with bold, creative solutions to the current funding deficit, such as carbon pricing or levies on fossil fuel producers.
When the world was scrambling to stop the COVID-19 pandemic, governments stood up and found the funds required to contain the virus. Combatting climate change requires an even greater response from world leaders.”
*Additional pledge signatory countries rumoured as Philippines, Djibouti, Panamá, Palau, Peru and Cabo Verde
For more information contact:
Leila Deen: Leila@secureenergyproject.org
Sean Rai-Roche: sean.rai-roche@e3g.org