More broad-based investment needed to deal with climate change, says economist Nicholas Stern

Speaking on sources for climate finance, Stern, the IG Patel Professor of Economics and Government at the London School of Economics and Political Science, added that special drawing rights are a route that is beginning to be pursued for low-cost money, and voluntary carbon markets and philanthropy could be a significant flow.

“I think new sources of international finance, taxes on marine or on air could produce new flows,” he said. “Whilst the biggest part will be the ordinary MDB (multilateral development banks) lending combined with the private sector, this other part of low-cost money will be important. And when we say taxing maritime or air, it’s not really taxation, it is paying the price for the damage that is caused by burning fossil fuels.”

Also read | India has to move fast to break into global supply chains: Jagdish Bhagwati

About 10–20% of annual global deaths are linked to air pollution. Much (not all) is associated with burning fossil fuels; polluting and wasteful agricultural and construction methods also contribute.

Climate financing is assuming more critical proportions as global temperatures continue to rise. 2023 saw the highest recorded global temperature increase of 1.55°C, with a brief crossing of 2°C, and the world is on track to cross 1.5°C on a trend basis between 2030 and 2035.

To avoid the worst impacts of climate change, annual climate finance flows of $5.2 trillion are estimated to be required, including $160-288 billion for India alone from now to 2030, according to the World Resources Institute and the Centre for Social and Economic Progress.

Despite an increase in climate finance flows over the past decade, only about $600 billion was available in 2020, with the current rate of increase being insufficient to avoid a 1.5°C global warming scenario.

Moreover, only a fraction of the climate finance flows to developing countries, where governments have more limited budgets and capacity. Stern said that MDBs are well positioned to support climate-related investments in developing countries.

“The expansion of the MDB system will provide moderate-cost money at the rates that the World Bank charges, which might be 4% or 5%, which is quite low relative to elsewhere. But the loss-and-damage story and natural capital will probably need money at lower cost than that or zero cost. So, I think that part of that story of the expansion of external finance should indeed be focused on the low cost or grant money,” Stern said.

Read more | India-US climate change mitigation to help create well-paying green jobs, says US diplomat Jorgan Andrews

MDB financing

Post the G20 summit hosted by India, 10 MDBs, including the African Development Bank, Asian Development Bank, Asian Infrastructure Investment Bank, Council of Europe Development Bank, European Bank for Reconstruction and Development, last October committed to working together to scale up their financial and lending capacity, collaborate on climate action, enhance country-level engagement, strengthen co-financing and step up their private sector engagement.

Last month, the MDBs announced that their global climate finance reached a record high of $125 billion in 2023.

One of the key discussions at the upcoming 29th conference of parties or COP29 to the United Nations Climate Change Conference is expected to be MDBs, increase global climate finance and reach an agreement on the new collective quantified goal of climate finance. COP29 is scheduled in Baku, Azerbaijan between 11 and 22 November.

“The bigger flows will be invested for financing that is productive, has returns and can manage to pay the 4 or 5%. Big resources are necessary in energy transition and transport. The smaller part is also significant. There are not many resources in the loss and damage fund yet. Resources for loss and damage and natural capital will be important. And I think it’s at the same time as the overall flows are expanded, it’s important to keep within those flows pressure on the expansion or the low cost or zero cost money. There are some routes, overseas development, assistance is very important, but there’s not much appetite in the rich countries for that,” Stern added.

Also read | India can sustain high growth, become a developed economy by 2047: John Lipsky

To mobilize the necessary financing for the green transition, climate- and nature-related spending requirements by 2030 are $2.4 trillion per year, including $1.4 trillion from domestic resource mobilization, and the remaining from external financing through private finance, bilateral and innovative concessional finance and MDBs and other development finance, according to a 2023 report by Amar Bhattacharya, a senior fellow in the Center for Sustainable Development, housed in the Global Economy and Development program at Brookings Institution.

To reduce emissions by certain crops like paddy, which is considered as a staple grain in India, Stern said, “Flooding the fields releases a lot of methane. I think now we increasingly recognize through direct planting of paddy, or through the system of root intensification, that you do not have to flood the paddy fields. India and other places and the Consultative Group on International Agriculture Research are looking at ways of growing paddy without flooding the fields.”

The economist suggests investment in water management, R&D in new crop varieties and information systems to cope with extreme weather events caused by climate change and ensure food security.

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}