Quantifying international public finance provision needs for the new UN climate finance goal

Introduction

COP28 of the UNFCCC broke new diplomatic ground in the Global Stocktake¹: Nations reached the first global consensus to call upon all countries to contribute to the “transitioning away from fossil fuels” as well as to ambitious global targets for tripling renewable energy capacity and doubling annual energy efficiency gains by 2030, in addition to targets for the Global Goal on Adaptation. While overdue, such goals will prove infeasible without substantial improvements in the quality and quantity of financing for the Global South. If these goals are not delivered, global warming is projected to cause an estimated $38 trillion in damages globally, with a range of $19–59 trillion, roughly six times the cost of mitigation—even under a 2 °C pathway which the world is not yet on track to meet today².

Delivery of COP28 aims will depend on finance, and COP29 is poised to be a pivotal crossroads for climate finance. The mandate from COP21 is to replace, before 2025, the expiring $100bn/year target set in Copenhagen in 2009 (which remains unmet if measured in climate-specific net assistance³)—with a New Collective Quantified Goal (NCQG). As a target for mobilizing climate finance post-2025, the NCQG is therefore critical to ensure sufficient funds to support developing countries mitigate, adapt to, and address the loss and damage of, the escalating climate crisis. The type of finance (e.g., concessional, public versus private) and its quantum are subjects of negotiation. This Comment explores approaches to quantifying finance provision needs in grant-equivalent terms for loss and damage, adaptation, and mitigation, noting the gaps in the literature for energy transition in particular, drawing from a variety of studies to conclude that overall grant-equivalent needs equate to $1–1.5tn.

Financial challenges around climate action in the Global South

Global inequalities, understood through a financial lens, are a core issue for climate action. According to one study, widely cited by civil society groups in 2024⁴, as much as ~US$200 trillion could be “owed to the undershooting countries of the global South for the appropriation of their atmospheric fair shares by 2050”, in the context of the emissions budget⁵.

Overcoming structural barriers for the financial sector to invest in the Global South and increasing public funding from wealthier nations will be crucial to driving climate action across mitigation, adaptation, and loss and damage. The growing financing challenge for the Global South has been acknowledged by various leading decision-makers from the Global South—including Egypt’s Ambassador Mohamed Nasr: “We are paying for our own adaptation. On top of this, we have to pay for the transition. It is really very unjust.”⁶. Nathaniel Mong’are of Kenya and Abdoulie Ceesay of Gambia pointedly criticized the United States and Europe, who “despite ramping up their rhetoric in support of a fossil fuel phaseout, have failed to facilitate the climate finance needed to actually make it feasible”⁷.

Global “clean energy” investment amounted to $1.8 trillion in 2022, according to the International Energy Agency⁸, with only about 15% ($270bn) of this in the Global South (not including China)—despite this geography being home to roughly 70% of humans today. While global investments in renewables have surged, they have stagnated in the Global South (not including China)⁹. However, it is clear that energy transition investments in the Global South, not including China, need to grow faster than in the Global North¹⁰. Further research from the IPCC is clear which are the most effective and cost-effective measures to decarbonize the energy sector—solar and wind power, along with energy efficiency across industries¹¹.

However, two key systemic challenges are noted in the Global South:

• First, the fiscal space of the governments of these countries to support investment is severely limited, both by external debts (exacerbated by climate change impacts and currency challenges) as well as an international tax regime which they did not design. The World Economic Forum estimates that emerging economies will face $400 billion in debt payments this year, pushing many toward default and further delaying critical climate investments¹². The organization Debt Justice calculates that debt levels in the Global South rose 120% between 2008 and 2021¹³, such that lower-income countries spend five times more on debt repayments than addressing climate impacts¹⁴. Meanwhile, the organization Tax Justice Network calculates that as a result of cross-border tax abuse, non-OECD countries are losing roughly US$100 billion in tax revenue per year¹⁵.

• Second, the cost to finance renewable energy has historically been much higher in emerging and developing economies, with interest rates exceeding 10%¹⁶, compared with around 4% in rich countries¹⁷. These can be broken down into micro-risks, directly related to projects, and macro-risks, related to wider risks, like regulation or currencies. With micro-risks tending to be lower in the Global South, the additional interest is largely due to macro-risks [ibid.]. Often, the cost of capital is unfairly biased against the Global South, not based on a “rational” perception of macro-risks, especially currency risks [ibid.]. Domestic decision-makers can only address about 20-30% of the interest rate disparities with their policy-making¹⁶.

Unpacking approaches to the quantification of finance provision needs: energy transition

Various studies contribute to the understanding of the climate finance needs of the Global South. While views may differ, many actors, particularly from the Global South and those from civil society, hold that overall costs of climate adaptation and loss and damage should be financed essentially via grants—meaning no major distinction between public finance provision needs and overall finance mobilization needs. For mitigation, however, this is not so clear-cut, given a wider range of accepted modes of finance, especially for the energy transition.

No comprehensive assessment exists of the Global South’s international finance support needs in grant-equivalent terms, partly due to the difficulty of calculating such figures for the energy transition. This Comment addresses this by examining and further estimating energy transition finance needs in comparatively greater detail, reviewing findings from different studies. An overview is provided in Table 1 below.

• The UNFCCC Standing Committee on Finance quadrennially reports on “determination of the needs of developing country Parties related to implementing the Convention and the Paris Agreement”¹⁸, with its first report in 2021; in aggregating the Biennial Update Reports (BURs) under the UNFCCC “[only] 62 Parties indicated 2044 needs, of which [only] 535 needs are costed, cumulatively amounting to USD 11.5 trillion, with 5% distributed across 60 BURs and 95% across 2 BURs”; of this, around half of the cost needs $5.3 trillion, are for mitigation only [ibid]. However, (i) these are total amounts, but an estimate of annual needs is required for the NCQG; (ii) given the unidentified or uncosted needs, and data gaps from its bottom-up methodology, the full quantum of needs must be much higher; (iii) current NDCs do not add up to keeping global warming to 1.5 °C. Hence, this report should be complemented with other research. The second iteration of this “Needs Determination Report” (NDR), coming out in 2024, reaches broadly similar conclusions with similar limitations, although modest improvements in data.

• The International Energy Agency (IEA) does quantify an annual financial need for keeping Paris Agreement goals “in reach”, estimating that, by 2030, emerging and developing economies (not including China) will need around $1.9 trillion in yearly investment for clean energy¹⁹. The IEA proposes around $80-100bn “in annual concessional funding is needed by the early 2030 s” [ibid.] in developing and emerging economies. This proposed $100 billion in yearly concessional finance was widely discussed ahead of COP28. However, when this figure first appeared in a previous IEA report, the IEA specified that its purpose is limited to leveraging private finance⁹. However, the IEA Net Zero Roadmap is silent on the wider external public finance needs, which may lead to the misunderstanding that the $100 billion in concessional funding for private finance is the total international public finance gap. Rather, the IEA asserts that, of $1.9tn in overall developing country clean energy investment needs, ~60% would need to originate from private financial sources [ibid.], indicating the remaining 40% (around $760bn) would be public finance—necessitating roughly an additional $600bn/year in public finance beyond current levels. However, even if this $600bn/year is assumed to be sufficient, it does not specify exactly how much grant-equivalent public money would come from external (versus domestic) sources.

• The International High-Level Expert Group (IHLEG), led by Nicholas Stern and Vera Songwe, was originally commissioned by the Presidencies of COP26 and COP27 to develop policy recommendations on mobilizing the climate-related finance needed in developing countries^20,21. Despite some flaws, it provides a more detailed breakdown of external finance needs, across 13 areas of the energy transition, including: zero-carbon generation; transmission and distribution; phase-out of coal; and social programs and safety nets. Moreover, the IHLEG indicates a rough breakdown of five types of financing which may play a role in each, including “largely autonomous private finance”, “long-term MDB finance”, and “debt-free finance”. The IHLEG does cite analysis to suggest that annual (grant-equivalent) Official Development Assistance (ODA) resources should be increased by around $100–160bn/year, but, as we explore in the next section, such increases are clearly insufficient. The IHLEG also covers areas of loss and damage and adaptation, albeit with limitations which are discussed in the next section.

• The Civil Society Equity Review (CSER), which enjoys wide endorsements across civil society by faith, trade union, women’s, and environmental organizations (including the current employer of one of this Comment’s authors), aims to calculate the costs of just transition away from fossil fuels extraction²². It reflects areas often overlooked by the IEA in calculating needs, such as the costs of creating decent jobs with worker protections, including insurance, retraining, and relocation, as well as wider economic diversification plans, ecological restoration, and even the loss of revenue to a country’s economy. As part of a 2023 report, based on broad assumptions of the cost per worker, CSER estimates at least $209bn in annual support needs for developing countries.

Table 1 Overview of key studies relevant for quantifying finance needs for the energy transition

As shown, while each study is incomplete on its own, each is complemented by others, as crucial signposts toward identifying a more accurate estimate of the required finance provision, explored below.

Identifying finance provision needs across mitigation, adaptation, and loss and damage

For the NCQG quantum, assessments of grant-equivalent international finance needs depend greatly on financial assumptions with profound implications for justice. For example, for investment in new energy systems, a starting need for international provision of around $80–120bn/year in grant-equivalent terms may be calculated, under the following assumptions: (i) that, of the $1.9tn/year needed, ratios of private finance to public finance follow IEA assumptions such that $600bn/year is the additional public finance needed in developing countries by 2030; (ii) that, of this, a third to half should come from international sources; and (iii) that this international public finance includes some mix of non-concessional, concessional, highly concessional, and grant-based finance equating to a 40% grant equivalence (noting customary definitions of concessionality²³). However, these assumptions may be challenged, on the one hand by developed countries calling for developing countries to contribute more fiscally, and on the other hand by developing countries invoking arguments of justice in the face of limited fiscal space.

Moreover, a quantum-based only on IEA figures would be incomplete—omitting key areas of energy transition costs, such as early fossil fuel phaseout and just transition, which necessitate higher levels of public finance. The IHLEG and CSER each attempt to address some of these areas. The CSER calculates $209bn/year in needs to support countries in a just transition away from fossil fuel extraction, but this does not cover the whole energy transition—not addressing power generation phaseout costs for example, with one study calculating costs of $55,000–160,000 per megawatt of coal capacity decommissioned, not counting wider worker/community costs²⁴. While not specifying external finance needs in grant-equivalent terms, the IHLEG posits needs of $40–50bn/year in grants and concessional finance for early coal phaseout and $50–100bn/year in MDB finance and concessional finance for target programs and safety nets for just transition. When costs of just transition and an equity-based fossil fuel phaseout are factored in, it is clear that the quantum required for energy transition aligned with 1.5 C would become much higher. Adding these costs to the IEA-derived figures, the total needs could come to over $200bn/year in grant-equivalent terms for a just energy transition.

Of course, the NCQG cannot limit its climate change mitigation cost estimates to energy alone, but must also include areas like nature and agriculture. For natural capital, including afforestation and conservation as well as biodiversity but not including sustainable agriculture, the IHLEG posits $175–250bn/year is needed in grants and concessional finance. This, combined with the $200bn figure for energy transition, suggests needs could be $300bn/year or more, in grant-equivalent terms, for mitigation as a whole.

However, the full provision needs include adaptation and loss and damage, not just mitigation. In particular, for adaptation and loss and damage, the IHLEG assumptions may be questioned. For example, in its apparent assumption that there would be neither a “primary” nor a “secondary” role for debt-free (grant) finance for adaptation and resilience, the IHLEG would be roundly rejected by developing country negotiators²⁵ and scientists such as the late Saleemul Huq^26,27. Moreover, the IHLEG does cite analysis to suggest that annual (grant-equivalent) Official Development Assistance (ODA) resources should be increased by around $100–160bn/year, but this does not appear to take into account that loss & damage costs alone are estimated, per the IHLEG’s review, at $200-400bn/year.

Hence, for provision need estimates for adaptation and loss and damage, the authors reaffirm that these are dependent on political assumptions, while aligning with the aforementioned Global South and civil society actors who hold that adaptation and loss and damage require essentially debt-free finance. The 2023 UNEP Adaptation Gap report estimates developing country adaptation costs at $215bn/year before 2030, and, while the Global Goal on Adaptation has not been costed, developing countries needs for implementing domestic adaptation plans are estimated at $387bn/year—although this, even according to UNEP itself, would not include the full costs of social inclusion, e.g., gender equality²⁸. The projected economic cost of loss and damage in developing countries is estimated as at least around $450–900 billion per year before 2030 (in 2023 USD), with this representing an underestimate for not including priceless “non-economic” losses^29,30.

Conclusions

If these adaptation and loss and damage provision needs estimates are added together with those for mitigation, recognizing the assumptions involved around grant-based financing, and the assumption that the Global South should generally not pay for climate change impacts which it did not cause, it seems the literature could substantiate an estimate of overall yearly grant-equivalent needs of developing countries approaching $1–1.5 trillion.

How can the NCQG best respond to quantifications of needs?

To accurately reflect needs, noting the points above on approaches across mitigation and energy, as well as common assumptions for adaptation and loss and damage, the NCQG structure must include (i) distinct thematic constituent goals, differentiating between the main areas—mitigation, adaptation, and loss and damage, and (ii) layers for different categories of finance, in particular, to make the crucial distinction between provision and mobilization.

• I. Constituent thematic goals: Taking into account the needs and priorities of developing countries requires differentiating between the costs of mitigation, of adaptation, and of loss and damage. Costing should be informed by priorities and goals set within each—such as, within mitigation, the costs associated with global goals to triple renewable energy capacity by 2030, affording proper access to electricity for the over 700 million people lacking access to electricity³¹, and to fully decarbonize the energy sector by 2050.

• II. Layers for different categories of finance: there is a crucial need to distinguish between mobilization and provision, i.e., between that finance, public and private, which is mobilized by contributors, versus that public finance, in grant-equivalent terms, which is provided. Public finance may be disbursed via a variety of public finance instruments, but provision must be measured in grant-equivalent terms—because a quantum of hundreds of billions in concessional loans in nominal terms is very different from hundreds of billions in grant-equivalent terms.

In this vein, this Comment has sought to establish careful indications of provision needs, without precluding the possibility of adjustment—should greater information emerge on fiscal space or on costs, notably of just transition and equitable approaches. In being transparently explicit about quantitative assumptions, the aim is to encourage more discussion regarding legitimate areas for debate.

The conclusion that aggregated support provision needs of developing countries could approach (or surpass) $1–1.5 trillion/year (in grant-equivalent terms) does align with and build upon existing literature—and yet it raises important questions.

Indeed, various developing countries are affirming the support provision needs as being on this order of magnitude. India notably argued that, for the NCQG, “developed countries need to provide at least USD 1 trillion per year, composed primarily of grants and concessional finance”³², having previously equated this to developed countries providing 2% of their GDP as climate finance³³.

If $1–1.5 trillion in grant-equivalent terms seems a major departure from the non-grant-equivalent $100bn/year goal and even from the current total grant-equivalent ODA flows of around $200bn/year, then this simply points to how outdated the $100bn/year has become in light of current assessments of the costs of climate change. Yet, this figure pales in comparison to the staggering net capital outflow and economic drain from the Global South to the North over the past decades³⁴. Moreover, current ODA flows represent the failure of wealthy countries to deliver on their 0.7% GNI commitment from the 1970s. Having been set before the devastating reality of climate change was recognized, the 0.7% goal is arguably now outdated yet unmet, more necessary yet insufficient. Some countries, like Norway, have mooted the logic of a 1.4% GNI target to ensure new finance for new challenges³⁵.

If the current politics within rich countries make their delivery of ambitious support unlikely, then the current politics must be changed. Considering, for instance, that the wealthiest 10% of households globally are responsible for up to 45% of all greenhouse gas emissions—largely concentrated in the Global North¹¹—taxing the wealthy might be deemed not only justifiable from an equity perspective but also essential for addressing fiscal challenges: A moderate wealth tax on this group could alone generate between $200 billion and $500 billion annually, depending on the threshold for defining wealth and the tax rate applied³⁶.

Should wealthy countries fail to provide the necessary temporary surge in climate finance during this critical period, they risk enabling the breach of planetary tipping points for catastrophic runaway climate change. This would saddle them with far greater financial obligations to support poorer countries facing adaptation costs and loss and damage, in an enduring moral responsibility that would be perennial, not passing.