The Global Stocktake and The State of SLCP Mitigation Finance

This year the CCAC Secretariat welcomes new team member Rachel Kyte, who will serve as a high-level advocate for SLCP Finance.  

Rachel has previously served as World Bank's Vice President for Sustainable Development and is  Co-Chair of the Voluntary Carbon Markets Integrity Initiative (VCMI), Advisor to Beyond Net Zero at General Atlantic and member of G20 Independent Expert Group on Multilateral Development Bank reform, among other roles.

The CCAC Secretariat sat down with Rachel for a Q+A on some of the headline issues in climate mitigation financing in 2023. Attracting greatly increased finance toward SLCP action is one of the CCAC’s key priorities at to further the achievement of our Strategy 2030.  

What are some of the structural challenges to matching countries’ climate change ambitions under the Paris Agreement with adequate finance? 

The Paris Agreement contains some constructive ambiguity, which was a relatively positive aspect in relation to climate targets; however, in the realm of finance it has been a disadvantage. It has meant that there is a lack of clarity on what types of finance can count, which are the legitimate ways to make financial contributions, and what would happen if the contributions were not met.  

In recent years the discussions have moved away from what does and doesn’t count, toward a focus on whether we are meeting the target or not. Initially there was a target of US$100 billion dollars in contributions per year but now in the lead-up to COP28 the discussion of the adequacy of this target for the period 2025-2030 will be recalibrated based on the global stocktake and this year’s various gap reports.  

If we consider the need to achieve the sustainable development goals alongside what is needed to limit warming to 1.5°C, we are looking at a figure near US$2.5 trillion to be directed to emerging markets – magnitudes of order more than the current US$100 billion per year.  

Below this mammoth task there are a lot of smaller questions which take up attention, such as replenishment of the Green Climate Fund, and the establishment of a loss and damage fund and adaptation fund. At this point, if the G7 countries are not willing to put concessional financing on the table, no matter how much financial engineering we do, there will be a huge shortfall in the financing needed to fund loss and adaptation efforts. That initial capital is really needed to get the ball rolling.  

What have we learnt from past experiences of tackling such challenges on the most effective ways forward? 

We know that there are several non-negotiable ways to approach this. It begins with setting standards for pollution and air and water quality. Countries then need to be able to finance the improvement in the supply of energy and support companies to perform at that standard – that comes from appropriate taxation, particularly of the polluter.  

There is almost no country in the world which has a tax to GDP ratio that would be appropriate for an energy transition. Countries need a tax-to-GDP ratio of at least 25% to achieve this, not the single digit figures many countries are operating today. The International Monetary Fund (IMF) has been clear for a long time that the most efficient way to get effective prices on carbon is through a direct carbon tax.  

Windfall taxes on oil and gas companies are an obvious solution to this as well, but one that requires stronger political will to achieve than what we see at the moment. Even the redirection of oil and gas subsidies towards mitigation efforts would be a good start at this stage. 

Getting the private sector to call for climate and clean air action is another very important step. We must align the interests of the private sector with the benefits of clean air, such as increased property values, better health outcomes and standards of living. Regulations are nevertheless indispensable in guiding all private sector actors towards the same goals. In certain sectors, like fossil fuel methane, there is no reason why the private sector can’t do more to contribute to mitigating methane and carbon emissions.  

What are some of the primary areas where climate financing needs to be remodelled to meet the complex challenges of climate and air pollution? 

One of the challenges of climate change in general is linking local actions and impacts to global consequences. You can see this in relation to funding short-lived climate pollutant projects on black carbon for example, where there is a clear local health benefit and impact. Linking that to the global impacts of black carbon – such as emissions settling on the cryosphere thousands of kilometres away – is more difficult. There is no funding for those unattributable emissions.  

Solutions such as international solidarity taxes are very effective at addressing these non-attributable emissions. These would include levies on international shipping or travel and financial transactions, etc. They can be so small that they don’t affect normal consumers, but on a large scale can accrue large amounts of resources. Some estimates show that a progressive tax on business class flight travel for example could raise over US$200 billion per year. These measures are even more critical in the absence of concessional finance from developed countries.  

Multi-lateral development banks also have a great position to bridge the link between climate and clean air benefits and broader development benefits through programmatic funding. At present, a lot of funding is project-based, which limits the extent to which these multi-faceted benefits can be achieved. 

How do you think we should approach climate financing priorities over the near and medium term?

There’s no dispute that we need to wean ourselves off fossil fuels, and there are different options for how we do it. But regardless of the choice, the most important question is how quickly we do it. In this sense focusing on SLCPs, and particularly methane, makes perfect sense. Whether or not we phase out quickly or more gradually, we need to get rid of the methane, so it’s a no-regrets investment for the energy sector. When it comes to methane, it’s a no-brainer because it’s a smart investment for the longer term that also has short-term impacts.

We know what we need to fund, and we know where the funding needs to come from. To overcome the current challenges we need to get creative with different types of schemes which are both easy to implement and have a large leveraging effect. We also need to ensure that those who are responsible for the problems are funding the solutions, without penalising the most vulnerable and poorer people who have no choice.