Global climate financing has steadily increased over recent years, according to new research from the Climate Policy Initiative, and might have reached as much as $510 billion to $530 billion in 2017, but while this is, on its own, relatively good news, investment in climate action is falling short in several key areas.
The Climate Policy Initiative (CPI) published an update last week to its Global Landscape of Climate Finance 2017 based on newly published data from 2015 and 2016, and provided the group’s preliminary estimates for global climate finance flows in 2017 based on early data which shows steady renewable energy investment, rising electric vehicle investment, and rising investment from development banks.
Revised estimates for global climate finance flows for 2015 are now revised to $472 billion, and for 2016 to $455 billion, with an annual average over the two-year period of $463 billion, 27% higher than the previous two-year period, thanks in part to an additional $53 billion in the annual average stemming from new data on national development finance institutions and the integration of electric vehicle sales into the dataset.
The Initiative’s preliminary estimates for 2017 expect the upward trend will continue and will range from approximately $510 billion to $530 billion.
“Given the scale of the challenge, it is good news to see overall investment in climate action rising,” said Dr Barbara Buchner, Executive Director, Climate Finance of Climate Policy Initiative. “Unfortunately, we still have far to go. Leaders need to urgently continue and ramp up the progress toward the economy-wide transition needed to address climate change.”
Specifically, according to the authors of the report, these climate finance figures represent only a small share of the overall economic transition that is required to properly address climate change. This is especially the case when you take into account parallel investments in fossil fuel projects that continue to surpass investments in low-emission, climate resilient infrastructure.
“Investment is crucial to addressing climate change,” added Dr. Angela Falconer, Associate Director at Climate Policy Initiative. “In order to scale-up investment, investors and governments alike need to see that the investing in low-carbon, climate-resilient activities is a smart investment decision that will grow economies, achieve profitability, and generate financial returns, in addition to the benefits for human well-being and the environment. There are many policy solutions and new business models that achieve these aims across a variety of sectors, but they need to reach more regions and investors to get to scale. That’s what we are working on with the Global Innovation Lab for Climate Finance and Climate Policy Initiative’s other programs – identifying the best policy and finance solutions to mobilize sustainable investment, globally, and supporting replication and scale for these solutions.”
Further, the last Intergovernmental Panel on Climate Change report highlighted the need for a $1.6-3.8 trillion energy system annual investment requirement from 2016 to 2050 if we are to keep global warming within a 1.5 °C scenario.
Looking at specific sectors, the renewable energy sector saw investments drop in 2016 by 16% from 2015 levels, due primarily to falling technology costs — which, essentially means that investors are getting more bang for their buck, considering that renewable energy capacity levels increased even as investment levels decreased. However, in 2016, according to the Climate Policy Initiative, the drop in 2016 was as equally due to fewer projects being financed. Moving into 2017, the CPI’s figures expect renewable energy investment to hold steady, while sustainable transport is expected to show a year-on-year growth rate of 54% on a compound basis since 2012.
Annual investment in electric passenger vehicles by public and private sources, 2017
While renewable energy investment could be better, but is offset by lower prices, and electric vehicle investment is on the rise, the news is not as good for investment in activities to increase resilience to climate change. According to CPI’s estimates, total adaptation financing from all public sources is estimated to be at only $22 billion per year, with what the authors describe as “significant challenges to comparability over the years due to variations in reporting.” On top of that, data gaps are making it hard to know whether adaptation finance has increased or decreased from previous years. The resulting actions necessary are obvious, then, with a need for better metrics and more harmonized understanding across reporting institutions to enable more accuracy in tracking adaptation finance flows.
On top of the reporting mechanisms, climate adaptation financing is simply very low. While the report points out that private investment — which is notoriously difficult to track — could be much higher than this initial total suggests, adaptation finance is still extremely low when compared to the present need — a need the United Nations Environment Programme puts at between $56 billion and $73 billion per year, globally, with even higher costs possible under high emissions scenarios.
The report was published only days before the commencement of the UN Climate Change Negotiations, COP24, being held currently in Katowice, Poland, and presents several recommendations for countries to scale up their climate investment further. First is the need to create domestic policy frameworks which are attractive to investment: 81% of climate finance was raised and spent within the same country between 2015 and 2016, while National Development Finance Institutions (DFIs) reported almost double climate finance commitments in this time compared to 2013/14.
Secondly, the private sector must be engaged and prioritized. Private finance accounted for 54% of investment in 2015 to 2016. Finally, the report highlights the importance of East Asia and the Pacific as a potential bright spot from which to learn.