Sultan al-Jaber, the chief executive of the Abu Dhabi National Oil Company (ADNOC), faces a daunting task ahead of the 28th Conference of the Parties (COP28) in the United Arab Emirates. As the world’s key climate gathering approaches, al-Jaber is focused on addressing a major global imbalance in green finance to ensure the conference’s success.
The COP28, which will bring together 70,000 ministers, executives, investors, academics, and other participants, is billed by the United Nations as a “stocktake” of global decarbonisation progress since the landmark Paris climate conference in 2015. However, it seems that progress has been lacking. The UN reports that the current Nationally Determined Contributions, which outline each country’s plan to reduce greenhouse gases, would only result in a 2% decrease in global emissions by 2030 compared to 2019. This falls far short of the necessary 43% reduction needed to limit temperature rises to 1.5 degrees Celsius.
Al-Jaber aims to shift the focus towards tripling global renewable energy capacity by 2030. China’s rapid growth in solar panel capacity has already exceeded what is required to limit temperature rises. Developed countries, including the United States, are also actively providing subsidies for renewable energy projects.
However, progress in these regions is not enough without similar advancements in developing countries. These countries are responsible for one-third of the world’s energy-related carbon emissions and host two-thirds of the global population. According to the International Energy Agency, clean energy investment in China and the West needs to double by 2030 to limit global warming to 1.5 degrees Celsius, while developing markets require a fivefold increase.
Economists, including Professor Nicholas Stern, argue that developing countries need to invest around $2.4 trillion annually by 2030 to decarbonize their economies. Of this amount, approximately $1.5 trillion would be allocated to wind turbines and solar panels, $600 billion for adapting to climate change, and $300 billion for agricultural and environmental protection.
Stern estimates that emerging economies can contribute about $1.4 trillion themselves, but the remaining $1 trillion must come from external sources. Private investors could provide around half of this funding, but multilateral lenders such as the World Bank would need to contribute $300 billion, with developed governments providing the remaining $200 billion through avenues like concessional finance.
Currently, public and private investors in the wealthy world are only contributing $200 billion per year to climate finance, falling short of the required $1 trillion. The private sector would need to increase its investments by five times, while financing from multilateral lenders would need to triple. The new World Bank boss, Ajay Banga, is working to mobilize private capital through an advisory body featuring experts like former Bank of England Governor Mark Carney and BlackRock CEO Larry Fink.
One obstacle to achieving these funding goals is that developed countries have repeatedly failed to meet targets for transferring climate finance to less developed nations. For instance, the fund to address current climate change damage, agreed at last year’s COP27 summit, currently relies on voluntary contributions from rich-world countries.
Existing real-life projects also raise concerns. The Just Energy Transition Partnership (JETP) between Indonesia, the U.S., Japan, and other wealthy states, aimed to retire coal plants early with a $20 billion scheme. However, delays have led Indonesian President Joko Widodo to question the commitment of rich-world backers. Similar partnerships in South Africa and Vietnam are also progressing slowly.
Moreover, nearly a quarter of emerging markets face borrowing costs 10 percentage points higher than the U.S., hindering their ability to invest in green initiatives. Even if a $1 trillion annual transfer to poorer states is achieved, it may be ineffective if subject to market interest rates, as was the case with over half of all climate finance in 2022.
Al-Jaber’s advantage lies in the UAE’s status as a leading oil producer. With high crude prices, the country has earned over $200 billion in net oil export revenues in the past two years. In September, al-Jaber announced a $4.5 billion scheme to support Africa in decarbonizing its economy. There are indications that UAE Crown Prince Mohammed bin Zayed al-Nahyan may unveil an even larger plan at COP28.
While a significant financial contribution from the UAE alone will not solve all the challenges of green investment, it could offer an alternative path to decarbonizing the developing world and increase the chances of a lasting impact at COP28.
The 28th Conference of the Parties (COP28) is scheduled to take place in Dubai between November 30 and December 12.
More detail via Reuters here… ( Image via Reuters )