Global temperatures are set to surpass the critical 1.5 degrees Celsius threshold above pre-industrial levels. Efforts to halve 2019 levels of greenhouse gas emissions by 2030 fall alarmingly short, targeting only an 11%, IMF experts said on climate finance.
Without stronger action, our warming planet imperils homes, health, and food security. Mobilising more climate finance is vital not only for mitigating emissions but to build adaptive capacity through investments in climate resilient infrastructure.
This, IMF noted, is especially important for Asia, which is home to several of the largest emitters and a region acutely vulnerable to climate change due to high population density and geography.
Countries in the Asia-Pacific region face a shortfall of at least $800bn in climate financing. With public finances depleted by the pandemic, policymakers must unlock the vast potential of private capital to join the fight more effectively against global warming.
Doing so will demand a co-ordinated and multi-faceted approach by actors on all sides, from governments and central banks to financial supervisors and multilateral institutions. Important strategies include phasing out fossil-fuel subsidies, which have reached a record $1.3tn.
It will also be key to expand carbon pricing, bridge critical data gaps, and promote innovative financing along with public-private partnerships.
The region’s transition to greater sustainability has global implications. Asia contributed about two-thirds of global growth last year, and will again in 2024, but its heavy reliance on burning coal for energy means that it contributes more than half of harmful global greenhouse gas emissions. Asia’s economies recognise how climate hazards directly impact lives and livelihoods, and have made deeper commitments, as their revised Nationally Determined Contributions under the 2015 Paris Agreement show.
Asia can aid the climate fight by demonstrating how to balance economic growth and environmental sustainability.
Asia’s emerging market and developing economies need investment of at least $1.1tn annually to meet mitigation and adaptation needs. But they’re only getting $333bn, mostly from sustainable debt instruments like green bonds, and public sources contribute more than half.
Such a shortfall leaves these economies with a funding gap of at least $815bn. China leads in attracting climate finance, making major strides in renewable energy adoption, and its collaborations with the EU have yielded crucial frameworks for sustainable finance, such as the Common Ground Taxonomy and stricter China Green Bond Principles, noted IMF’s Ritu Basu, Cheng Hoon Lim.
Pacific island countries and other small economies often have trouble accessing international capital markets or obtaining financing via global climate funds. In particular, they find it hard to meet stringent accreditation requirements of global climate funds as their capacity is already stretched thin and public investment management is challenging.
For larger countries, IMF noted green bonds may be as costly as conventional securities because investors appear to be less trusting of green characteristics in Asia’s sustainable debt instruments. These issues underscore the broader challenges for the region’s funding aspirations.
Experts suggest that governments, central banks, financial supervisors, and multilateral institutions must coordinate and develop a comprehensive strategy to attract more private capital to aid climate financing.
Related Story