"Ministers’ information" Reviews agency report "Moody’s" On sharing climate investment costs between governments and the private sector
$330 billion annual investment in climate, which is much less than the actual requirements
There is a large regional variation in climate investments, and the investment gap is largest in Africa and the Middle East
The Information and Decision Support Center of the Council of Ministers highlighted the report Issued by Moody’s entitled “Sharing the costs of climate investment with the private sector can mitigate the impact of credit,” which indicated that climate investment is still far below the needs necessary to achieve the goal of achieving the goal. To reach net zero emissions at the global level by 2050, and the agency stressed that this requires sharing climate-related investments and debt with the private sector.
The report explained that achieving net zero emissions, It requires countries to invest significantly in mitigating the effects of climate change and decarbonizing their economies, and investing in climate change adaptation will also be necessary to protect infrastructure and local communities from its impacts.
< p>The report indicated that according to estimates issued by the International Energy Agency, climate investment in clean energy has risen significantly in recent years but is still far below the amounts required to reach net zero emissions at the global level by 2050. Global investment in clean energy reached approximately US$1.6 trillion in 2022, divided between US$0.8 trillion for advanced economies, US$0.5 trillion for China and US$0.2 trillion for emerging markets excluding China. In this regard, the International Energy Agency confirmed that emerging markets need to quadruple their spending by 2030 to meet estimated needs.
The report added that investing in adapting to the repercussions of climate change Much less than the requirements, as climate investment amounts to about $330 billion annually. In this regard, the report explained that there is a large regional disparity in climate investments. With regard to mitigating the effects of climate change, the investment gap is largest in Africa and the Middle East, at about 4% of GDP. In developed countries, such as those in the European Union, the United States of America, and China, investment gaps in climate change mitigation are smaller by about 0.5% to 1.5% of the nominal GDP expected for 2030, which reflects increased spending to date and slower growth in Energy demand in the coming decades.
With regard to adaptation, the investment gap as a share of GDP is largest in sub-Saharan Africa and South Asia, at about 1% of GDP GDP. Climate adaptation investment needs also tend to be higher for emerging countries than for developed countries.
This is also broadly consistent with IMF research; A recent study indicates that low- and middle-income countries have higher investment needs for adaptation, ranging between 1% and 2% of GDP annually on average, while high-income countries need about 0.3% of GDP.
The ministers’ information explained that, according to the report, the impact on the financial strength of governments can be reduced if they share the burden with the private sector regarding climate investments, as private sector companies will bear some of the burdens of climate investment and bear the debts. related to this on their balance sheets, knowing that about half of climate investment currently comes from the private sector, and the public sector (governments) represents the other half, and based on the assumption that the private sector bears about half of the investment gap in its balance sheet, it is likely that government spending is at the same level The world will increase by about 0.9% of GDP annually on average until 2030.
The report said that emerging market governments are likely to be less able to share the costs of climate investment. With the private sector compared to its counterparts in emerging economies; Emerging markets generally have more limited institutional capacity and their regulatory structure may be less predictable, restricting the development of financial markets and the ability of private sector companies to access funds.
However, The International Energy Agency and the International Finance Corporation estimate that private financing for climate investments in emerging markets must more than quadruple by 2031 to nearly $1.6 trillion to reach net zero emissions by 2050.
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The report stressed that governments can work to mitigate the impact of debt resulting from climate investment, by implementing climate policies aimed at reducing spending and generating additional revenues, while facilitating greater private sector participation. It also pointed out that the most efficient mitigation tool is carbon pricing.
The report also explained that carbon pricing can enhance energy efficiency, as it enhances a whole range of behavioral responses to reduce Energy use and switching to low carbon fuels. It can stimulate the private sector to innovate and adopt new low-carbon technologies, especially if a clear and reliable path to higher prices is identified. Carbon pricing can also significantly increase government revenues through the implementation of carbon taxes or emissions trading systems, which can be used to finance other climate investments.
This extends carbon pricing initiatives Currently to a number of developed and developing countries, including “China, Indonesia, Mexico, and South Africa.” According to IMF research, carbon prices average about $20 per ton and cover only a quarter of global emissions. According to the World Bank, the scope of carbon pricing is below the level required to achieve the 1.5°C path.
The report emphasized the effectiveness of blended finance, which is a structural method that uses development finance to reduce risks for private investors and also has the potential to mobilize private capital to invest in climate and sustainable development more broadly.
The report added that climate finance provided by such solutions has been modest so far; It averaged about $8 billion annually during the period 2014-2022, and policymakers highlighted the possibility of expanding the scope of blended finance and risk-sharing solutions with the support of multilateral development banks.
In the same context, governments can reduce fossil fuel subsidies. According to International Monetary Fund data, explicit fossil fuel subsidies range from 0.5% to 4.2% of GDP annually in China, India, Indonesia, South Africa, and Mexico. However, governments may hesitate to cancel fossil fuel subsidies and make carbon pricing more comprehensive because of the risk of opposition to these policies by citizens.
The report indicated in its conclusion that the use of climate policies is It would significantly reduce the financial outlay needed to reach net-zero emissions by 2050. He also emphasized that early, globally coordinated clean investment would nearly halve income losses associated with climate change under the net-zero emissions scenario, compared to the no scenario. Only the currently implemented policies are preserved.
