With international financial flows falling short of what’s needed, and increasing climate change impacts, there is a desperate need to accelerate climate financing. Subnational governments, working closely with business, have a critical role to play in mobilising that finance, writes Champa Patel, executive director, governments & policy, Climate Group.
- Without adequate finance, the work that is desperately needed to combat climate change impacts and ensure the world remains liveable can’t happen.
- A top-down approach is only one solution – and, by itself, it is clearly insufficient for the scale of the challenge. We need creative new solutions.
- Subnational governments have a critical role in not just raising climate finance but also, through their activities, mobilising and accelerating climate action.
Our efforts to combat climate change impacts are not happening at the pace or scale needed. In 2022, we saw record heatwaves, droughts, floods, rising sea levels and continuing loss of biodiversity.
At COP15 in Copenhagen in 2009, governments agreed to mobilise $100 billion a year by 2020 to fund mitigation and adaptation in low and middle-income countries. This target, however, has never been reached.
The OECD estimates that $6.9 trillion per year is needed until 2030 to meet climate and development goals. Without adequate finance, the work that is desperately needed to combat climate change impacts and ensure the world remains liveable can’t happen. We urgently need to mobilise finance not only to address global temperature rise and extreme weather events but to help societies and communities adapt to the changing external environment.
A bottom-up approach to climate innovation
A top-down approach is only one solution – and, by itself, it is clearly insufficient for the scale of the challenge. We need creative new solutions.
For example, subnational governments have a critical role in not just raising climate finance but also, through their activities, mobilising and accelerating climate action. Many of them can shape local laws, policies and infrastructure. They can pivot to green procurement practices and raise carbon taxes to fund emissions cuts or adaptation to climate change. As the level of government closest to communities, they can also take targeted action based on the specific needs of their regions to have a direct, and often immediate, impact on the ground.
Recent research, carried out by Climate Group and funded by Stiftung Mercator, found a range of ways in which subnational governments could – and often do – raise revenue, such as local taxes, green bonds and carbon markets. Subnational governments have an important part to play in so many areas. In the OECD, for example, they are responsible for over 50% of public investment. Through green public procurement, they can work proactively with businesses to ensure their supply chains meet ambitious decarbonisation targets.
This not only helps bring green technologies to market by guaranteeing demand but can give greater weight to the environmental performance of products than is currently the case – looking at the whole life cycle rather than immediate value for money.
Catalonia is one of the few European regions to have implemented carbon pricing, starting with a tax on CO2 emissions from vehicles in 2021. The income from this, estimated at around €140 million a year, goes equally to the Natural Heritage Fund and the Climate Fund. And last year the Community of Madrid became the first public entity in Spain to list a green bond in line with the EU’s principles for an environmentally sustainable economy. The €500 million, seven-year bond was sold with a coupon rate of 2.822%, bringing the Community’s total green bond issuance for the year to €1.5 billion.
Business support for a greener future
Subnational climate finance can also help drive public-private partnerships, business opportunities and economic growth. Governments can incentivise public/private investment by implementing policies that unlock markets and address any regulatory barriers. British Columbia, for instance, is using some of the revenue from its carbon tax to help the industrial sector decarbonise and so strengthen its position for the future.
Businesses, in turn, can push governments to be more ambitious with their climate targets, laws and policies – creating a virtuous cycle that drives further action. Climate Group’s RE100 initiative is a great example of this. In South Korea, its members’ collective advocacy for greater access to renewable energy pushed the national government to implement more sustainable energy solutions.
Forward to COP28
This is not to let national governments off the hook. But subnational action can demonstrate innovation and good practice that could be scaled – particularly by national governments looking to strengthen their Nationally Determined Contributions (NDCs) as part of the COP process.
Technical experts are working to determine a new climate finance goal, which is set to be agreed in 2024. Hopefully, lessons will be learned from failing to achieve the $100 billion goal. But one thing is already clear: the new target is likely to be in the trillions and it will not be possible to meet it without the private sector and private finance. That’s why experts and governments met recently in Paris, for the Summit for a New Global Financing Pact, aimed at increasing funds for the Global South in particular.
For these endeavours to be a success there will need to be greater creativity in thinking through the differing financial instruments that can unlock climate finance. These discussions, overall, continue to be led by national governments, but this overlooks a critical piece of the puzzle.
Subnational governments, and their work with the private sector, are an important model for what can be done. They are already demonstrating innovative ways to meet the challenges of combatting climate change. It’s critical they are part of the conversation.
The opinions of guest authors are their own and do not necessarily represent those of SG Voice.
