G-7 Leaders Poised to Turn Spotlight on Green Finance at Summit

(Bloomberg) -- The world’s richest governments are under mounting pressure to help poor countries fight climate change. At the Group of Seven summit in the U.K. this week, they’ll have a chance to prove that they can do something about it.

Leaders of the G-7, including U.S. President Joe Biden and German Chancellor Angela Merkel, are set to meet in Cornwall, England from June 11-13. On the agenda is a discussion of how to help finance a shift to cleaner energy in low-income countries.

Observers are looking for a pledge from the group to steer the recovery from the pandemic in a greener, fairer direction. A draft document seen by Bloomberg News ahead of the summit includes a commitment for “each” G-7 member to increase its financial contributions to helping the poorest countries decarbonize their economies. Specific contributions are still under discussion.

A strong declaration from the group could help build trust internationally. In recent years the earth has seen record temperatures and a rise in extreme climate events that have the potential to drastically affect economic growth. In 2009, developed countries pledged to collectively devote $100 billion annually to climate transition in poorer countries by 2020. The latest data show they’ve so far failed to make good on that promise.

Concrete action this week could also rally other countries to step up their ambition at this year’s U.N. climate change conference, scheduled to be held in Glasgow in November. The aim, affirmed in the 2015 Paris Agreement on climate change, is to put the world on a path to limiting global temperature increases to well below 2-degrees Celsius, striving for 1.5 degrees if possible.

Why it matters

The question of who pays to tackle climate change lies at the heart of global action. Poor countries say they need funding if they are to invest in the technologies needed to wean themselves off fossil fuels, while also dealing with the worst impacts of global warming, such as rising sea levels and heat waves.

Rich countries -- many of which were able to develop over the last century while spewing greenhouse gases into the atmosphere -- agreed to help pay via their unfulfilled $100 billion-a-year commitment, made during a 2009 UN climate summit in Copenhagen.

This year, all nations are supposed to set enhanced national climate goals in a bid to avoid a climate catastrophe. But some poorer countries have warned they won’t be able to meet them without that promised funding. At a climate summit hosted by the White House in April, leaders of Indonesia and Bangladesh urged developing countries to do more to help with climate aid.

What has been promised?

Climate finance mobilized by developed countries reached $78.9 billion in 2018, far short of the $100 billion agreed, according to the latest data from the Organization for Economic Co-Operation and Development. The funding comes from a mixture of sources, including private and public institutions.

Donor countries and multilateral development banks are under pressure to ensure that half of the money goes into adaptation, or adjusting to climate change, not just cutting carbon emissions. At the moment, just a fifth of the funding goes to adaptation and resilience.

Climate finance from the U.S. -- historically one of the biggest donors -- slowed under the presidency of Donald Trump, who withdrew the country from the Paris accord. With the U.S. back at the negotiating table under Biden, G-7 nations are keen to show their joint resolve. But poorer countries say they’ve had enough talk and need to see concrete pledges at this week’s summit.

Why they are failing?

Few rich countries have set out their plans to increase climate funding for low-income nations. The U.K., which is presiding over global climate talks this year, Luxembourg and New Zealand are the only three countries to announce planned multi-year increases in their climate finance, according to a report by Care Denmark. The non-profit concluded that international funding would increase by just $1.6 billion in 2021 and 2022, compared to the amount in 2019.

To show a clear commitment, G-7 leaders must jointly accept responsibility for reaching the $100 billion goal, while also individually promising to double their finance pledges, said Eddy Perez at Climate Action Now Canada. Countries also need to announce new donations at the summit, he said.

What’s America’s role?

Under President Barack Obama, the U.S. pledged to provide $3 billion to the Green Climate Fund, a UN program to help developing nations transition to clean energy. However, the U.S. paid only $1 billion of that before Trump took office in 2017 and curtailed contributions.

At the White House summit in April, Biden pledged to spend $5.7 billion annually by 2024 to help with climate financing. Environmental activists said the commitment fell short of the $8 billion to $800 billion needed through 2030.

Also see: Biden Disappoints Activists With $5.7 Billion for Poor Countries

How has this been affected by Covid?

After the pandemic rattled economies worldwide, low-income countries found it even more difficult to attract investment. The real test for G-7 leaders will be how they’ll support green and fair global recoveries, according to Jennifer Tollmann, a senior policy adviser at the E3G environmental think tank.

“Will they cement credibility by agreeing common and ambitious climate goals for their own recoveries?” she said. “And will their deliver for international partners, particularly the world’s poorest?”

Plans by Biden and U.K. Prime Minister Boris Johnson to rally the richest economies to provide vaccines to low-income countries could also help rebuild trust undermined by the West’s failure to deliver on climate finance. The U.S. intends to buy 500 million doses of Pfizer Inc.’s vaccine to share through an international program that could help poorer countries. Johnson has called for vaccinating the world by the end of 2022.

What can the G-7 do?

The draft document promises more funding to help the developing world cut carbon emissions, but the details still aren’t clear and nothing has been officially agreed. The leaders are expected to discuss a framework for sustainable development and helping the energy transition in low-income nations. It includes the “Clean Green Initiative,” a green alternative to China’s Belt and Road infrastructure strategy, two people familiar with the matter said last week.

The leaders are also set to build on a May pledge by G-7 environment and climate ministers to coordinate innovation policies and create green markets to curb emissions in energy-intensive sectors like steel, cement and chemicals. Cooperation among the richest countries will speed the shift to net-zero industries and will lower the cost of reducing emissions for the rest of the world, the ministers said.

©2021 Bloomberg L.P.