Covid-19 Recovery Investment Has Failed To ‘Build Back Better’ – Forbes
EDINBURGH, SCOTLAND – SEPTEMBER 20: (Photo by Jeff J Mitchell/Getty Images)
With COP26 about to begin, it’s becoming increasingly clear that Covid recovery spending has not been ‘green’. Only 21% of recovery spending (and only 3% of Covid-related spending) has gone to green investments despite the rhetoric that recovery investment would transform the low carbon transition. It also means that 79% of Covid recovery spending is supporting an unsustainable economic status quo.
Research from the Oxford University Economic Recovery Project and Green Fiscal Policy Network’ Global Recovery Observatory points out that while the developed world has been unable to raise even $100 billion in agreed climate finance for vulnerable nations, those advanced economies have spent $14.4 trillion on an unsustainable Covid-19 recovery. This underscores the point that not only have developed nations failed to fulfil pledges under the Paris Agreement, which risks undermining the upcoming negotiations, but that they have doubled down on their support for unsustainable economic systems.
In simpler terms, Brian O’Callaghan, Lead Researcher and Project Manager of the Oxford University Economic Recovery Project, says, “Vulnerable nations are being left behind. For every $100 per person that advanced economies have spent on Covid, Least Developed Countries (LDCs) have spent less than 50 cents.” This problem is exacerbated by the fact that vulnerable and lower income countries spend over five times more on external debt repayments that on mitigation and adaptation. Further contributing to the debt crisis is the issue that much of the climate finance provided is in loans. They may be on concessional terms but the reality is that such loans still demand repayments of both capital and interest.
The debt figures are from an analysis by the Jubilee Debt Campaign, showing that 34 countries (all LDCs) are spending $5.4 billion a year on adaptation, but $29.4 billion on international debt payments. The adaptation figures are estimated from NDCs, as it can be difficult to ascertain exactly what is spent but the analysis provides a good indicator of the size of the problem. Especially because the amount spent on adaptation is likely to be an overestimate given that there can be long gaps between the announcement of spending and its actual deployment, and that current NDCs are often commitments for 2021-2030.
The Jubilee Debt Campaign has actually estimated that the countries covered by its research are likely to be paying more than seven times more in debt payments than on climate by 2025. This is a critical problem in terms of the overall cost of climate action because, as O’Callaghan points out, “The cheapest opportunities for climate action are in vulnerable nations – if we are serious about limiting climate change, we need to direct more capital to those opportunities.”
The problem is made worse due to the higher interest rates paid by many developing countries for that debt, in many cases in part due to the volatility created by climate change. It also means that, as in Uganda, many countries are increasing the exploitation of fossil fuels in order to fund the repayments. So the link between the failure of developed countries to transform their own economic systems will have a complex and multiple impact on emissions pathways.
Continued funding of fossil fuels, and the subsidies that enable that, are a core problem. Bloomberg recently estimated that $4 trillion has been spent on fossil fuels since the Paris Agreement was signed in 2015. In 2021 $459 billion in bonds and debt have been issued for oil, coal and gas. What is of most concern is that many of the banks financing such debt are members of the Glasgow Financial Alliance for Net Zero and/or the Net Zero Banking Alliance. It’s clear that financial institutions need to change their behaviour, but the key question is how this should be achieved – they will need alternative investment options to drive what they consider the necessary returns.
O’Callaghan says, “There are opportunities to green the economic recovery in all sectors. Direct measures range from renewable energy to sustainable agriculture programs to research and development on greening industrial processes. Even in healthcare and education, there are opportunities to embed green incentives – for instance by requiring sustainable procurement standards for all recovery-funded initiatives.”
What is needed is a re-evaluation of how cost-benefit assessments are undertaken, with externalities from carbon emissions, to water use, to healthcare support included in the analysis. More than ever it’s important that governments step up to leadership on this issue but the signals are mixed as to how successful this is going to be.
While China has moved forward on its climate plans, announcing it will peak emissions before 2030, it’s less than many had hoped for. In the US, the much hoped for trillion dollar infrastructure plan (which included action on climate change) is mired in political grandstanding. The UK undermined its own much-vaunted leadership position when it announced cuts in its overseas development aid.
There is hope that the G20 will agree on action on climate change, specifically around the removal of fossil fuel subsidies, and recognise the importance of the 1.5 degree target. Whether that will happen remains to be seen, but it seems governments are amongst the last to be demanding action. Consumer research shows huge support and businesses and financial institutions around the world are recognising the risks associated with climate change. A recent survey showed that CEO’s are already seeing the impacts of climate change. These companies are taking action on transforming their processes but systemic change is going to require global political commitment – something still difficult for many countries in the current geopolitical and economic environment.
O’Callaghan says, “It is unconscionable and hypocritical for us to demand climate action from vulnerable countries but at the same time suggest that we can’t provide adequate support. We spend five times as much on fossil fuel subsidies as we do on climate finance. Annex 2 countries have spent one hundred and fifty times more on Covid than on climate finance. In this context, the message from rich countries that “more aid is impossible” is frankly disgusting. Our prosperity today, built on generations of fossil emissions, has come at the cost of lives and livelihoods in developing nations. It is daylight robbery, climate colonialism.”
The intersection of innovation and global challenges such as climate change and sustainable development are driving change in the economy. A founder of The Net Imperative
The intersection of innovation and global challenges such as climate change and sustainable development are driving change in the economy. A founder of The Net Imperative Ltd and New Energy Finance (later bought by Bloomberg), author of Conquering Carbon: Carbon Emissions, Carbon Markets and the Consumer and a journalist for many years, I teach on the MSc Global Energy and Climate Policy and Finance, Sustainability and Climate Change at School of Oriental and African Studies at the University of London.
