Billions more in overseas aid needed to avert climate disaster, say economists
Governments of wealthy countries must pledge hundreds of billions more in overseas aid payments channelled through the World Bank to avert the worst effects of the climate crisis, civil society experts and economists have said.
The International Development Association fund, the arm of the World Bank that disburses loans and grants to poor countries, is worth about $93bn (£b75n) but that figure must be roughly tripled by 2030, according to economic experts.
Governments are expected to discuss new aid pledges this week at the World Bank’s annual spring meetings in Washington DC. The World Bank, its fellow publicly funded development banks around the world and the International Monetary Fund are under pressure to show they can lead the world to the low-carbon transition needed.
Ajay Banga, the president of the World Bank, told journalists the climate crisis would be a priority. “The world is facing a set of intertwined challenges: the climate crisis, debt, food insecurity, pandemics, fragility, and there is clearly a need to accelerate access to clean air, water and energy,” he said.
“The [World Bank] needs a fit-forpurpose mission and vision, and that is to create a world free from poverty on a livable planet.”
Work by the economists Nicholas Stern and Vera Songwe suggests $2.4tn a year is needed by 2030 to shift developing countries, excluding China, to a low-carbon economy.
About $1.4tn of that is expected to come through these countries’ investments and the remainder from publicly funded assistance from wealthy countries as well as private sector investment. Given the scale of transformation needed, Simon Stiell, the UN’s top official on the climate crisis, said nothing less than a “quantum leap” on climate finance from the World Bank would be sufficient.
It is not yet clear that Banga’s overhaul will go that far. Rachel Kyte, a professor of climate policy at the Blavatnik School of Government, the University of Oxford, said: “What is the [World Bank] going to do, with the IMF, to focus on phasing out fossil fuel subsidies, effectively pricing carbon and expanding carbon markets?”
Kyte, a former top official at the World Bank, raised questions over the willingness of the bank to reform. “Does [Banga] have his team with him? Borrowers and partners aren’t sure that everyone is on board internally.”
The pace of action needed to speed up, Kyte said. “It’s a race against time – Banga’s reforms versus the still widespread perception that the transaction cost of dealing with the bank is still too high.”
The debt burden on developing countries remains a significant barrier. Todd Stern, a former climate envoy to Barack Obama, said: “The debt crisis afflicting so many low- and even middle-income developing countries needs to be addressed with vigour and resolve, including active engagement by the IMF and a willingness by China, a major creditor, to restructure loans.”
Part of the problem is that devel
oping countries are still seen as too much of a risk. For example, setting up a windfarm in Africa can cost several times more than in Europe because of the high interest rates lenders charge.
The World Bank could help by derisking investments – for instance by providing loan guarantees or using its funds to protect private investors by agreeing to be last to be repaid.
Also meeting this week is the International Tax Taskforce, a group of governments led by the Barbados prime minister, Mia Mottley, and the Kenyan president, William Ruto, which will examine new ways of raising finance for the climate.
These ideas include a wealth tax, levied on billionaires in each country, amounting to a tiny proportion of their income but which could raise hundreds of billions for the world; levies on frequent flyers; and a charge on the emissions from international shipping.
Gordon Brown, the former UK prime minister, has also suggested a 3% tax on oil and gas export revenues from petrostates. Fossil fuel companies that are publicly listed on the stock exchange and those that are nationally owned have enjoyed a record bonanza since Russia’s invasion of Ukraine.
Bernice Lee, a research director for futures at the Chatham House thinktank, said: “The World Bank and the IMF not only have a lot to do but also have a lot to prove. They must get into the driver’s seat in the global energy transition, showing up as real bellwethers now by financing the projects that enable a sustainable future.”