It took decades to agree that the huge investment needed to tackle climate change is far cheaper than the environmental and social price of doing nothing. Today, we simply do not have that time again; the margin for indecision around climate finance is near nil.
This red flag must be front and center as we countdown to COP27, the world’s biggest annual climate gathering, in Egypt this November. That climate finance has remained so high on Arab Gulf leaders’ radar during COVID-19 is good news. The global climate agenda was largely side-tracked during the global recession in 2007-09 – so lessons have been learned.
Thankfully so, for the stakes are now far higher. The Middle East is one of the planet’s most vulnerable areas to the effects of accelerated climate change, notably water, food, and social security. Also consider that there is a total of 3.6 billion people worldwide considered highly vulnerable, which is a staggering 45 per cent of the global population.
Spotlight on the Ps
We need both ‘Ps’ to make climate finance work: the public and private sector. The innovative thinking, appetite for positive disruption, and talent development in each ‘camp’ is vast. Just imagine how much can be achieved if they joined forces for even more public-private partnerships (PPPs).
Blending finance, especially for large-scale and/or exploratory clean infrastructure projects, is the fastest route to Net Zero by 2050.
For now, 70 per cent of clean energy investment over the next decade is expected to be carried out by private developers, consumers, and financiers, detailed the International Energy Agency’s (IEA) Net Zero Emissions by 2050 Scenario. This is not to say the public sector is playing a less important role; their expertise, strategic understanding, and ability to unite many different stakeholders is invaluable.
Plus, dynamics in the Middle East’s energy sector are changing so rapidly that all forecasts must be considered with gentle caveats.
Power of agility
Climate-smart PPPs are undeniably a vital piece of the financial outlook, but they too must be ready to evolve. Typically, PPPs are based on high predictability and steady frameworks and agreements, but a learning curve lies ahead.
They will have to become more open to flexing and adapting as the balance between energy security, geopolitics, and climate change become more complex. Progress is already well underway, and of course, more change will take time. But the more we communicate, the safer and more commercially viable the process.
There are some other factors to consider, such as sustaining fungibility amid the surge in international alliances in the UAE and wider Middle East, both for PPPs and in bilateral partnerships. The same applies to bolstering confidence among private investors by de-risking finance, such as via government-backed guarantees and joint investments, like syndicated debt with the support of export credit agencies (ECAs).
Finding these areas of common ground is imperative as the bill of a cleaner, greener, and healthier future varies hugely. Amid many published estimates, non-profit organization One Earth recently said $1.5 trillion per year is needed to limit global warming to 1.5-degree C, as per the Paris Agreement, while McKinsey expects the annual cost of getting to Net Zero to be $9.2 trillion – $3.5 trillion higher per year on current levels.
While we need more clarity, we must also be patient with such diversity; we are trying to accurately predict the cost of a massive global change that lies nearly three decades away. The geopolitical, environmental, economic, and social uncertainties are too great. Look how the surprise of COVID-19 has already written the global status quo of work, health, and geopolitics.
Therein lies even more reason to collaborate on PPPs and climate finance, so we can unpick the guesswork to find real solutions.
Together, we are stronger
Much work is underway. For one, more than 200 climate and finance experts met in Cape Town for the first time in May to discuss the new collective quantified goal on climate finance. One of the key messages emerging from the UN’s recently launched ad hoc work programme on the New Collective Quantified Goal on Climate Finance is that climate flows for the Arab region are directed at priority sectors. However, the amount of finance remains below the estimated needs of the region.
The UAE has provided more than $1 billion in financial support to more than 40 nations and pledged another $160 billion to help achieve Net Zero by 2050. An early mover in renewables, the country also began financing clean energy projects more than 15 years ago and has invested over $40 billion in the sector to date.
I am glad to say that this is the tip of the iceberg, as many others are stepping in. For example, the World Bank delivered more than $26 billion of climate finance in fiscal year of 2021 alone. Among the World Bank Group’s Roadmap for Climate Action in the Middle East and North Africa (MENA) is $10 billion of World Bank and International Finance Corporation (IFC) funding for climate-smart projects and policy reforms, with an additional $2 billion in private sector financing from 2021-25.
The wave of change is clear to see. Now, we must focus on finessing and scaling it up at COP27, for there is truly no time to waste.
