For we climate capitalists, the mood among the hordes here on the ground in Dubai at COP28 is decidedly mixed. One good thing is the huge scale of business representation, alongside government representatives from something like 190 countries. There is a palpable sense both that business takes climate change seriously, and that many companies of all sizes see real business opportunity in the energy transition.
Controversial COP President Sultan Al Jaber seems to me to be doing a decent job navigating a complex community of necessary partners. He’s already delivered more concrete outcomes than at any COP since COP21 in Paris in 2015–for example real new money for loss and damage compensation for countries harmed by climate change, and historic progress on the critical short-term issue of methane reductions (including promises from almost half of all oil companies). There are even signs he may be approaching a major new agreement to boost climate finance for the global south.
However, everyone here – absolutely everyone – is painfully, even agonizingly aware that the world, business, and government are not doing enough. And I mean way, way not enough. At a bracing briefing I attended by Armond Cohen of the Clean Air Task Force, his blunt realism was bumming everyone out.
Cohen reminded us that the International Energy Agency estimates the world needs to be spending $4.5 trillion every year on a clean energy economy if we are to have hope of meeting the Paris Agreement’s stretch target of keeping long-term global warming at 1.5 degrees Celsius above pre-industrial levels. To give a sense of that figure’s magnitude, he pointed out that aggregate annual global defense spending now is $2 trillion. So, while the $1.1 trillion the world is now spending annually on clean energy sounds impressive, it really isn’t. But the picture is even worse, as Cohen explained.
We’ve had a lot of free money in the last couple years,” said Cohen. “That has fueled the development of everything. But money is not unlimited and now we know it’s not free, with the inflationary environment we’re now in and with much tighter fiscal constraints facing governments all over the world.” Partly as a result, Cohen says, believe it or not, that the $4.5 trillion number is too low. That’s partly because it doesn’t take into account the differential cost of capital between developed and developing countries. In its analysis, the IEA presumed developed world interest rates and other factors, he said.
In reality, he explained, developing country clean energy projects can cost three times as much to finance. (That’s largely because of additional risks–local currency fluctuations, government corruption, etc.) It’s one of the reasons a new agreement on global climate finance needs to include robust commitments on the part of multilateral development banks like the World Bank and IMF to underwrite risks faced by private lenders to global south clean energy projects.
What the world needs, said Cohen, is a sustained sense of urgency at least as great as we all had at the height of the Covid pandemic. But it’s still not there. For the general public, he noted, “climate demand comes and goes. Everybody gets excited about the latest heat wave, but the persistent pressure for investment I just don’t see being there. In the end governments will prioritize the thing that’s most immediate.”
In my next dispatch from Dubai, I’ll describe how some business leaders see the opportunities for climate action and investment. It’s not all bleak. Many see real urgency in getting ahead of inevitable societal shifts that will emerge as the climate crisis worsens. A few standout companies like Microsoft may be ploughing ahead, but being among the world’s most profitable companies makes it a lot easier. And generally the appetite for taking larger risks and investing more, simply because the world needs it, remains low. As Cohen said, “There’s no climate finance. There’s just finance.”
David Kirkpatrick - Senior Editor