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By Akshat Rathi and Natasha White
After two days of talks overhauling the global financial system to tackle climate change, more than 40 world leaders who assembled in Paris this week made limited progress on reforms that could increase support from rich countries to poor countries facing crises.
The negotiations resulted in an eight-page summary full of dense verbiage, as is the custom in international climate negotiations.
So what did they achieve? For one, there was no shortage of upbeat pronouncements. “A new consensus for people and planet,” said French President Emmanuel Macron. “An important milestone,” said US Treasury Secretary Janet Yellen. “We’ve got the impetus” for change, said Kristalina Georgieva, head of the International Monetary Fund.
Here are four key outcomes that have helped build momentum to revamp the financial system to help developing countries and respond to the challenges of warming temperatures.
Quicker access to cash
Following a May 2021 summit focused on the severe economic shock of the pandemic, rich countries that attended it committed to secure $100 billion in so-called Special Drawing Rights, or SDRs, a term for funds available to all IMF members in amounts that are tied to the size of their economies.
Countries can access the funds through the IMF in emergencies, and doing so doesn’t add to their debt burdens. Emergency funds like this are often desperately needed by poorer countries facing down climate-driven disasters, but poor countries have minimal access to SDRs.
Georgieva announced in Paris that many rich countries would reallocate a portion of their own SDRs to benefit countries with greater needs for emergency funding. The sums committed added up to around $100 billion. France was the frontrunner, giving away 40% of its SDRs.
A catastrophe toolkit
The impacts of change are getting more extreme, forcing countries to take on greater debt to deal with the damage. That’s creating a vicious cycle known as the climate-debt trap, and breaking the cycle is one of the priorities of Ajay Banga, the new president of the World Bank.
To break out of the climate-debt trap, talks in Paris focused on deploying solutions that help deal with both problems simultaneously. These measures included advanced warning systems for extreme weather that can help authorities better prepare before disaster strikes, saving lives and reducing costly damage. Discussion also focused on expanding new types of catastrophe insurance, like those piloted in Jamaica and Peru, and offering debt repayment pauses following an extreme climate event to curb the accumulation of debt in dark times.
What happened to the $100 billion promise?
One constant sore point at every recent United Nations climate summit has been the unmet promise of developed countries to spend $100 billion each year on projects in developing countries to cut emissions and help adapt to a warming planet. As of 2020, the total stood at $83 billion, according to an OECD analysis.
Macron announced that he is “confident” that countries will finally reach the commitment this year, nearly three years later than the 2020 deadline. This will be something to monitor ahead of the annual COP28 climate summit, set for Dubai towards the end of the year.
Talk of international taxes
Macron raised the prospect of international taxes to help generate the money needed to address global problems. That kind of worldwide tax could be imposed on shipping, aviation or even financial transactions.
Macron noted the traction building for a tax on carbon emissions from the shipping industry, sharing a list of 22 supportive countries — including Spain, Portugal, Norway and many island countries that would see an increase in cost on their imports as a result.
The proposal is still far from securing the support needed of the 170-member International Maritime Organization, which will determine whether a levy can be adopted.
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