By Anvesha Thakker, Partner and National Lead Clean Energy, KPMG in India

Annual investments in climate finance have substantially scaled up in the past couple of years, reaching an annual average of $1.3 trillion, up from the levels of $650 billion per year in 2019-20. Most of these investments are for funding technologies aimed at mitigating and reducing greenhouse gas emissions to address global warming. The largest growth in these investments has been witnessed in the renewable and transport sectors, while areas such as storage and hydrogen still receive less than their potential. Additionally, sectors such as agriculture, forestry and other land use received minimal finance, although their climate change mitigation potential is perhaps the highest.

Overall, the significant scale-up in the past few years (even if some of this is attributed to methodological changes and data improvements), is heartening. However, the task ahead is daunting, to say the least. A key ambition of COP28 is to achieve a consensus on tripling the global renewable energy capacity and doubling energy efficiency measures by the end of the decade. This requires substantial investments, not only in these interventions but also in larger energy systems, transportation, agriculture, forestry and other critical areas.

Estimates suggest that $8 trillion-$10 trillion are required every year until 2050 to avoid the impacts of climate change. This implies that climate finance will have to scale up by almost six to eight times over the coming years to achieve mitigation goals alone.

If we further unpack this requirement, accounting for only clean energy investments in developing and emerging countries, almost $2 trillion-$3 trillion is needed annually by the early 2030s. Of this, as per KPMG India estimates, India needs $350-$400 billion per annum to finance its needs for energy transition, including investments in energy efficiency, electrification, clean energy supply, biofuels, networks, green hydrogen and other technologies. The investments required for a full decarbonisation in these economies will be multiple times these estimates.

A need that has been largely ignored thus far but is gaining focus is adaptation finance. In simple terms, this refers to the finance needed to help communities reduce the risks and harm they might suffer from climate hazards such as storms or droughts. Currently, funds for adaptation range from $50 billion-$ 60 billion, accounting for only approximately 5 per cent of tracked climate finance.

The requirement for climate adaptation financing for developing countries is immense. Estimates point to an annual requirement of anywhere from $200 billion-$300 billion by 2030.

When considering the combined requirements of mitigation and adaptation finance for developing countries, the commitment made by developed countries at COP15 in 2009 – amounting to $100 billion per year for developing nations – seems insufficient. The concerning fact is that there is no firm evidence indicating that even this specified commitment is being fulfilled today.

Another key aspect that needs to be quickly solved is financing for loss and damage. According to the United Nations Framework Convention on Climate Change, loss and damage include harms resulting from sudden-onset events (climate disasters such as cyclones) as well as slow-onset processes (such as rising sea levels). It includes the damages (and the risks of future damages) beyond those addressed by climate adaptation actions. The incidence of these climate-related events has increased dramatically, costing almost half a trillion dollars for the 55 most vulnerable countries in the past two decades.

COP26 provided the first step in establishing a loss and damage fund for developing and vulnerable countries affected by climate disasters. Now, as COP28 approaches, the operationalisation of this fund will be a key topic in climate finance discussions. While some issues, such as the interim hosting of the fund under World Bank, have been recently sorted out by the transitional committee, the resolution of other issues such as eligibility and determining contributors and amounts remains tenuous.

In summary, the need for climate finance covering all aspects of mitigation, adaptation and loss and damage is massive. This year, at COP28 in Dubai, global attention will focus on whether a) the required climate finance is taken into cognizance, setting the stage for commitments to be scaled up through the New Collective Quantified Goal  (expected to be announced at COP29); b) a global goal on adaptation is adopted, establishing targets and indicators to guide actions; and c) the loss and damage fund is approved and operationalised.

These are the author’s personal views