In the race to decarbonize the world by 2050, who’s going to foot the bill?

India’s promises and demands

In his appearance, Modi followed up the pledge with a demand. 

“It is India’s expectation that the world’s developed nations make $1 trillion available as climate finance as soon as possible,” Modi said, in a translation of his comments published by Bloomberg. “Justice would demand that those nations that have not kept their climate commitments should be pressured.”

Modi was referring to an already unfulfilled promise: a pledge, at the 2009 conference in Copenhagen, for developed nations to provide developing ones with $100 billion a year to help cope with the current damage of climate change. 

Modi’s demand at COP26 hit on an economic reality as much as a simple question of climate justice: whether the developing countries—both small island states and behemoths like India, who have done the least to contribute to climate change and yet are the most vulnerable to its effects—are owed economic help by wealthier developed nations. Most recently, a report from the U.S. Office of the Director of National Intelligence identified India as being among 11 countries “highly vulnerable to the physical effects” of climate change.

But a transfer of funds from the developed to developing countries to account for that imbalance isn’t feel-good aid or meaningful reparations. Without support, countries like India may well continue to burn coal and emit rising emissions. Although the smaller island nations at COP26 might have little power to tip the balance either way, climate policy embraced by a giant like India could imperil global decarbonization. 

But at that moment in Glasgow, the $1 trillion Modi was asking for still seemed unlikely and was met with telling silence. The developed countries are still behind on the 2009 Copenhagen commitment to provide developing countries with $100 billion a year by 2020. The OECD estimates that the target will be hit—finally—in 2023. That $100 billion was already becoming a recurring motif in the tensions at COP26—a symbol of missed obligations and financial inequality, even as the world’s leaders pledged to work together to address climate change.

The $100 billion is a “covenant of trust,” pointed out Sagarika Chatterjee, director of climate change at the U.N.–backed Principles of Responsible Investment. 

Further, given the scale of the problem, it’s a relatively measly sum. “When we talk with the finance sector, the [question] is, is that enough money?” she says. “And it isn’t.” 

Paying the climate bill

Putting a price tag on climate change is a difficult dance, but the way forward is gradually becoming clearer.

COP26 marked the announcement of the Glasgow Financial Alliance for Net Zero, convened by former Bank of England governor Mark Carney, which now covers $130 trillion in global assets and is tasked with turning the supertanker-like investment world toward decarbonization. 

That initiative estimates that decarbonizing the economy in line with the 1.5°C target will require $125 trillion in investment, $32 trillion of that over the next decade across six key sectors, including transport and power. The largest share of that investment must go to Asia-Pacific. 

If those costs look large, there are some figures worth keeping in perspective. By October, the world’s governments’ spending and revenue measures related to the pandemic had reached $16.9 trillion, the IMF estimated, in less than two years. Estimates are also growing on the costs of not decarbonizing. A paper released in November from academics at Oxford found that for every year a transition is delayed in four major sectors—power generation, oil and gas, coal production, and the automotive industry—the financial sector could see additional costs of $150 billion a year, partly because of credit risk.

As for who should pay for these monumental costs, the Glasgow Financial Alliance maps out in aspirational detail where the financing will likely come from. It estimates 70% of the investment will come from private actors, and 30% from companies. But there are large regional differences. In North America, the alliance envisions that corporations will account for about half of the investment; governments a relative fraction. In Asia-Pacific, meanwhile, climate financing is likely to be much more of a mix of private and public funding.

The path forward

The $100 billion a year is only a drop in the bucket compared with the scale of investment that will be needed to decarbonize the world’s economies. And the Glasgow Pact, despite pleas from developing and small countries, produced underwhelming results. Over the course of the two-week climate conference, wealthy countries produced $960 million worth of pledges to help developing countries adapt, far short of the original Copenhagen promise. Meanwhile, the final text of the pact itself urged countries to “at least double” adaptation finance and to create the “Glasgow dialogue” to discuss funding for loss and damages related to climate change. It also included a directive that the countries fund the Santiago Network—a project launched in 2020 to provide technical assistance to developing countries, albeit without funding. Larger pledges were reportedly held back by the wealthiest countries—including the U.S.

Meanwhile, India’s delegates also held back a key pledge at the COP26 conference—on coal power. In the final hours of the conference, the wording in the ultimate pledge would replace “phase out” with “phase down”—a telling and critical wording choice that leaves room for coal in the energy mix, rather than calling for its outright end. 

Back in New Delhi, the city was becoming blanketed in toxic coal pollution. Children were kept home from school, asthma was spiking, and the Indian Supreme Court would soon order the government to tackle the situation—using pandemic-style lockdowns, if necessary.

The costs and trade-offs of paying to address climate change were already terrifyingly concrete.