From Billions to Trillions: The Growing Costs of Climate Change

According to a 2021 WRI study, climate finance must increase to a staggering $5 trillion annually by 2030. China and Saudi Arabia, as one of the largest contractors, must allocate more, currently the USA and Europe finance most of the allocations

by Sededin Dedovic
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From Billions to Trillions: The Growing Costs of Climate Change
© Jonathan Wood / Getty Images

Who should bear the increasing costs of climate damages and climate adaptation? Countries have been arguing about this for years. Due to rising temperatures and increased extreme weather events, this topic is becoming increasingly important.

In that context, several thousand government representatives, researchers, and civil society members are currently meeting in Bonn, Germany, until June 13. They are discussing negotiation drafts for the upcoming Climate Conference to be held in Baku, Azerbaijan, in November, reports Deutsche Welle.

These are delicate questions: Which industrialized countries should pay? How much money should come from state coffers and how much from private enterprises? And how can countries transparently show where the money is going? "These are such complex questions and so many countries are involved that two weeks in November are not enough," says Petter Lyden, head of international climate policy at the non-governmental organization Germanwatch.

"A conference like this in Bonn is very important for preparation," he adds.

Rising climate costs: from billions to trillions

In 2009, wealthier countries decided to allocate $100 billion (92 billion euros) annually until 2020 to assist developing countries in mitigating and adapting to the climate crisis.

However, according to the OECD's assessment, this goal was first achieved in 2022. "$100 billion per year is good news," says Melanie Robinson from the World Resources Institute (WRI) think tank in a press release. Yet, "the funding falls far short of what is needed to justify the increasing impacts of climate change in the coming years." In the Paris Agreement on climate, countries agreed to set a new financial target before 2025.

Now, there is growing pressure to increase financial payouts. According to a 2021 WRI study, climate finance needs to be increased to an incredible $5 trillion annually by 2030. The reason: industrialized countries continue to burn coal, oil, and gas.

As temperatures rise as a result, heatwaves, droughts, floods, and wildfires escalate, destroying more and more places around the world. "It's not just a cost, it's an investment," says Joe Thwaites, a climate policy expert at the American nonprofit organization NRDC.

"Even if investment reaches trillions of dollars, we will save several times that amount by avoiding damage."

Who should pay for climate damage?

The question remains of who should bear the costs. Many industrialized countries that have committed to financial goals also call on other heavily industrialized countries to do their part.

Countries with the highest emissions in the world, such as China and Saudi Arabia, have so far been exempted because the United Nations categorizes them as developing countries. "Now is the time to act. We need more countries to make a fair contribution," said German Development Minister Svenja Schulze at a climate conference held in Berlin in April.

"All those causing major emissions, including Gulf states, including China, we all must do more," she emphasized.

Steam rises from cooling towers at the Jaenschwalde coal-fired power plant, Germany© Sean Gallup / Getty images

Another important question is how private money could be used to protect the climate.

Thwaites says that states must raise such funds through appropriate taxes, regulations, or subsidies. Moreover, he says, governments are the ones negotiating and implementing the new financial goal, not the private sector. "While all parts of the global economy have a role in addressing the climate challenge, governments must be held accountable for their commitments," Thwaites emphasizes.

Agreement on transparency rules

One of the challenges in implementing the financial goal is transparency. Without clear rules on how to report on different types of funding, interpretations between donor and recipient countries are often unclear.

In other words, money that was intended for a development project could be used for emissions reduction or climate adaptation. This lack of clarity has also made it difficult to understand which countries have fulfilled their financial promises.

"Developed countries have plenty of room to present their statistics on climate finance," says Tom Evans, a senior policy advisor at the climate think tank E3G. "This has led to significant distrust and skepticism about whether the goals will actually be achieved," he says.

A new framework on transparency provision should be agreed upon at the annual Climate Conference later this year. In the future, countries should use standardized reporting guidelines to demonstrate how they contribute to combating climate change - and also with what financial resources.

Heads of state and government will again travel to the Climate Conference in Baku to find a political agreement. At the preparatory conference, held in Bonn every six months before the summit, negotiators from countries meet in advance to discuss technical details.

"These technical aspects are key to a good agreement," says Evans. "The challenge in Bonn is always to find out how close we can get to the final agreement without making it binding," he says.

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