What’s next on the road from Paris to Dubai for climate finance

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President Emmanuel Macron’s two-day summit in Paris involved 40 world leaders, a concert headlined by Billie Eilish and a plan to overhaul the world’s financial system to tackle climate change and poverty — and left plenty of work for a hectic negotiations schedule leading up to the UN COP28 summit in Dubai.

What was missing from Paris last week was most of the G7 country leaders, and any substantial new finance or debt cancellation for poor countries suffering disproportionately from climate change. The proposals for reform presented were also criticised by non-profit groups representing some of those most affected as too modest or not concrete enough.

As he closed the conference, a still hopeful Macron said participants had agreed on several “work streams” to address in the months ahead around the core issue of how to distribute funds to help developing countries cope.

There will be a series of further opportunities to confront the wealthier countries in the next six months, with the G20 leaders led by India as this year’s host setting the tone at their September meeting in New Delhi.

It will be followed by the UN Climate Ambition Summit in New York later in September, and the World Bank and IMF annual meetings in Marrakech in mid-October. The culmination of the year’s climate dialogues is the particularly contentious UN COP28 meeting of almost 200 countries in oil-rich Dubai for a fortnight from the end of November.

In Paris, the presence of leaders predominantly from the group of countries known as the Global South for the finance summit, co-hosted by Barbados’ prime minister Mia Mottley, has put them in “the driving seat” on “all the substantive proposals”, analysts said.

This would boost their profile and credibility at summits including the UN COP28 climate talks, said Franklin Steves, a senior policy adviser at the climate-focused think-tank E3G.

Avinash Persaud, an economic adviser to Mottley, said: “Paris was a significant point along this journey but it is a just point along this journey.”

Big push to raise cash for development banks

US Treasury secretary Janet Yellen, left, with IMF boss Kristalina Georgieva at the Paris summit © Lewis Joly/Pool/Reuters

US Treasury secretary Janet Yellen said proposed reforms to the lending practices of international development banks could unlock $200bn in new funds over the next decade.

While Paris has “given them a target”, said Persaud, a key event to watch next would be the annual meetings of the World Bank and the IMF in October. “[Marrakech is] where we need to see the implementation of these reforms,” he said.

Progress on major issues such as so-called callable capital — or the level of cash pledged by countries but not yet paid in to the lending institutions — was now needed, he added.

The G20 meeting in India will also be important, where the agenda is expected to include talks on whether countries should be paying in even more cash to the multilateral banks.

‘Pause clauses’ to freeze debt repayments

Emmanuel Macron and Ajay Banga talking to each other
President Emmanuel Macron, left, and World Bank president Ajay Banga at the Paris summit © Ludovic Marin/Pool/Reuters

At the Paris summit, the World Bank said it would offer “pause clauses” to freeze debt repayments for countries in distress when they are hit by climate or other disasters. France and the US also promised to bring in similar clauses to their bilateral lending or export credit finance.

The UK said it would add these clauses to its export credit finance to 12 African and Caribbean countries. It told other countries at the summit that all bilateral, multilateral and private lenders should offer these clauses by COP28 in Dubai at year end, or by the end of 2025 at the latest.

“We have seen a first wave [of pause clauses] but we need to see this wave getting bigger with more institutions announcing it,” said Persaud. It has to move from “exotic to normal” in the months ahead, he added.

The US, UK and France all committing to implement debt clauses by year-end was a “big win”, said Sara Harcourt, senior policy director at the non-profit poverty group ONE Campaign. “These will give countries much-needed additional room in their budgets when a natural disaster strikes. But we do need to see more countries and big creditors coming on board.”

The $100bn target in reserve assets

John Kerry and Emmanuel Macron talking to each other
US climate envoy John Kerry, left, and Macron at the Paris summit © Ludovic Marin/Pool/AFP/Getty Images

At the summit, developed countries said they had reached a target to make $100bn in so-called special drawing rights available for the fight against climate change and poverty — almost.

SDRs are a type of reserve asset that are released in emergencies by the IMF in amounts linked to the size of member country economies.

About $650bn was issued by the IMF in 2021 to help countries deal with the coronavirus pandemic, with the vast majority going to developed countries.

The G20 agreed later that year to reallocate $100bn to poorer countries, which typically can only access limited amounts, but has struggled to reach that target.

While the fund reallocation was one of the big headlines to come out of Paris, after France agreed to give away 40 per cent of its own drawing rights, the matter is still plagued with problems.

The biggest question mark is over the US’s $21bn contribution after Republicans in the US Congress previously threatened to block the release of its share.

How multilateral development banks can receive the drawing rights in the coming months is the next development to watch.

Debt restructuring for debt-laden nations

Emmanuel Macron greets William Ruto
Macron and Kenya’s president William Ruto at the Élysée Palace © Ludovic Marin/AFP/Getty Images

One of the main conversation topics of the summit was Zambia’s concurrent debt negotiations. After more than two years of talks, China and other creditors reached a deal to restructure $6.3bn in loans to Zambia.

Speaking at the end of the summit, Kenya’s president William Ruto said there were more than 50 countries facing debt distress, warning there needed to be a “more creative way of dealing with this” problem.

Ahead of the bank annual meetings and COP28, expect more discussions around how to speed up these debt negotiations.

Julie Kozack, director of strategic communications at the IMF, was “cautiously optimistic” that the global roundtable on sovereign debt discussions held around the Marrakech annual meetings of the IMF and World Bank could iron out some issues that can plague debt restructuring deals, such as equal treatment for creditors and better information sharing.

The roundtable participants have previously included major bilateral creditors such as China and France, as well as debtor countries and private sector representatives such as asset manager BlackRock.

Setting a global carbon price

Kristalina Georgieva and Emmanuel Macron discussing
Georgieva and Macron at the Paris summit © Ludovic Marin/Pool/AP

IMF managing director Kristalina Georgieva told the Paris summit that “without a carbon price”, there was “no chance” of meeting the goal of limiting the global temperature rise to 1.5C above pre-industrial levels.

The IMF proposed a carbon price floor, where poorer countries pay less, middle-income countries more, and rich countries have the highest price.

Dan Jørgensen, Denmark’s minister for development co-operation and global climate policy, said there was “a lot of very strong voices advocating the need for more financing”.

Denmark, Spain, Vietnam, Ireland and 19 other countries are backing a shipping levy, which is expected to be discussed at the upcoming International Maritime Organization meetings. Jørgensen said there was growing support for the levy, though the fine details of how it would work had yet to be agreed.

But IMO meetings are typically difficult. “Often there is a disconnect between what leaders say and what happens at the IMO,” noted Nick Mabey of E3G.

Other taxes and levies were also discussed, including a fossil fuel tax, which is also on the longlist of items due for further discussion ahead of COP28.

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