G7 progress on mobilising trillions needed in clean infrastructure investment for developing countries appears largely rhetorical
Developing country observers gazed on at COP26 when various leaders of wealthy and industrialized G7 countries spoke of aspirations to mobilize the trillions needed in clean infrastructure investment for developing countries.
The teasing of trillions was an important part of advancing the dialogue at COP26, but now it appears at risk of remaining just that—a tease.
Addressing the world at Glasgow, Joe Biden, Boris Johnson, and Ursula von der Leyen committed the USA, UK, and EU to “Addressing Climate Crisis through Infrastructure Development”.
Their goal was for the world to “mobilize and align the trillions of dollars in capital over the next three decades to meet net-zero by 2050, the majority of which will be needed in developing and emerging economies”. Italy’s Mario Draghi averred that “tens of trillions” in capital were available.
Such language could be an opportunity to move beyond tired 20th century zero-sum logics that resulted in the G7 failing to deliver the $100 billion in climate finance for developing countries by 2020.
Historically, the G7 have failed to deliver on their obligations as the largest historical emitters, seeing climate finance as a burden rather than as also being in their own self-interest. But new G7 ambitions are framed in strategic logics of climate action as a global public good and—for at least some G7 actors—mounting an alternative to China’s Belt and Road Initiative (BRI).
However, half a year later, G7 progress on this grand agenda of mobilizing trillions appears largely rhetorical.
In December, G7 leaders launched the G7 Partnership for Infrastructure and Investment (PII), a framework to help narrow the infrastructure gap in developing countries, including for tackling climate change. Recognizing “that low- and middle-income countries need to expand clean energy investment sevenfold, to over $1 trillion per year, to address climate change”, the G7 declared in the PII an “ambition to scale up from billions to trillions in finance from our economies”.
Stratospheric rhetoric aside, subsequent G7 ministerial processes have yielded disappointingly scant outputs on actually mobilizing financing on the order of trillions. Scouring G7 May Ministerial Communiques, there is thus far little evidence of follow-through or serious strategic discussion on how, in operational terms, to urgently increase investment to the historic trillions required in the 2020s.
Rather, the German G7 Presidency has been fixated on creating a “Climate Club”, plus “Just Energy Transition Partnerships” (JETPs) with select countries.
From a developing country perspective, a June G7 Leaders summit in Elmau that does not reinvigorate efforts to shift trillions would be a disappointment.
It would be misguided for the G7 to rush headlong into debating an international carbon pricing regime while overlooking the funding gaps which developing economies face in decarbonisation. Moreover, it would be politically ill-advised for the G7 to only pursue a selective approach for JETPs, privileging a small set of high-emitting countries with large coal power generation, and neglecting other countries.
From Morocco to Bangladesh and beyond, emerging economies face shared challenges in mobilizing key infrastructure investments, including due to limited fiscal space and high costs of capital. These countries already face high costs of servicing debts to foreign creditors, amid a difficult fiscal context, with exogenous shocks including COVID and climate-related losses and damages each taking an economic toll.
Now fallout of Russia’s invasion of Ukraine, high commodity prices, and rising interest rates create even greater barriers to sorely needed macro-critical climate-related investment.
IMF macro-economists and IEA energy experts agree – an at-scale international infrastructure investment drive toward net-zero electricity systems would be precisely the way to address the world’s multi-crisis emergency. Such investments could be deflationary, reducing costs and improving productivity, while putting money back in the pockets of households.
Many invoke the Marshall Plan as precedent for what our historic moment requires. But not everyone appears to get what it entails. For the Marshall Plan, the USA spent over 2% of its GDP annually on foreign aid funding for several years, whereas current spending languishes around 0.2%.
Moreover, for the Marshall Plan, the USA had a Presidency that made international assistance a national political priority, motivated by rivalry against Russia, running a massive peacetime propaganda effort to gin up support in states from coast to coast, from US businesses to regular voters.
There are lessons here for the G7 today.
Developing countries need allies in G7 countries, allies who see the gravity of the moment for the G7 and the rest of the world alike – allies to build the domestic politics fit for the surge in international finance that justice and enlightened self-interest, in this perilous moment, demand.
Originally this article was published on June 22, 2022 at Thomson Reuters Foundation.
Professor Saleemul Huq OBE is the director of the International Center for Climate Change and Development (ICCCAD) in Bangladesh; Iskander Erzini Vernoit is co-founder of a new non-profit North African climate thinktank in Morocco.