The Independent High-Level Expert Group on Climate Finance (IHLEG) recommendations for COP 29: potential for avoided costs and financial savings of one-eighth of global GDP

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Figure 1.4. Potential savings from the shift to a low-carbon, climate-resilient economy per year in 2030

The Independent High-Level Expert Group on Climate Finance (IHLEG) launched by the COP 26 and COP 27 Presidencies provides an independent perspective on the climate finance agenda. The third report comes at a crucial time for the climate finance agenda with a commitment to agree on a New Collective Quantified Goal at COP29 and support ambitious NDCs submitted next year.

The third report argues that the world faces an unprecedented investment imperative and opportunity. The transition to clean, low-carbon energy, urgently building resilience to the impacts of climate change, and protecting nature and biodiversity, requires a rapid step up of investment in all countries.
This investment push will give a major boost to growth and development, and will lead to large avoided costs and very substantial savings. But this new growth story can only be realized through a major transformation of the climate finance system based on concerted efforts to unlock investment opportunities and ramp up all pools of finance.

Executive summary

Investment imperative and opportunity

The world faces an unprecedented investment imperative and opportunity. The transition to clean, low-carbon energy, building resilience to the impacts of climate change, and protecting nature and biodiversity, require a rapid step-up in investment in all countries.

The needs and opportunities are especially significant in emerging markets and developing countries (EMDCs) other than China: they are the countries that will account for the largest share of the increase in investments needed for a global energy transition, they are the most vulnerable to climate impacts, and they are home to the vast preponderance of the world’s nature and biodiversity resources.

We estimate that the global projected investment requirement for climate action is around $6.3–6.7 trillion per year by 2030, of which $2.7–2.8 trillion is in advanced economies, $1.3-$1.4 trillion in China, and $2.3–2.5 trillion in EMDCs other than China.(1) These latter countries will account for almost 45% of the average incremental investment needs from now to 2030 but they have been falling behind, especially Sub-Saharan Africa. For 2035, we estimate global investment requirements for climate action to be around $7– 8.1 trillion per year, with advanced economies needing $2.6–3.1 trillion, China $1.3–1.5 trillion, and EMDCs other than China requiring $3.1–3.5 trillion. These needs are our estimations of what is required for delivery on the Paris Agreement, and the investments will also make a vital contribution to sustainable growth and the achievement of the Sustainable Development Goals.

Rapidly falling technology costs especially for solar power, and the huge expansion in supply, notably from China, represent an unprecedented opportunity for developing countries. Africa, for example, accounts for about 60% of the world’s best solar resources, but received less than 2% of the investment in clean energy in 2023.

Ramping up climate investments in EMDCs is the only way to reach the Paris Agreement goals of limiting the global temperature increase to well below 2 degrees Celsius and adapting to climate change, and arrest the accelerating threat to nature and biodiversity. Doing so also represents a huge growth and development opportunity following the investment slowdown in the aftermath of the COVID-19 pandemic.

Our updated analysis indicates that of the projected investment needs of around $2.4 trillion per year in 2030 for EMDCs other than China, around $1.6 trillion is for the clean energy transition, $0.25 trillion for adaptation and resilience, $0.25 trillion for loss and damage, $0.3 trillion for natural capital and sustainable agriculture, and $0.04 trillion for fostering a just transition. To emphasise, these are the investment levels that are necessary for delivery on the Paris targets. They are analytical deductions in relation to our estimates of what is needed, not a ‘first bid’ in a negotiation.

Any shortfall in investment before 2030 will place added pressure on the years that follow, creating a steeper and potentially more costly path to climate stability. The less the world achieves now, the more we will need to invest later. Delayed action means we will need to mobilise even larger sums in shorter timeframes to catch up on critical targets. Additionally, investment needs for adaptation and resilience, as well as loss and damage and restoration of nature, will rise sharply as climate and nature risks escalate.

This ramp-up of investment can unlock the growth story of the 21st century and yield huge avoided costs and co-benefits (versus the costs of inaction) while generating very large savings. The avoided costs (such as adverse impacts on productivity and health, damages to assets, and loss of biodiversity) and co-benefits of climate action (such as increased productivity, improved ecosystem services and strengthened social stability) could amount to about 15–18% of global GDP in 2030. In addition, financial savings from a shift to a low-carbon economy could be as much as 11–18% of global GDP (coming, for example, from reduced investments, consumption and imports of fossil fuels, and fewer environmentally harmful subsidies). These benefits and savings will depend on the pace of the transition and accrue over time. The challenge, therefore, is to foster the enabling conditions for the ramp-up of investments and mobilise finance of the right scale, of the right kind and at an affordable cost.

FULL REPORT

Preface and acknowledgements

The Independent High Level Expert Group (IHLEG) on Climate Finance has been supporting the deliberations on the climate finance agenda under successive COP Presidencies since COP26. The group is co-chaired by Amar Bhattacharya, Vera Songwe and Nicholas Stern. Eléonore Soubeyran serves as the Secretariat. The full membership is provided at the end of the report. This independent group was tasked to help develop and put forward policy options and recommendations to encourage and enable the public and private investment and finance necessary for delivery of the commitments, ambition, initiatives and targets of the UNFCCC Paris Agreement, reinforced by the Glasgow Climate Pact, the Sharm el-Sheikh agenda, and the COP28 Global Climate Finance Framework.

This third report of the IHLEG has benefited enormously from the active and high-quality participation, guidance and input of the group’s members, and from feedback from a wide range of stakeholders. The views expressed are the responsibility of Amar Bhattacharya, Vera Songwe, Eléonore Soubeyran and Nicholas Stern, and are not necessarily those of individual members, nor does the report claim to represent the views of the COP29 Presidencies or the Climate Champions.

The writing team was led by Amar Bhattacharya with Eléonore Soubeyran, with the guidance of Vera Songwe and Nicholas Stern. The following people led on different sections: Amar Bhattacharya (investment, financing pathways, multilateral development banks, country-led investments); Eléonore Soubeyran (investment, climate finance landscape); Swati Ghosh (cost of capital); Homi Kharas and Charlotte Rivard (debt); Katherine Stodulka, Mattia Romani and Zoe Greindl (private finance); Marilou Uy (debt, domestic resource mobilisation, concessional climate finance, carbon markets); Camilla Born, Annabel Mahgerefteh, Talia Smith, Harris Rahman, Jesse Hoffman (tracking and monitoring). Georgina Kyriacou edited the report.

The authors would like to thank the participants at two roundtables that were co-hosted with the UN Climate Change Executive Secretary on taking stock and setting the climate finance action agenda and deliverables. They also thank participants at two roundtables held with the private sector in New York and Washington in autumn 2024, co-hosted by GFANZ and the Blended Finance Taskforce. Special thanks go to Baysa Naran and Dharshan Wignarajah at the Climate Policy Initiative, Cecilia Tam, Lucila Arboleya Sarazola and Paul Grimal at the International Energy Agency, and Paul Watkiss, Nella Canales and Dipesh Chapagain at the UN Environment Programme.

The estimates of investment needs for adaptation and resilience in 2030 for China and other emerging markets and developing countries were provided by the Finance chapter team of the UNEP Adaptation Gap Report (Nella Canales, Dipesh Chapagain and Paul Watkiss), based on 2024 analysis using data from updated 2022 analysis of modelled costs, finance needs and international public adaptation finance flows. The data were produced with co-financing from: the ECONOGENESIS project funded by UK aid from the UK government and by the International Development Research Centre, Canada as part of the Climate Adaptation and Resilience (CLARE) research programme; the Assessing Climate Change Risk in Europe project (ACCREU), funded by the EU through the Horizon Europe Research and Innovation Action and UK Research and Innovation under the UK Government’s Horizon Europe guarantee; and core funding to the Stockholm Environment Institute from the Swedish International Development Cooperation Agency.

The work of the IHLEG is supported by the Brookings Institution, and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science. Both institutions would like to acknowledge support for this work and associated engagement from the UK Department for Energy Security and Net Zero. Brookings acknowledges support from the Bill & Melinda Gates Foundation and the Open Society Foundation; the Grantham Research Institute acknowledges its funders including the Grantham Foundation for the Protection of the Environment and Quadrature Climate Foundation. Support for the IHLEG/Systemiq Tracking and Monitoring Framework was provided by the Children’s Investment Fund Foundation (CIFF).

The views in this report are those of the authors and do not necessarily represent those of any of the funding or host institutions. Any errors and omissions remain the authors’ own.

Citation: Bhattacharya A, Songwe V, Soubeyran E and Stern N (2024) Raising Ambition and Accelerating Delivery of Climate Finance. London: Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. © The authors, 2024

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