Paris agreement urges developed countries to pay ... next to nothing for clean energy transitions

By Aleh Cherp

The climate agreement adopted at the COP 21 in Paris has been variously hailed as a triumph or a disaster, but its careful reading shows that it is simply business as usual, at least as far as clean energy transitions are concerned. The Agreement “strongly urges” developed countries to provide $100 billion annually by 2020 for mitigation and adaptation in the developing world. At first glance, this seems like a lot of money. But this could be achieved simply by re-labelling some of the $135 billion of the already existing development assistance as "adaptation".  

"Adaptation" is a very flexible term. Wealthier populations are clearly more adapted and therefore virtually any development aid can be called "adaptation". It is more straightforward with infrastructure projects, but also simple with health, education, institutional and even military security assistance (given that the climate change is believed to increase the risks of armed conflicts). This means that it is unlikely that much, or indeed any, new funding would be available for mitigation, i.e. restructuring the energy systems.

Even under a very optimistic assumption that most of the 'climate aid' will be new commitments rather than re-classification of existing assistance and that a noticeable portion of those will be specifically for clean energy, these financial flows would be in tens of billions of dollars and thus minute in comparison to what is required. For example, in 2014 the costs of German Energiewende were about $26 bln/year (and this has not even resulted in emission reductions from the energy system).  One could, of course argue that energy transitions cannot be funded by international aid alone; domestic public and private finance as well as foreign direct investment would need to play the main role.

I fully agree on the importance of 'non-aid' investment, but the Paris agreement does not have any specific obligations or even aspirational goals for this kind of finance. There is a widespread belief that the document will provide the 'right signal' for investors to fund clean energy, but can "a signal" change the existing investment on the necessary scale?

The Global Energy Assessment and many other studies estimate that the current energy investments are between $1000-2000 bln/year and would need to at least double to meet sustainable energy targets. The foreign direct investment flows to developing countries are currently $700-800 bln and will need to quadruple to $3300-4500 billion/year to reach the Sustainable Development Goals. Has a non-binding international agreement ever provided a signal to quadruple or even double worldwide investment rates, especially by urging barely 1-2% of the required increase in finance?

The Paris agreement has confirmed the doubts about the possibility of a concrete international climate deal. While it will undoubtedly affect political rhetoric about energy, it is not likely to have a tangible influence on how real energy transitions unfold. Real public and private energy investments will continue to be shaped by a web of complex factors which we, social scientists, would need to understand in order to help save the climate.