By Douglas Alencar (Federal University of Pará)
The Conferences of the Parties (COPs) have been the main forum for discussions on international policies and commitments to tackle climate change, including the crucial issue of climate financing. Transitioning to a low-carbon economy requires substantial and sustainable investments, particularly for developing countries that face structural and financial challenges in implementing robust environmental policies. However, over successive COP meetings, fundamental challenges have hindered progress in climate financing. This text explores five central problems that limit the effectiveness of climate financing, examining their origins and implications for global sustainability.
One of the first obstacles to climate financing is the use of financial risk models that often underestimate the true amount needed to finance the transition to a low-carbon economy. These models are generally based on probabilistic calculations that assume future events can be predicted and assigned precise probabilities. However, by adopting the perspective of fundamental uncertainty, as outlined by John Maynard Keynes, it is recognized that some future events are inherently unpredictable and cannot be adequately measured by probabilities. The reliance on probabilistic models can create an overly optimistic view of the financing required, leading countries to underestimate investments and neglect planning for environmental and economic contingencies.
A second recurring challenge in COP negotiations is the lack of fulfillment of financial promises. Although developed countries have committed to providing significant funds to assist developing countries in their transition to a low-carbon economy, the agreed amounts are rarely met. This discrepancy between financial pledges and reality results in a significant deficit, directly affecting the ability of developing countries to implement climate policies and projects. This lack of practical commitment undermines international trust and cooperation, further hindering global progress toward the climate targets established at COPs.
Even when climate funds are made available, access to these resources faces operational challenges due to control by international financial institutions, such as the World Bank, which manage these resources according to the regulatory standards of the Basel Accords. These accords, aimed at financial stability and risk mitigation, ultimately restrict access to funds for climate financing, particularly through strict requirements for guarantees and risk assessments. These bureaucratic and regulatory barriers complicate the application of financial resources for climate, delaying the implementation of environmental projects and reducing the potential impact of investments intended to combat climate change.
Even if funds are technically available and can be accessed, many countries and organizations struggle to present viable projects that meet the required criteria. This technical capacity gap is reflected in a low approval rate for climate projects, especially in developing countries that face limitations in infrastructure and expertise. The lack of well-structured, high-quality projects prevents the efficient use of available resources, creating a vicious cycle where climate funds remain underutilized while countries continue to face challenges in transitioning to a sustainable economy.
In the case of Brazil, the issue of fiscal consolidation is particularly challenging for accessing climate financing, especially at the municipal level. Brazilian municipalities face difficulties in accessing climate funds due to restrictions imposed by their fiscal situation, where alleged financial problems limit credit and transfers for environmental projects. This situation creates a significant barrier for local initiatives, which are fundamental for promoting an effective and inclusive environmental transition. To overcome this limitation, it would be necessary to rethink climate financing policies, considering the fiscal specificities of municipalities and providing alternative access to resources.
The challenges faced by COPs regarding climate financing reveal a series of financial, institutional, and operational barriers that undermine the effectiveness of international climate commitments. The reliance on optimistic risk models, the insufficiency of promised resources, the regulatory barriers imposed by financial institutions, the lack of viable projects, and the fiscal constraints of municipalities are problems that need to be addressed urgently. To advance toward a fair and sustainable transition, it is essential for COPs to adopt a more flexible and inclusive approach to climate financing, expanding technical support and promoting innovative and accessible financial solutions. By doing so, it will be possible to align global efforts and ensure that resources intended for combating climate change reach those who need them most.
