Rich countries like Australia shouldn’t balk at climate spending – it will soon pay for itself

‘Loss and damage’ finance for developing nations and domestic support for clean energy industries may be politically difficult – but they are necessary investments

After Cop27 ‘a simple test will be applied, especially by our Pacific neighbours. That is whether Australia, still one of the richest countries in the world, makes meaningful additional climate finance commitments and follows through on them, without diverting aid.’ Photograph: Anadolu Agency/Getty Images

The money conversation is always fraught at the Cop climate negotiations, and this year it is particularly difficult given economic trouble in rich countries. But the global energy crisis works in favour of clean energy transition and achieving more meaningful emissions cuts down the track.

The world is still short of the Paris goal to provide $100bn in climate finance to developing countries. And only a fraction of the money provided is for dealing with climate change impacts, which is what developing countries need most. Financial needs for climate change adaptation in developing countries are estimated in the hundreds of billions of dollars per year.

Should rich countries pay for the cost of dealing with climate change in developing countries? The moral case is clear. Rich countries have the means, and most have built up their wealth on the back of carbon-intensive energy and industries. The majority of global warming loaded into the system comes from developed countries’ past emissions.

Paying for action on climate impacts in other countries can be fraught politically, especially when budgets are tight. It is even harder when payments are viewed as compensation. This has dogged the negotiations about a mechanism for “loss and damage”, which is now a flashpoint in the negotiations. It needs to be understood as a way to fund measures to minimise losses in developing countries and help repair after climate change related disasters. Even so, it is difficult to get national governments to commit such funding to a global pot.

Pledges to the loss-and-damage fund are now trundling in. But for the most part they are in the tens of millions of dollars, when billions are needed. And doubt always lingers whether such money won’t simply come from cuts to aid.

Poorer countries will leave Cop27 feeling that not nearly enough climate finance is coming. This will keep giving ammunition to the forces that aim to slow down climate policy.

There is no shortage of those interests. Plenty of coal, oil and gas production in developing countries is state-owned or deeply enmeshed with governments, or in any case seen as a national asset that cannot be sacrificed for climate protection. It is not so hard to understand. When Australian governments will not constrain production of coal and gas for export, how do we expect this to play in Indonesia, South Africa or the Gulf states?

International climate policy is increasingly synonymous with energy geopolitics, turbo-charged by Russia’s war on Ukraine. Energy importing countries are pushing to reduce their energy trade dependency, and renewable energy is the main way to do it.

The technologically advanced economies see the opportunity to corner the market for the next industrial revolution, namely the low-carbon revamp of the world’s energy, industrial and transport systems. It could be bigger than the IT revolution has been.

Industry policy to support low-carbon industrial advantage is increasingly the name of the game. Massive government spending to support domestic clean energy industries is getting under way in the United States, and is happening in Europe and China.

The result will be better zero-emissions technology at lower prices. Emissions will fall faster across the developed world, and increases will be dampened in industrialising and developing countries. Policy to cut emissions deeply will come at much lower costs. That in turn will make it easier for countries to take on stronger emissions targets – and to actually fulfil them when at this point many countries are not on track. Global emissions are set to rise by about 1% in 2022, when they should be falling slightly to 2030 if all pledges are implemented.

It will require very large upfront investments, which will repay for themselves by way of clean energy at low running costs for many decades.

For Australia, the obvious course is to speed up the shift to a zero-carbon electricity system, and to finally do something meaningful to cut emissions in industry, transport and agriculture.

And this continent could also make a huge contribution to supplying the world with zero carbon fuels, metals and minerals, making up for the exports of coal and gas that will dwindle.

At Cop27, Australia finds plenty of goodwill on account of the new government. The government has a strong story to tell about the new 2030 emissions target, plans to ramp up the domestic clean energy transition, and about becoming a “renewable energy superpower”.

The pressure will then be on to deliver, and especially so if Australia hosts the 2026 Cop.

In the meantime, a simple test will be applied, especially by our Pacific neighbours. That is whether Australia, still one of the richest countries in the world, makes meaningful additional climate finance commitments and follows through on them, without diverting aid.

Frank Jotzo is a professor at ANU Crawford School of Public Policy and head of energy at the ANU Institute for Climate, Energy and Disaster Solutions