‘The LDCs should never accept loans for adaptation’

Sketch: TBS

The Least Developed Countries should never accept loans for adaptation. But this isn't happening, Professor Dr Mizan R Khan told The Business Standard in an interview from Baku, Azerbaijan, where COP29 is currently taking place. Professor Khan is a board member of the COP29 Scientific Council, a visiting scholar at Brown University and a technical lead at the LDC Universities Consortium on Climate Change. 

In this interview, Professor Khan discusses the urgent need for grant-based climate finance for developing nations like Bangladesh, highlighting COP29's role in climate finance reform. 

He discussed the rising per capita climate debt, insufficient adaptation funding and the impact of 'creative accounting' by developed nations in achieving the $100 billion climate fund. He emphasizes the necessity of a loss and damage fund and the role of private sector investment despite political shifts; and anticipates modest progress on COP29's ambitious funding goals.

With decades of experience as an academic and researcher, Professor Khan has worked closely with the Bangladeshi government and international development sectors. He is a former Deputy Director at ICCCAD and an expert in climate finance, focusing on accessing global funds for climate adaptation and mitigation in developing nations.

Bangladesh's per capita climate debt is rising. How should Bangladesh and other climate-impacted countries approach this COP to secure more grant-based financing?

COP29 is regarded as the COP of climate finance, with over 30 agendas focused on this issue. One of them is the NCQG or New Collective Quantified Goal on Climate Finance. So far, we have held 11 expert dialogues on the NCQG. 

Keeping the $100 bn as the floor, the amount of finance to be agreed upon is being discussed now.The LDCs demand a minimum of $220 billion for adaptation funding. Currently, they receive only 3% of this amount.

The United Nations Environment Programme recently stated that the world needs between $150 billion and $387 billion annually to address climate change and other environmental issues. Additionally, the G77 has cited a need for $1.3 trillion in climate finance under the new climate finance package. 

However, I am not very optimistic about the New Collective Quantified Goal.

Then comes the issue of doubling adaptation finance. It has to be doubled by 2025 in comparison to 2019. The adaptation finance was $20 billion in 2019, now that has to reach at least $30bn.  

[The Glasgow Climate Pact called for developed countries to double adaptation finance by 2025 from 2019 levels.] 

Now, regardless of absolute numbers—whether $200 billion or $30 billion—the most important aspect is the quality of finance. This brings up the issue of grants versus loans. 

Around 55% of the climate finance that LDCs receive comes as loans, which is creating a climate debt trap. Half of the LDCs are already in debt distress. Bangladesh, too, spends a large portion of its revenue on debt servicing. More than 60 countries now spend more on loan repayments than on education and other social sectors.

So, our demand is that LDCs should never accept loans for adaptation. But this isn't happening. The sessions have only just started, and as discussions continue, we will eventually learn the outcome.

There's also an important agenda I attended, focused on making climate finance consistent with a pathway toward low greenhouse gas emissions and climate-resilient development. I'm involved with this agenda as a negotiator. 

Article 9 of the Paris Agreement states that developed countries must provide financial resources to help developing nations with both mitigation and adaptation, continuing their existing commitments under the Convention. 

However, disagreement persists over the interpretation of Article 2.1(c) and its alignment with Article 9. Discussions are ongoing on how to align these two articles and outline the path forward. The negotiations have begun, but let's see how far they progress. 

Personally, however, I am not very optimistic about the overall outcome.

The $100 billion finance target was delayed but has been met in 2022. How do you evaluate this achievement, given that many say the target has too many loopholes?

Developed countries claim to have mobilised nearly $116 billion in climate finance in 2022. However, a closer analysis reveals that this figure is inflated through "creative accounting." The least developed countries receive less than 3% of the funds they need to adapt to climate change, yet immediate adaptation finance is crucial for them. 

Adaptation funding remains critically low. While developed nations express a willingness to increase adaptation finance, attention has shifted toward the loss and damage fund, reducing focus on adaptation. At the last COP, an adaptation fund goal of $300 million was set for LDCs, but we only managed to mobilise around $200 million. This shortfall reflects why progress remains limited.

Tell us about your perspective of the loss and damage fund. Why is it necessary, and what do you believe the funding threshold should be? How much do you think is realistically achievable this year?

Bangladesh recently experienced a flood that caused billions of dollars in damage, yet we receive only about $300-400 million on average in climate funding, far below what's needed. This year, the loss and damage fund isn't expected to bring in significant money. The current focus of loss and damage is on establishing the fund's operations rather than on actual funding allocations.

Trump's re-election is viewed as a setback for global climate initiatives. Are climate finance efforts doomed with Trump in office? And how would you describe the atmosphere at COP in Baku?

Trump is likely to withdraw some federal support, but if that happens, many US states, such as California – which leads in climate action and green policies – will continue their efforts independently. Even with reduced federal backing, certain climate initiatives will persist, especially in renewable energy. 

The United States is the second-largest player in renewable energy after China, and private investment in this sector is already substantial, so Trump's influence here is limited. While he may cut US contributions to global climate funds, resulting in an estimated $4 billion shortfall, the European Union and China could help offset this loss.

This COP is being referred to as the 'climate finance COP,' yet the chances of reaching a meaningful agreement are said to be slim. What is your observation?

The negotiations have just begun, and I believe we will reach an agreement in the end. While it may not be sufficient, at least something will be achieved; otherwise, the COP29 presidency will lose credibility. 

The presidency is aiming to establish a new $10 billion fund, with the Baku presidency contributing a part of it. Fossil fuel companies and other countries are expected to pitch in as well. I am cautiously optimistic about these new funds.