‘MDB reform to scale up climate finance to developing nations to be discussed at G20’

NEW DELHI: The issue of reforms in multilateral development bank (MDB) practices to scale up climate finance without further indebting developing nations is likely to be discussed by G20, World Bank’s India head Auguste Tano Kouamé said on Wednesday.

The Sharm El Sheikh Implementation Plan, the decision from UN Climate Conference (COP27) which was agreed upon on November 20 by 193 parties called on multilateral development banks such as the World Bank to reform their practices and introduce non-debt instruments taking into account debt burden among borrowing countries.

“Calls on the shareholders of multilateral development banks and international financial institutions to reform multilateral development bank practices and priorities, align and scale up funding, ensure simplified access and mobilize climate finance from various sources and encourages multilateral development banks to define a new vision and commensurate operational model, channels and instruments that are fit for the purpose of adequately addressing the global climate emergency, including deploying a full suite of instruments, from grants to guarantees and non-debt instruments, taking into account debt burdens, and to address risk appetite, with a view to substantially increasing climate finance,” the plan said.

Auguste Tano Kouamé, World Bank’s country director responded to the COP27 outcome on Wednesday. He said the MDB reform should be discussed at length at G20 and India will play a big role being the Presidency.

“Whether MDBs can increase their ability to provide finance for development projects for global public goods including climate change is being discussed. The issue is when countries borrow from us, they borrow for development projects that benefits them individually. But for climate change, projects cannot benefit countries individually. Regional integration is very important. What do you do when you want to finance a project which has benefits for a set of countries, not just one country. Who borrows and who pays? That’s one question that the MDB reform is trying to address,” he said.

“Another aspect is climate change is not caused by one country but by several countries. Unfortunately, the impact of climate change is higher in countries that contributed the least to global warming. The question here is if countries did not contribute so much and yet suffer a lot from it, should we as a global community be more attentive to addressing financing needs in countries beyond what their own financial capabilities will allow them? If we do that, then MDB communities have more ability to provide more financing for adaptation, similar to events like devastating floods in Pakistan and Nigeria this year…this is the debate we know that is taking place. MDBs have ways of operating and sourcing their money. The money we lend to countries is also very difficult to secure. It comes from membership or our ability to borrow from the market. We are in the context where the global economy is in a very difficult situation where member countries are finding it difficult to provide finance. Everyone is suffering from the impacts of high oil prices, and the Ukraine war; downgrading everywhere…our ability to go to market and borrow is also limited because the global economy is in a state where there is not much money for long-term finance. We need to find ways to mobilise finance, especially for climate change. This is the conversation; we have a long way to go. India has a big role to play in this conversation given India has the G20 Presidency. These conversations take place in these (G20) fora because these are the largest economies and contribute majorly to global GDP. Unlike the G7 which is a rich country club, the G20 includes countries that borrow from MDBs such as India and Turkey. It’s a forum where both sides are represented. This is likely to be discussed this time,” he added in response to HT’s question.

On the debt burden among borrowing nations, Kouamé said: “Debt sometimes is a necessary evil. You can’t envisage a country growing and catching up with rich countries using loans. When you use loans, you are raising debt. If you are not borrowing and you are only lending, you are actually using your resources to help others. You need global savings to invest in your countries and the onus is on you to see that return on investment on that is higher than the cost of borrowing. If you can achieve that then you are very successful. You generate growth to repay debt and save for your own consumption. We exist to mobilise global financing for growth but also ensure this growth is higher than the cost of borrowing. We also want to ensure that in countries debt doesn’t become a huge burden and doesn’t exceed the ability to pay.”

Climate shocks have increased the debt burden, he said.

“Many countries because of crisis and climate shocks have had to borrow more than they should have or could have. We have been pushing for a solution to that. The G20 two years ago gave a very big push for a solution and managed to get some creditors to delay payments. There is a talk to extend that. It’s a political issue. It is on the agenda of G20. We don’t have much control over the private sector debt but in the private sector, some creditors may lead by example.”

World Bank’s finance strategy for cooling in India

Cooling of indoor spaces; cold chain and refrigeration and passenger transport can open an investment opportunity of USD 1.6 trillion by 2040 in India, the World Bank has estimated. Using alternative and energy-efficient technologies for cooling can reduce greenhouse gas emissions from the sector significantly and create nearly 3.7 million new jobs, the “Climate Investment Opportunities in India’s Cooling Sector” report said.

The report has projected that India’s GDP could lose 2.5 to 4.5% annually by 2030 due to extreme heat mainly associated with productivity losses. Over 160 to 200 million people could be exposed to a lethal heat wave annually in India by 2030. The report has estimated that around 34 million people will face job losses due to heat stress-related productivity decline in India. This is because up to 75% of India’s workforce or 380 million people depends on heat-exposed labour.

The World Bank has referred to the G20 Climate Risk Atlas which warned last year that heat waves across India are likely to be 25 times longer by 2036-65 if carbon emissions remain high as projected in the Intergovernmental Panel on Climate Change’s worst-case scenario. With only 4% of fresh produce in India covered under cold chains, annual food losses in India are estimated to be USD 13 billion annually. The report summarises how India can finance its India Cooling Action Plan released in 2019 with goals to reduce cooling demand across sectors by 25% by 2037-38; reduce demand for refrigerant by up to 30% by 2037-38 and reduce cooling energy requirements by up to 40% by 2037-38.

In India, 45% of the peak electricity demand in 2050 is expected to come from space cooling, World Bank has estimated. This is because 10 million new homes are required to be built annually to keep up with housing demand. The paper also estimates that thermal comfort through sustainable space cooling options have an emission reduction potential of 200 million tons of CO2 equivalent by 2040.

Abhas K Jha, practice manager, climate and disaster risk management for South Asia at World Bank said India could become the world capital for the cooling industry and a source of export of cooling equipment.