At COP28, the annual United Nations climate summit in Dubai, nations stepped up their climate pledges, signing a voluntary agreement to "[transition] away from fossil fuels in energy systems, in a just, orderly and equitable manner."

But how the energy transition will get funded — and who will pay for it — remains a major point of contention.

More than $85 billion was committed to climate financing at the summit, according to its organizers in the United Arab Emirates. The UAE notched an early win on day one with an agreement and $700 million pledged for the loss and damage fund, which provides financial assistance to vulnerable nations facing steep economic losses from the climate crisis — though many officials say that figure falls short of what's needed.

“Finance is the great enabler for climate action,” UN Climate Change executive secretary Simon Stiell said. “Loss and damage was a win, but we’re kidding ourselves if we think it’s a tick in the box for finance and support at this COP; more is required. We need enhanced transparency, and to deliver our promise to fund climate action across the world.”

Stiell's comments echo findings of a climate financing gap between current commitments and those needed for an orderly transition. According to a UN report, countries will collectively need to spend $300 billion a year by 2030 and $500 billion by 2050 to adapt to climate change. The UN has also estimated that developing countries will require 10 to 18 times more financing for adaptation than what is currently earmarked.

A chorus of leaders at COP28 pointed to the need to accelerate climate financing and make up the shortfall, as the longer countries put off investing in the energy transition, the more expensive it will be. Still, there has been some momentum over the past year.

The world's developed nations may have met their 2009 pledge of $100 billion a year to developing countries for the first time in 2022, according to the OECD. This unmet promise eroded goodwill between nations at previous COPs and was held up as an example of the gap between ambition and action.

“This has probably been the most progress we’ve seen in the last 12 months on finance,” Barbados Prime Minister Mia Mottley told reporters in Dubai. “But we’re not where we need to be yet.”

Loss and damage: $792 million

As of Dec. 10, nations collectively pledged $792 million to help vulnerable nations recover from climate-related disasters. France, Italy, Germany, and the UAE were the largest contributors, each pledging at least $100 million, according to the National Resources Defense Council, while the US chipped in $17.5 million.

The fund was established in 2022 to address a fundamental inequity among nations; although poorer countries are some of the world's lowest emitters of greenhouse gases and bear less responsibility for causing the problem, they suffer disproportionately from climate impacts, such as rising sea levels, heatwaves, drought, wildfires, and other extreme weather events.

Various organizations estimate that the annual costs of climate-related damage range from $100 billion to $580 billion globally, with one recent study finding that climate damage amounts to more than $400 billion a year. Using the latter figure, this means the loss and damage pledges cover just 0.002% of the annual losses from climate disasters.

In his closing remarks, UN Secretary-General António Guterres noted that the new funding commitments represented “building blocks for progress ... even though financial commitments are very limited.”

Adaptation finance: $61 billion

Additional funding was unlocked to help get climate projects off the ground that will advance the global energy transition and help countries adapt to climate change.

On Dec. 1, the UAE announced a $30 billion fund, called ALTéRRA, "to steer private markets towards climate investments and focus on transforming emerging markets and developing economies." The fund is targeting $250 billion of investment by 2030 to bring more private finance to the Global South.

Millions more were secured for funds supporting climate adaptation that will help countries implement their transition plans.

Multilateral development banks pledged $31.6 billion for climate funds. Among those, the World Bank raised its target for financing climate projects to a 45% share of overall financing by 2025, up from 35% previously. The increase of about $9 billion annually comes in addition to expanded clauses that allow countries recovering from climate disasters to pause their debt repayments, a reform championed by Barbados's Mottley.

At the same time, the UAE also pledged $200 million for Special Drawing Rights (SDRs) for the International Monetary Fund (IMF)’s Resilience and Sustainability Trust.

Furthermore, the Adaptation Fund saw $134 million in new commitments, while the Least Developed Countries Fund added $129.3 million in pledges and the Special Climate Change Fund (SCCF) gained $31 million.

Green Climate Fund: $12.8 billion

The largest international fund for climate action in developing countries reached its highest level of funding yet.

In total, 31 countries pledged $12.8 billion for the second replenishment of the Green Climate Fund. The initial mobilization of the fund and first replenishment, in 2014 and 2019, respectively, garnered roughly $10 billion each.

The US was the largest contributor to the Green Climate Fund, matching its initial pledge of $3 billion, while the next three biggest contributors — the UK, Germany, and France — pledged about $2 billion on average.

Over the next four years, the Green Climate Fund will use the funds to implement climate adaptation and mitigation projects ranging from flood-risk management to increasing access to renewable electricity.

Food, water, health, and other initiatives: $8.75 billion

Money flowed to a host of other climate-related issues related to lives and livelihoods.

The UAE promised $150 million for water scarcity solutions, and the final framework of the summit acknowledged the importance of water issues exacerbated by climate change, from water scarcity, sanitation, and access to resilience amid water-related disasters.

An additional $2.9 billion was pledged for health initiatives as well, according to the UAE, including $58 million allocated by the Bill and Melinda Gates Foundation, $7 million from the Asian Development Bank, and $100 million from the Rockefeller Foundation, the World Health Organization said.

Food resilience was also given priority, with countries and organizations devoting $3.1 billion to reduce emissions in agriculture, reduce deforestation, and mitigate climate-induced crop loss. Participants praised the increased attention on this issue at the summit, though they cautioned that, like other climate-related financial commitments, progress depends on those pledges being delivered.

Governments and other actors also mobilized $2.6 billion for nature, including $186.6 million of new financing for forests, mangroves, and the ocean.

“The many pledges we have heard at COP28, while welcome, are a drop in the ocean compared to what is needed,” Stephen Cornelius, deputy global climate and energy lead at the World Wildlife Fund (WWF), said in a statement. “The funding pot will now need to grow by orders of magnitude to adequately help people in harm's way.”

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