Economists have said that a failure to factor in inflation means the $300bn (£240bn) climate finance deal agreed at Cop29 is not the tripling of pledges that has been claimed.
The international talks in Baku were pulled back from the brink of collapse early on Sunday morning when negotiators struck an agreement in which rich countries promised to raise $300bn a year by 2035.
While this is a tripling of the previous climate finance target of $100bn a year by 2020, and has been trumpeted as such by the UN and others on paper the text makes no mention of inflation, missing an important recommendation from leading economists upon which the target is loosely based.
And this means that the world’s poorest countries will receive a sum they already consider inadequate for their needs, but that it will in effect be billions of dollars lower still as the money will lose its value over time, according to Guardian analysis.
Money pledged today is likely to have lost about 20% of its value by 2035, assuming the average US inflation rate of the past 15 years (2.38%) continues into the future, according to Guardian calculations. If interest rates are higher, the value could be even lower.
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The target of $100bn by 2020 was set in 2009 and did not include inflation adjustments. If it had done, the target would have become $145bn in today’s money to reach the same value. Even taking 2020 as the baseline for the $100bn figure, due to high inflation rates in recent years current contributions would need to be about $120.5bn to reach the equivalent value.
Even though the $100bn target became easier to reach over time, donor nations still failed to meet it until 2022, two years past the deadline.
During the first week of Cop29, leading economists including Nicholas Stern said developed countries should provide at least $300bn a year by 2030, and $390bn a year by 2035. But crucially, they said the numbers, which were calculated using 2022 dollar values, would need to be updated.
“Targets will need to adjust for inflation over time,” Amar Bhattacharya, the executive secretary of the UN’s independent high-level expert group on climate finance and co-author of the study, said before they were agreed.
Projecting these into the future using the same historical inflation rate, the $300bn target by 2030 would become $368bn, and the $390bn target would need to be adjusted to $538bn to be compliant with the Paris climate agreement.
Story was adapted from the Guardian.
