The COP28 agreement on the “loss and damage fund” is evidence of the growing importance of climate finance at international conferences, but also of its failure to meet the scale of climate impact on developing countries and of global climate needs more broadly.  

Back in 2001, COP7 established the Adaptation Fund, while at COP15, developed countries pledged to raise 100 billion US dollars annually for climate action by 2020, but later postponed the objective to 2025. The newly approved fund, conceived at the previous COP in Sharm-El-Sheik, “aims to provide financial assistance to nations most vulnerable and impacted by the effects of climate change”. However, the 651 million euros developed countries pledged to mobilise cover less than one per cent of the estimated annual losses developing nations face from global warming. The fund also lacks a replenishment cycle, raising questions about its long-term sustainability.  

The EU and its member states’ contribution to the fund (over 400 million euros) are part of the bloc’s broader climate finance efforts. In the context of the COP28 agreement to “transition away from fossil fuels” and cut global emissions by 43 per cent by 2030, the EU will invest 2.3 billion euros in its initiative to boost renewable energy capacity and energy efficiency, focusing on its neighbourhood and beyond. The alignment of these new commitments with the 28.5 billion euros already pledged to international climate finance this year remains unclear. 

The EU must greatly increase its contribution to climate finance, not only in light of the historical responsibilities of its member states in global warming, but also because becoming the first carbon-neutral continent would serve no purpose if global mitigation efforts fail. The resources exist; the EU needs to reallocate them, including by shifting fossil fuel subsidies to renewable energy. 

Historical differences 

Acknowledging unequal historical and present-day responsibilities for global warming is vital for climate justice. Before 1950, Europe, led by the UK and Germany, emitted over half of global CO2. Between 1751 and 2017, EU countries (including the UK) were responsible for 22 per cent of global emissions, second only to the US’ 25 per cent. In contrast, Africa, Asia, and Oceania accounted for only 7.2 per cent of emissions over the same period. Yet they are experiencing the consequences of climate change most acutely. 

Acknowledging unequal historical and present-day responsibilities for global warming is vital for climate justice.

While its share of emissions is decreasing, the EU is still among the top Co2 emitters in the world. Up until 2019, it was consistently in the top five, alongside the other usual culprits, the US and China. Its recent decrease, partly associated with the pandemic and the war in Ukraine, can be also attributed to investments in energy transition through the European Green Deal. 

Fossil fuels have played a major role in the economic development of rich nations. They powered industrialisation, transportation, agriculture, and improved living standards. Developing countries now aspire to a similar degree of development, and are pursuing it through higher emissions.  

These nations rightly claim that developed countries should lead in emission cuts and bear the financial costs of mitigation. In 2022, the prime minister of Bangladesh, a country with some of the most disaster-prone and populous deltas in the world, particularly vulnerable to rising sea levels and flooding, stressed that developed countries are “responsible for the damage, but do nothing about it.”  

At COP27, Malawi’s President Lazarus Chakwera emphasised the “clear difference in culpability and capacity between developed and developing countries, demanding “climate justice for the most vulnerable nations.” This year, at the first Africa Climate Summit in Nairobi, African Union leaders reiterated the continent’s lack of historical responsibility for global warming, in stark contrast with the impact it bears. They established the summit as a platform for unified action and a stronger African voice in shaping the global climate agenda. 

A false distinction 

Rather than acknowledging its global responsibility and responding to developing countries’ calls for action, the EU has, thus far, concentrated most of its climate efforts and investments internally, with the goal of becoming the first carbon-neutral continent.  

This approach risks turning the EU into a green fortress associated with hypocrisy, double standards, and a neo-colonial approach.  

Of the 2 trillion euros of the EU’s 2021-2027 long-term budget and NextGenerationEU, 30 per cent (approximately 600 billion euros in total, or 100 billion annually) is earmarked for climate-related investment. The EU has also committed to mobilising at least 1 trillion euros in sustainable investments over the next decade.  

Aside from explicitly labelled climate finance, several other EU funds aim to address climate change. Part of the resources for the energy transition, for instance, come from the Modernisation Fund, whose budget could reach 48 billion euros by 2030, and the Innovation Fund, which has a budget of 40 billion euros.  

When it comes to global climate finance, the EU only allocates around 28.5 billion euros each year, with an additional 11.9 billion from private investment. This is at least five times less than its yearly domestic investment – a jarring contrast that does not go unnoticed on the international stage. 

Old and new emitters 

While the EU is shrinking its carbon footprint, the US and China continue to emit. In 2022, China’s emissions only dropped by 0.2 per cent, mainly due to COVID-19 restrictions and economic factors, such as weaker economic growth, rather than government action.  

In the US, despite renewable energy outpacing coal and contributing 22 per cent to electricity production, total emissions rose by 1.3 per cent in 2022, fuelled by emissions from buildings and transportation. Moreover, like the EU, the US is concentrating its climate finance efforts domestically. 

The Inflation Reduction Act allocated 337 billion euros to domestic climate initiatives, but the US’ international climate finance amounted to 5.2 billion euros in 2022.  

Meanwhile, developing countries are on the way to becoming major polluters in the next fifty years. Asia is currently responsible for around 40 per cent of global carbon emissions, and it is on track to further increase its share as some of its economies grow. Similarly, Africa is expected to emit substantially more as its population grows along with per capita energy use. Africa’s choice between fossil fuels and renewables will significantly impact the future of the climate. 

Expecting developing countries to sacrifice development goals and their population’s well-being is unreasonable, especially considering their minimal contribution to climate change.

Poorer countries tend to justify their increasing emissions by emphasising pressing development needs, such as enhancing access to electricity and improving transportation infrastructure. In Africa, the current average access to electricity is only half the global rate of 87 per cent. This constrains public services and obstructs the adoption of key technologies in sectors like banking and education. Addressing this challenge is crucial for alleviating issues such as limited employment opportunities and restricted healthcare access.  

Expecting developing countries to sacrifice development goals and their population’s well-being is unreasonable, especially considering their minimal contribution to climate change.  

What should the EU do?  

Apart from decarbonising their economies, richer nations need to help developing countries pursue green development by providing the financial support that makes it both achievable and desirable, while also helping them withstand climate disasters and implement adaptation measures.  

The EU can leverage existing resources for global climate finance. One key measure could be discontinuing fossil fuel subsidies, which increased to 123 billion euros in 2022 — more than the bloc’s annual climate budget. According to the European Environmental Agency, the EU lacks concrete plans to completely phase out these subsidies by 2030. 

Replacing harmful subsidies with green ones is a win-win strategy not just for the EU. Asia could release 116 billion euros by ending fossil fuel subsidies. Harmful subsidies to air transport and agribusiness also need to be addressed.  

Instead of financing polluting sectors, the EU should tax them substantially. Shifting to a permanent tax on fossil fuel companies’ economic rent would promote climate justice and generate revenue for affected consumers and climate finance. The 2022 temporary windfall tax on fossil fuels companies’ surplus profits was a step in the right direction. This tax was expected to raise over 140 billion euros in one year.  

Several EU member states, including Italy, Romania, and Bulgaria, announced, proposed, or implemented windfall taxes, with rates ranging from 33 to 75 per cent. Despite the lack of coordination between EU countries, these initiatives had raised 6.85 billion euros by June 2023.  

Internationally, the EU could advocate for a Climate Damages Tax, levying fossil fuel producers based on their CO2 emissions per barrel of oil, ton of coal, or cubic metre of natural gas extracted.  

This would be in line with the “polluter pays principle”,’ and potentially generate 137 billion annually. A wealth tax and levies on plane tickets at both EU and global levels could further boost climate funds.  

The EU should refrain from measures that shift climate responsibility or penalise developing nations. The Carbon Border Adjustment Mechanism (CBAM), set to phase in from 2026 to 2034, will price carbon emissions from imported goods, starting with sectors like iron and steel, cement, aluminium, hydrogen, and electricity. 

African countries argue that CBAM could harm their competitiveness, as they export emissions-intensive commodities to the EU. The mechanism could cost Africa up to 23 billion euros annually, disproportionately affecting the continent’s lowest-income nations.  

The EU needs to address these issues before CBAM enters into force, offering financial support, as well as possible exemptions or gradual implementation for developing countries in Africa and elsewhere.  

Addressing the climate crisis requires urgent and enormous funding. The EU cannot build a green fortress to isolate itself – if the rest of the world burns, Europe burns with it. It’s time for the EU to put its money where its mouth is. It has the resources; does it have the will?