In 2007, a review entitled Report on the analysis of existing and potential investment and financial
flows relevant to the development of an effective and appropriate international response to climate
change was conducted by the secretariat of the UNFCCC. An update was made in 2008, in which the
projections were not fundamentally changed. The review provides an analysis and assessment of
investment and financial flows in 2030 that will be needed to meet worldwide mitigation and
adaptation requirements. The results should be seen as indicative only. They should
be seen as broad contours of what would be needed rather than exact figures. Further work in
assessing investment and financial flows is needed.
Financing climate change
One of the key findings of the review is that the additional investment and financial flows in 2030
to address climate change amounts to 0.3 to 0.5% of global domestic product in 2030 and 1.1 -
1.7% of global investment in 2030.
This is a small amount in overall global figures but large compared to the currently available public
and private financial resources for climate change (including the ones available under the UNFCCC and
its Kyoto Protocol). Current levels of funding will be insufficient to address the
future financial flows estimated to be needed for adaptation and mitigation under a strengthened
future climate change deal post 2012.
a. For mitigation
Mitigation measures needed to return global greenhouse gas emissions to current levels by 2030,
require a small increase in global investments and financial flows: between USD 200-210
billion per annum in 2030.
In many sectors, such as the power generation sector or industry, the lifetime of capital stock can
be thirty years or even more. Total investment in new physical assets is projected to triple between
2000 and 2030. Due to rapid economic growth, a large share of these investments will occur in
developing countries. Investments should focus on new facilities in many of these sectors.
Particularly in the energy sector, huge investment flows are needed. For energy
supply: USD 432 billion is projected to be invested annually into the power
sector. Of this amount, USD 148 billion needs to be shifted to renewables,
Carbon Dioxide Capture and Storage (CCS), nuclear and hydro. Investment into fossil fuel
supply is expected to continue to grow, but at a reduced rate.
Investment flows to developing countries are estimated at about 46% of the total needed in 2030. The
resulting emission reductions achieved by these countries in 2030 would amount to 68% of global
Failure to achieve changes in investment and financial flows for mitigation will lead to
unsustainable development paths and “lock-in” effects for the next 20-30 years. This will
lead to higher emissions, more climate change impacts, and larger investment and financial flows
needs for adaptation in the longer-term.
b. For adaptation
The review found that for adaptation, additional investment and financial flows needed for in 2030
amount to several billions of USD. No precise global figure is available at present
and further analysis on this needs to be conducted. These figures are indicative and may represent
the lower bound of the amount actually required.
Particular attention for developing countries
Particular attention will need to be given to developing countries, as, while only 20-25 per cent of
investment currently occurs in developing countries, due to expected rapid economic growth, a large
share of investment and financial flows will be needed in developing countries:
- Because of their economic growth, the energy demand in developing countries will
Investment flows to developing countries is estimated at about 46% of the total
needed in 2030. The resulting emission reductions achieved by those countries in 2030 would amount
to 68% of global emission reductions;
- Additional investment and financial flows for adaptation in developing countries
is estimated between USD 28 to 67 billion.
Current financial mechanisms of United Nations Framework Convention on Climate Change
(UNFCCC) are insufficient
- The Global Environment Facility(GEF) operates the financial mechanism under the
Convention on an on-going basis, subject to review every four years.
A Special Climate Change Fund, which complements other funding mechanisms and
exists to finance projects relating to:
- technology transfer
- climate change mitigation and economic diversification for countries highly dependent on income
from fossil fuels.
A Least Developed Countries Fund intended to support a special work programme to
assist the LDCs.
- An Adaptation Fund became operational with the first commitment period of the
Kyoto Protocol in 2008:
- To finance practical adaptation projects and programmes in developing countries and support
- Funded from an adaptation levy (2%) on Clean Development Mechanism (CDM) projects.
How to finance the response to climate change
With appropriate policies and/or incentives, a substantial part of the additional
investment and financial flows needed could be covered by the currently available sources. However,
improvement in, and an optimal combination of, mechanisms, such as the carbon
markets, the financial mechanism of the Convention, ODA, national policies and, in some cases,
new and additional resources, will be needed to mobilize the necessary investment
and financial flows to address climate change.
Financial issues under a future climate change regime with increased effectiveness will require:
Shifts in investment and financial flows to more climate-friendly and
Scaling up international and public capital dedicated to climate-friendly and
Optimizing the allocation of the funds available by spreading the risks across
private and public investors, for example by providing incentives for private investment in the
early deployment of new technologies.
Private sector investments constitute up to 86% of investment and financial flows
and are thus another important means to enhance investment and financial flows to address climate
change in the future.
Policy certainty is important for investors. A longer-term international agreement
on climate change broadens the range of mitigation measures that are attractive investments.
Additional external public funding for climate change mitigation and adaptation will be
needed particularly for sectors in developing countries that depend on public investment and
Particular attention will need to be given to developing countries, because although
they currently account for only 20–25 per cent of global investments, their expected rapid
economic growth means that they will require a large share of investment and financial flows.
a. Potential of the carbon markets
One way of enabling increased funding is by means of the carbon markets.
The Kyoto Protocol’s Clean Development Mechanism (CDM), which permits industrialized countries
to invest in sustainable development projects in developing countries and thereby generate tradable
emission credits, already shows a significant potential to leverage domestic and
A high post-2012 demand for emission reduction credits could allow the expansion of the
carbon market, which would in turn stimulate additional supply of credits. Emission caps,
emission trading and project based mechanisms can thus play an important role in promoting the
cost-effectiveness of fighting climate change.
Funding for the Adaptation Fund post-2012 depends on the continuation of the Clean
Development Mechanism (CDM) and the level of demand in the carbon market.
Assuming that the adaptation levy of 2% on CDM projects applies post 2012, the level of funding could
USD 100−500 million for a low demand for credits from non-Annex I Parties
USD 1−5 billion in 2030 for high demand.
The level of funding available to the Adaptation Fund would be small compared with the estimated
needs for adaptation (several billions worldwide). The Adaptation Fund could be further expanded with
additional sources of funding.
b. Potential of ODA
Official Development Assistance (ODA) funds are currently less than 1 per cent of investment
globally. Least developed countries, such as Sub-Saharan Africa, and smaller
developing countries, still attract very limited private sector investment and continue to rely on
ODA and soft loans from international financial institutions.
c. Potential of national policies
Policies are needed both in developed and developing countries.
In terms of private funds, governments set the rules for the markets in which investors seek
profits. If current market rules are failing to attract or drive private investors
into lower-carbon, more climate-proof alternatives, governments can introduce policies or incentives
to help address these market failures. This includes:
- Regulations and standards to overcome policy-based barriers to entry
- Taxes and charges to make the polluter pay
- Subsidies and incentives to pay the innovator
Governments also need to shift the focus of their own investments. Governments are responsible for
10−25 per cent of the investment in new physical assets. Currently most of those investments
are driven by local development priorities. In developing countries in particular, shifting funding
to climate change related investments has to take social and development priorities into account.
d. Potential of international coordination of policies
Governments set the rules for the markets in which investors seek profits. Relevant policies are
needed both in developed and developing countries.
International coordination of policies by Parties in an appropriate forum will be most effective.
Areas where international coordination would be beneficial include technology R&D and deployment,
and energy efficiency standards for internationally traded appliances and equipment.
The major reductions in emissions between the reference and the mitigation scenarios rely on the
increased energy efficiency and shifts in the energy supply from fossil fuels to renewable, nuclear
and hydro and large-scale deployment of CCS. Much of the shift will need to occur in developing
countries where energy demand is projected to grow most rapidly.
Multilateral and bilateral funding is a significant source of investment in developing countries (1
For a summary of Report on the analysis of existing and potential investment and financial flows
relevant to the development of an effective and appropriate international response to climate change
or the full report, please visit this page