This discussion features Avinash, the special advisor to the president of the Inter-American Development Bank (IADB), and Vera, who are at the forefront of climate finance initiatives in developing and middle-income countries, particularly in Brazil. They discuss efforts to bridge the gap in climate financing by transferring money from high-cost to low-cost areas and their engagement with private sectors in projects like solar farms and wind turbines. The goal is to manage capital flow and exchange risks effectively, ensuring financing for countries where energy demand is increasing, ensuring future energy needs are met sustainably.

The conversation shifts to global climate finance goals being discussed at the COP negotiations. There's a strong push for developing countries to get commitments for climate finance in the trillions, as outlined in a report co-authored by Avinash and Nicholas Stern. Optimism is shown due to progress in policy and technology, particularly from China in renewable energy, and efforts are intensified for technological transfer to middle-income countries with expanding energy needs.

Main takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. pro-cyclical [proʊ-ˈsaɪklɪkəl] - (adjective) - Tending to magnify the fluctuations in a business cycle through certain financial activities. - Synonyms: (cyclic, periodic, seasonal)

So foreign exchange risk, this is long term, this is very pro cyclical and the banks are managing it.

2. foreign exchange risk [ˈfɔːrən ɪksˈtʃeɪndʒ rɪsk] - (noun) - The potential for a company to experience financial losses due to changes in currency exchange rates. - Synonyms: (currency risk, exchange rate risk, forex risk)

And we find that the biggest obstacle in that channel is foreign exchange risk and managing foreign exchange risk.

3. concessional finance [kənˈseʃənl faɪˈnæns] - (noun) - Financing with more favorable terms than the market offers, typically involving reduced interest rates and extended grace periods, often used for developmental purposes. - Synonyms: (subsidized finance, preferential finance, soft loan)

Countries are not eligible for concessional finance.

4. sequestering carbon [sɪˈkwɛstərɪŋ ˈkɑːrbən] - (verb) - The process of capturing and storing atmospheric carbon dioxide. - Synonyms: (carbon capture, carbon storage, carbon sink)

Even if it's the big countries that we want to attack the lungs of Africa today are also sequestering carbon.

5. carbon market [ˈkɑːrbən ˈmɑːrkɪt] - (noun) - A market in which carbon emission allowances or credits are bought and sold. - Synonyms: (emissions trading, carbon trading, carbon credit market)

Hopefully we get to a carbon market compliance, fully integrity filled carbon market that allows for many of these other countries.

6. pigouvian tax [pɪˈɡuːvɪən tæks] - (noun) - A tax imposed on activities that generate negative externalities, intended to correct an undesirable or inefficient market outcome. - Synonyms: (corrective tax, externality tax, eco-tax)

Avi and I are economists and we have something called the pigouvian tax which says, you know, if there's a negative externality, you put a cost to it and somebody has to pay out.

7. existentialist [ɛɡˌzɪˈstɛnʃəlɪst] - (adjective) - Referring to a philosophy that emphasizes individual existence, freedom, and choice affecting one's essence. - Synonyms: (philosophical, existential, essentialist)

We do need a shift, a mindset shift that we have critical existentialist global public issues like climate change.

8. multilateral development banks [ˌmʌltiˈlætərəl dɪˈvɛləpmənt bæŋks] - (noun) - Financial institutions that provide financial support and professional advice for economic and social development activities in developing countries. - Synonyms: (international banks, development banks, MDBs)

And we can't, you know, there's a lot we can do by being more efficient by using multilateral development banks more

9. transition finance [trænˈzɪʃən faɪˈnæns] - (noun) - Financial support provided to help countries or companies transition from practices that are harmful to the environment to more sustainable methods. - Synonyms: (sustainable finance, green finance, environmental finance)

I think it was 10 billion, 3.1 billion a year that they were putting into climate transition finance.

10. incrementer [ˈɪnkrəməntər] - (noun) - Someone who or something which gradually increases or grows in number, size, amount, or intensity. - Synonyms: (additive, increaser, augmenter)

And the argument is we have to be able to convince them that you can actually grow, you can create more jobs, you can deliver more prosperity in the transition.

COP29 - Reshaping Climate Finance in the Developing World

Avinash. So obviously you were introduced there as the special advisor to the president of the iadb. Actually, I first came across you when you were a key architect of the Bridgetown agenda with your close friend Mia Motley. You're now putting some of that into action in your new role. And one of the places you're doing so is in Brazil. Can you just tell us a little bit about that? How you're transferring money from where it is expensive to where it is cheap and what that means and how that can contribute to this climate finance. So, as you know, the financing gaps on climate are huge. And we think that the way to make it all add up is to break it down. You always break down big things into small things.

And we break down climate action into things that generate revenues, things that generate savings, things that are just costs, and the things that generate revenues. We need to get the private sector involved. Solar farms, wind turbines make money, but they're not flowing to developing countries. That money because the cost of capital is really high. And why is the cost of capital high? What does that mean? It's because there's a shortage of capital. I mean, almost the definition of developing countries is they don't have enough cash. So low savings, big investment needs, means capital is scarce. So we need to bring capital from where it's abundant and cheap to where it is scarce and expensive and create that channel. And we're trying to do that in Brazil.

And we find that the biggest obstacle in that channel is foreign exchange risk and managing foreign exchange risk. So foreign exchange risk, this is long term, this is very pro cyclical and the banks are managing it. And the banks are short term and also pro cyclical. Come along, Vera. And so the banks aren't. The banks aren't able to manage this risk very well. And their regulators know that. And so they charge big premiums. And Those premiums, like 5 percentage points more than the actual risk, that's premium. It's just blocking the flow of capital.

So what we're doing is we're saying, well, we're committing to lend dollars when it's needed, US dollars when they're needed, or euros when they're needed. And making that commitment. And we'll lend long term and low cost. And with that knowledge, that commitment, the projects and investors don't need to have that expensive hedging. So that's what we're trying to do in Brazil. We launched it in March with about $5 billion.

And how easily will that be rolled out to other places, do you think? I mean, what are you seeing already as you're, as you're doing this? You know, so much of where the success stories in renewable energy around the world, Brazil, India, it's almost entirely domestically financed. But, and we're very much focused on the large and middle income countries, countries are not eligible for concessional finance. But we're not going to save the planet. If India, Brazil, South Africa, Indonesia, Mexico, these big middle income, large countries where the future energy demand is huge, if that future energy demand is in fossil fuels, then we've lost 2 degrees, we've lost 3 degrees.

And so we're focused on those countries where we think the rollout will be easier. We're not focused on say Zambia, Gambia, Barbados. Tiny countries, big middle income countries where there are markets but the cost of hedging is expensive.

Great, Vera, thanks for taking the stage. I'd like to ask you, I mean, obviously we're here. It's day three of the COP negotiations. At the end of these talks, we want a new collective quantified goal on finance. Developing countries want that. That's the title of our event today. Developing countries want that to be in the trillions.

I mean, you along with Nicholas Stern and you basically wrote the report on this, right? You basically wrote how much money is needed, where that money should be going, how much needs to be from foreign sources. And I know when I was reading about this and looking you up beforehand on your X profile, you actually have a Mandela quote. It's always impossible until it's done. How much do you think that's the case this time around? Are you optimistic about a good outcome and what do you think that will look like?

I was sitting beside Avi. I'm always optimistic. No, thank you. Thank you for having this conversation. I actually believe that it is possible. And I think we just came from an event where the Climate Policy Initiative was doing a report which says that, you know, from 2018 we were spending around $600 billion on sort of the climate space. And today we're at 1.5 trillion, almost clearly nowhere near where we want to go. But the scale has just ratcheted up.

And that gives me hope because it essentially says, you know, it took us a while and it's always sort of, it takes a while to get everybody, you know, it's always impossible until it's done. You know, that beginning is difficult to sort of get going, except you're sprinting. But this is a marathon.

And so I think I am hopeful. I'm also hopeful because even if it's the big countries that we want to attack the lungs of Africa today are also sequestering carbon. And I think one of the things that happened on day one of the COP was that we made progress on Article 6. So we're getting closer to getting the right price for the right kind of sequestration of carbon that hopefully we get to a carbon market compliance, fully integrity filled carbon market that allows for many of these other countries that are able to, if you can actually trade carbon today, we could actually electrify many countries.

We could make sure that the 27 million women who go to bed, you know, with respiratory diseases and pass away can move to better cooking methods and things like that. So I am optimistic. We still say in our report a trillion. I think one of the things that, you know, the CPI numbers show us is that we're ratcheting up the MDBs. The Multinational Development banks have not yet gotten the resources that they will need.

AVI is here and you know the initiatives that are being launched at the Inter American Development bank, amazing initiatives, you know, the credit enhancement, we need those resources because even in the bigger countries we're going to be able to buy down, we must be able to buy down the cost of investment for us to get to where we want to get to. The last reason why I'm really optimistic is if you look at what China has been doing, just amazing stuff, right? Yes, they still have coal plants that they need to retire but they've brought down the price of solar panels from $0.44 to $0.04. So literally one of these days it will be $0.01 and all of us will be able to afford it and we can sort of move to cleaner technologies.

So I think the technology boast, the ira, the Inflation Reduction act has sort of unleashed innovation on battery energy storage in the United States as we've never seen before in the last two and a half years. So I'm optimistic. I hope that the innovation is happening, the resources are there. We know for sure now the resources need to go to the right places. And that's where we still need a big struggle. And the negotiations are at a very fragile state. I mean at one level it all could unravel. We don't get an agreement, the number could be not enough. But another level I think that we are seeing an emerging framework.

So the problem with 100 billion was that it became an irrelevant number, right? So now they're talking about two numbers that there may be an outer number which borrows from Vera and Extern's report which says that the cross border financing need is about 1.1 to 1.3 trillion. So you may see an outer number which says that there needs to be $1.3 trillion per year. But then there's a smaller number because I mean governments aren't getting elected to raise double and triple aid budgets. Aid budgets are 200 billion, you're saying we need 1.3 trillion five times, six times more.

So there's a smaller number which is public finance. So there'll be 1.3 trillion which all kinds of finance, including the private sector. But a public finance number that developed countries will lead on that may be in the order of $300 billion. And as Vera is saying, the MDBS today are probably going to do about 120 billion by 2030. So with additional resources they may be able to make a big contribution to get towards the 300 billion figure.

It's interesting you mentioned that 300 billion figure because I was at an event yesterday on the Global Solidarity Levies task force. Vera, I know you're closely involved with that and one of the speakers is your good friend Barbados Prime Minister Motley. And some of the numbers that she's talking about there are quite staggering really. I mean the financial transactions tax, I mean you're Talking about over $400 billion there, aviation tax on business flights, I mean you're talking about 80 billion, a similar amount when it comes to on the maritime sector. Vera, can you just talk about the appetite for these new innovative instruments? Are we at a tipping point where we are going to be thinking about this more and more and do you think countries will agree to that?

No, I think. Thank you. So the financial transaction stocks, I think the numbers come up to about $481 billion of taxation. I think the big tension there is around if you start taxing financial transactions and we've all been following recent events, capital gains, are you going to realize gains taxation or not, it can move elections. Then the issue then is when you tax that, what is the distribution process around which you do that? But my sense is that as we begin to Valencia, Barcelona, North Carolina, Florida, these are all happening in close developed country neighborhoods.

Used to be the conversation was well Samoa, Cameroon, Barbados are going to sink. But now it's happening, it's a global common. And I think that what is happening in the maritime sector is a very good example because the maritime sector is doing two things. They've come together to change, change their maritime foils. But they are also actually seriously discussing attacks amongst themselves.

So I think there is Recognition that we will need at some point. You know, Avi and I are economists and we have something called the pigouvian tax which says, you know, if there's a negative externality, you put a cost to it and somebody has to pay out. I think one of the things that has happened is we have managed to convince ourselves that we could produce this externality without cost. And the time has come now where we must realize what those costs are and we must start charging appropriately so that again, like I said, we're beginning to have the technologies to make sure that we don't hit 1.5.

What we need is two things, is we need those resources, but we also need that the technology be socialized. It's not enough that battery energy storage happens in the United States and does not happen in Egypt, for example, that is also producing steel. I think we do need to make sure that Egypt, Indonesia, Vietnam, the large countries, middle income countries, have access to this technology as well. Otherwise we will not reach those targets.

So I think the way to do it is firstly to let's limit what we get. We're going to use taxes for. Let us fund things that can't be funded any other way. Loss and damage is a good example of that. Then let's focus on those things that already exist. It's almost a bit of a conspiracy.

People don't realize how many forms of tax around carbon and energy actually exist. I wonder how many Americans know there's an oil spill fund in America. Nine cents of every barrel produced in America and imported into America goes into the oil spill fund. It has $8 billion today. If we spread that across coal and gas and made that globally, you will fund all loss and damage.

That's super interesting. I mean, I mean, you're talking about a relatively small amount here, right? I guess it has to be relatively small so people kind of don't notice it. I mean, we're seeing a pushback. In Brussels, where I work, you're seeing a kind of pushback against various different climate measures, but if it's small enough, it can actually mobilize. I think there's a famous French treasury minister who said the art of taxation is to pluck the duck with the least amount of hissing. So it's a very small taxes over very large quantity.

I forgot to mention at the start. But if you do have any questions, there was a QR code up there earlier. I'm sure you've seen it earlier today and we'd be happy to take some questions there.

Avinash. I know you're going to be closely involved in the G20, which kicks off next week, later this week. Next week. One of the ideas put forward by Brazil, which is the President of the G20 Currently, they want to see possibly a billionaires tax, a wealth tax on around 3,000 billionaires, I think it would be. Can you talk to me about that and is it a good way or is it just kind of a kind of catchphrase almost that won't raise that much?

Well, these things are deeply political, but we do need a shift, a mindset shift that we have critical existentialist global public issues like climate change. And we can't, you know, there's a lot we can do by being more efficient by using multilateral development banks more. But there's a point where you run out of options of doing more without anything else.

So we're going to need some additional resources. That's why it's great that Laurence and others and Vera is working on the global solidarity levies. That will be the example of one of those solidarity levies. You've got to think deeply about the politics though. So if you want to tax something and then take the revenues and spend them somewhere else, that's deeply politically challenging. So you need to find a way of saying, well, you're going to get half the revenue, the country will get half the revenues and half maybe goes internationally. So we need to think about not so much what we tax because many of these ideas are now quite common. Financial transactions, carbon emissions, oil billionaires. The question is, let's come up with some tax design that makes it efficient and workable.

Vera, I mean, in your introductory remarks that you mentioned China, you mentioned the, the speed of their transition, how they're manufacturing many of the solar panels that are used elsewhere in the world. There's a lot of focus on China, I think at this year's cop, not least because what we've seen in the US and the election there, but even before that, I mean, developed countries were saying, look, China needs to contribute. China needs to step up and start paying in a public finance or at least, at the very least just being transparent about what it already does do. What's your take on that?

I think two things. The first is China is doing a lot internally. We've seen even in the electric vehicle field. China is probably going to become by the end of this year the largest consumer producer of electric vehicles. They will be number one. But that also means that you can come to Baku and drive an electric car which is cost affordable and Efficient because the technology and the cost of that technology is now affordable. Right? And I think China is to electric vehicles and solar panels. Elizabeth, what Indonesia was to the LED bulb, you know, it was a decision from the government of Indonesia to say that all government buildings or houses will move to lead bulbs. And the global price of lead bulbs collapsed.

And so then everybody else could do that. And I think these are the kinds of sort of tipping points that we need in the climate debate. I think China this time for the first time on Monday announced its numbers in terms of what they have been doing. I think it was 10 billion, 3.1 billion a year that they were putting into climate transition finance. They still need to do more, they need to do untied. We are now raising the international ida, the sort of fund for the World Bank's fund for the Poorest as well as the African Development Bank Fund. And we would like, you know, China to contribute a lot more, do a lot more in terms of how they contribute to that.

Of course, the minute you say contributions, we get into a much, much more difficult and thorny conversation which is around voice and, you know, shares and voting rights and things like that. And I think that's, it's not so much that China is not contributing, it's a little bit around this global financial architecture conversation then that we sort of get to where it becomes a little bit more difficult in the conversation. But I think two things that the MDBs have done and done well is they've created hybrid capital buckets where you can put resources towards climate change in the multilateral development system without having the conversations on, on access and voice. But at some point that's why we talk about the just energy transition.

At some point we're going to have to have those conversations around, as we said, you know, 80% of the greenhouse gas emissions are produced by the G20 countries. And so at some point we have to say to ourselves, are they going to sort of contribute to 80% of the financing of that? China is included, by the way, in that 80, you know, 20 countries that emit 80% of the global greenhouse gas emissions. So I think it is. And it is. This is where the conversation becomes even more important because the middle income countries are now, in the next five years will become much, much higher polluters. And the argument is we have to be able to convince them that you can actually grow, you can create more jobs, you can deliver more prosperity in the transition.

But one of the things that we are seeing today is that in the financial sector, people are going from, don't fund the brown, let's just fund the green, let's just fund the blue. But you must fund the transition because countries need to go from the brown to the green in a non disruptive fashion. If they go in a disruptive fashion, it creates all kinds of cost on the economy, inefficiencies that it delivers. And I always use the case of the United Kingdom, which has taken this long until two or three weeks ago to close its last coal plant.

If it took 40 years for the UK to close its coal plant, imagine South Africa, imagine Vietnam, imagine what, you know, what they will need. And we need to finance those coal plants that are still going now so that as we take them out of production, they stay as efficient as they can be so that these economies continue to grow. And I think that's where the tensions are. And I think as China begins to produce some numbers that they've done now, hopefully the China climate representative just yesterday again said that they were willing to have more constructive discussions around what more they could do and how they could do it. So again, another area for optimism. I think as we go forward.

I think the thing about China, it is doing more in installed capacity on solar and wind and hydro that all other countries put together. All other countries put together. The fact that we should be somehow blaming them and criticizing them and pushing them, I think is crazy. The rest of the world should be doing what they're doing and what they've done with solar and collapsing the price of solar has made it possible, as Vera was saying, for all other developing countries to pursue this route. And so I think that that's not the problem we need to solve.

There's some other countries that are not doing it fast enough and are about to have an explosion in demand. And we've got to find ways of making that transformation, convincing them that they need to make a transformation that is bigger and faster than all rich countries did themselves. We are out of time. I just want to ask you very, very briefly to get your crystal balls out and say what you expect to happen over the next few days. What do you see as the key hurdles? How are parties to the COP going to overcome them? And where do you think we'll be in two weeks time, Avinash?

I think there's a 50.1% chance that we will get a deal, that it's going to have a headline number, that developing countries need $1.3 trillion per year and that developed countries will take the lead in providing $300 billion of public finance. That's the benchmark. 300 billion. What to look out for, Vera?

Two things. One, the International Development association contributions for either. I think we must have a headline that says 100 billion is going to the lowest income countries to help them with the transition. They cannot continue to amass debt for climate change. Brilliant. Well, we're very lucky to have two of the biggest and best names in the game. So if you could show your appreciation with a round of applause. Thank you very much. Thank you.

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