In 2024, fewer wishes, and more financing plans for the ecological transition
The Global Stocktake at COP28 in Dubai marked the start of a cycle for reviewing governments’ decarbonization trajectories. The cycle will end at COP30 in Brazil at the end of 2025, and 2024 will hopefully show progress in the ambition of these trajectories. We equally hope that this renewed ambition will be accompanied by a reflection on the financing plans for national low-carbon trajectories, covering the amounts and evolution over time of domestic and international resources, and the respective roles of the private and public sectors. Because simply put, a low-carbon transition with no associated financing plan is not a transition, it is mere wishful thinking.
In addition, we hope that public development banks will maximize their impact by playing a key role in designing and implementing these financing plans. A sense of uncertainty hangs over these wishes. 2024 will be an election year in several states such as the United States, the United Kingdom, India and Indonesia. These countries are key to the negotiations, as well as important shareholders in public development banks, so the consequences of voters going to the polls could be significant.
At EU level, 2023 saw significant progress in terms of climate regulations, to set a course and achieve the objectives of the Green Deal. The challenge for 2024 – election year in Europe – and beyond is to draw up and implement a long-term EU climate investment plan to implement the Green Deal. This plan should tackle above all the question of public investment, and make sure that it is both sufficient in terms of quantity and available over the long term. Because for Europe, as for other jurisdictions… a low-carbon transition with no associated financing plan is not a transition, but wishful thinking. To finance the transition, public resources – Member State resources or EU resources – will be needed, in a budgetary environment that has been in turmoil since 2020. Private resources will also be needed, and banks could provide part of the solution: a good reason to follow the discussions on the banks’ climate transition plans in 2024.
In France, where I4CE is based, 2023 was the year of ecological planning. France now has a plan for its ecological transformation. Or, at least, a sound picture of where it stands today and where it wants to be by 2030. The challenge now is to support the plan with a financing plan, i.e. a multi-year strategy for financing the ecological transition, as the French Government has committed to do as of 2024. Because for France, as for Europe and other jurisdictions… a low-carbon transition with no associated financing plan is not a transition, it is, once again, mere wishful thinking. Taking the climate dimension of the ecological transition as an example, this multiannual strategy should inter alia provide details on the levels of public spending which will be dedicated to both mitigating and adapting to climate change, and on the resources that can be mobilized by local authorities to ensure that they are able to finance their ambitions.
At I4CE, we are convinced that, first, the ecological transition will not happen by chance – it needs a plan. Second, backing this plan with a financing plan is a necessary – but not a sufficient – condition for success. Both convictions underpin our 2024 work program, which you can read more about below.
Europe
European climate investment deficit
On June 9th 2024, EU citizens will elect a new European Parliament. This renewed Parliament will then elect a new European Commission, which will play a decisive role in shaping the future of EU climate policies. The Union now has regulations that offer long-term certainty for a range of sectors. It has also greatly strengthened the European carbon price signal. But unlike the United States, the EU has yet to build a long-term investment plan capable of helping businesses and households to invest in their own transition. On February 21st, I4CE will publish the first edition of its annual report on the climate investment deficit in the EU economy. Register for the launch event.
Europe’s regulatory pause didn’t happen
At the end of last year, the European Union decided to require banks to draw up climate transition plans, which will be monitored by European banking supervisors. This is good news for I4CE, which has been promoting this proposal in the European debate for several years. As always, the devil is in the detail, and the ambition of these plans will ultimately depend on the guidelines the European Banking Authority will define in 2024. While our next publication on this topic is forthcoming, look at our work on banking transition plans and EU prudential regulation.
New European carbon certification framework
The European Union is also in the process of finalising its new carbon certification framework. It is intended to ensure the environmental integrity of agricultural and forestry projects that store carbon and receive public or private funding in exchange. After contributing to the adoption of a public label of this kind in France, I4CE has been working for over a year to ensure that the new framework is both robust and pragmatic. The text that is about to be adopted contains some advances, even if we will once again have to be vigilant about the implementation details, which will be discussed by a committee of experts in which I4CE is involved.
International
Public money must go where it is most transformative
100 billion dollars per year is the amount of climate finance that rich countries have promised to provide developing countries in support of climate action. COP 28 initiated the renegotiation of this target and its underlying considerations, I4CE is working with public development banks internationally to maximise their impact and ensure that public money goes where it is most transformational. 2024 will be punctuated by numerous summits bringing together public banks, which will have a key role to play in the ongoing reform of the development finance architecture. In the meantime, we invite you to reread our latest publications on this subject.
Steering tools for financing the environmental transition
For many countries, 2024 also marks the start of the updating of national transition plans with a view to COP30. However, most existing climate strategies ignore, partially or completely, the question of financing the investments to be made: how much will it cost ? Who will pay for the transition? What should be the State’s share, and how will it finance it? In 2024, I4CE will continue to analyse these plans and develop tools to support discussions on this essential issue, with the aim of moving towards long-term plans that are both ambitious and credible for domestic players and international financiers.
France
Local ecological planning
Among the unfinished debates on the financing of the climate transition, the effort expected from local authorities is high on the agenda. Local authorities are at the forefront of the public investments to be made, but a consensus has yet to be reached on the amount they should invest. The initial estimates provided by I4CE should help. What’s more, the State and local authorities must also solve the equation for financing these local investments, an unresolved equation to date, as we showed in a recent study. We invite you to reread our latest publications, and to follow those to come in 2024 to feed the so-called “territorialisation” phase of ecological planning.
Will the 2025 budget of France be the one for adapting to climate change
At a time when the French government has just adopted its budget for 2024, the question may seem premature. But it is an important one. While the debate on financing the decarbonisation of the economy has gained momentum, taking account of the effects of climate change in investment plans is lagging far behind. I4CE has already published a number of studies to help decision-makers catch up, and will be publishing new analyses of the economic impact of adaptation at the beginning of the year. The new national adaptation plan is expected in the coming months. It will have to be budgeted for and implemented in the next finance bill.
Energy transition face headwinds
The 2023 edition of I4CE‘sclimate landscape in France reveals that investment in the energy transition has continued to grow in recent years. But they are now facing headwinds, notably the rising cost of credit and higher project costs, even as the need to meet climate targets is being revised upwards. In 2024, I4CE will continue to analyze public and private investment in France and publish financing scenarios for the future. We’ll also be keeping a close eye on the impact of recent reforms to help the middle classes make the transition. The Climate landscape in France will be translated in English in the coming weeks, in the meantime, check out our latest publications on the subject.
Agriculture and food, a less reassuring situation
While significant progress has been made in financing the energy transition in 2023, the situation is less reassuring when it comes to the agricultural and food transition. In particular, there is a lack of expertise on the new needs for public spending to support farmers and on the reorientation of existing aid, and changes in livestock farming and diets are not sufficiently supported. These are some of the blind spots in the strategy for financing the transition. In 2024, I4CE will again contribute to filling this gap in expertise. We will also publish an analysis of the cost to public finances of the multiple crises facing farmers and the low resilience of our agricultural model.
Public support for the forestry sector must be well invested
With the degradation of the forest carbon sink and competition between economic sectors for access to biomass, and in particular wood from our forests, France has rediscovered that the climate transition is not limited to energy and agriculture. As part of its new low-carbon strategy, France will need to set realistic targets. And it must ensure that all the public support granted to the forestry sector is invested in making forests more resilient and increasing the use of wood to produce materials that store carbon over the long term. While we await our new publications for 2024, we invite you to browse through our latest studies.
