visimoney
TLDR:
- Blended finance, which combines public concessional finance with private or public resources, has gained support at Cop28, but there are major problems with the concept that need to be addressed.
- Blended finance can perpetuate climate colonialism by extracting renewable resources from the global south to power Green New Deals in the global north.
- The largest recipients of blended finance for climate action have been corporates and project developers, raising concerns about who is profiting from the emerging privatised green climate agenda.
- Blended finance often brings new debt, contributing to recipient countries’ indebtedness.
- Transparency and accountability are pressing issues in blended finance projects.
Blended finance, a concept that combines public concessional finance with private or public resources, has become a prominent topic at Cop28. However, there are significant problems associated with the concept that must be addressed before any further expansion is considered. Eurodad’s joint report with ActionAid highlights that blended finance can perpetuate climate colonialism by extracting renewable resources from the global south and using them to power Green New Deals in the global north. This often advantages financial actors outside the recipient countries, and the largest recipients of blended finance for climate action have been corporates and project developers. These issues are further compounded by the fact that big climate-based funds from the global north charge extractive commissions in countries that are already in dire need of resources, further impoverishing their economies.
Another major concern is the new debt that blended finance often brings. While the beneficiaries may receive softer terms than purely commercial loans, there is still a need to repay this debt, which can contribute to recipient countries’ indebtedness. Additionally, blended finance projects lack transparency and accountability to the communities they are supposed to serve. The limited amount of private finance currently mobilized by blended finance is another problem. In 2021, Development Finance Institutions provided long-term project financing totaling $13 billion, but only about $5 billion came from private sources.
One example that highlights many of these issues is Zambia’s Scaling Solar program, launched by the International Finance Corporation in 2015. The investors in a solar energy project in Zambia received subsidies that ultimately raised the project’s costs to the public. Estimates suggest that $3.50 of public international finance was used to attract each dollar of private finance.
To address these problems, governments must ensure that public money could not have achieved better impacts if spent in alternative, cost-effective ways. Transparency improvements are also crucial, and blended finance should not be seen as a substitute for delivering on existing climate finance commitments and reducing emissions in the global north. Overall, the current implementation of blended finance perpetuates climate colonialism and benefits financial actors and project developers rather than the communities in need of support.
