The annual United Nations climate change conference is underway in Dubai, and swirling around the COP28 negotiations is a complex, acrimonious, international fight over money:

• How much capital is available to help developing countries transition to renewable energy and cope with extreme weather?

• Where will that investment come from?

• And critically, what kinds of interest rates will lenders charge?

It’s no exaggeration to say that the answers to these questions will help determine the fate of the planet.

Average global temperatures have already risen about 1.2 degrees Celsius above preindustrial levels. Without a rapid shift away from fossil fuels, scientists warn that catastrophic warming will destroy coastal cities, ravage agricultural land and imperil millions of lives.

And yet there is a bedeviling economic paradox inhibiting efforts to create a more sustainable world: It’s relatively easy to find financing for the dirty projects the world needs less of, but maddeningly difficult to finance the clean projects the world needs more of.

This mismatch is shaping projects across the globe. In the United States, rising interest rates are leading big companies to cancel plans for huge renewable developments. But the disconnect is particularly acute in the developing world, and especially Africa, where many people have little or no access to electricity.

Financial institutions and development banks typically view investments in these countries as excessively risky, making lenders more conservative. And central banks’ efforts to tame inflation are yielding particularly high rates in Africa.

“The world talks a big game of greening the African continent,” said Jacqueline Novogratz, the founder of Acumen, an impact investment fund. “And yet the kind of capital that we put against it typically is overpriced, under-risked and overly short term.”

That is, if lenders make the loans at all. In many cases, projects just can’t get funded.

Take the case of Kofie Macauley, a Sierra Leonean engineer working to build a small hydroelectric project that would cost $80 million — a pittance in the realm of project finance. He’s spent years courting dozens of equity partners, big and small, from around the world, as my colleague Max Bearak reported. But after a decade of efforts, no one will put up the money.

Given a choice between a new coal plant and an equally powerful new wind farm, most countries would choose the wind farm. In the long run, the absence of fuel costs makes renewable projects far more economical. That means there’s a unique opportunity in developing countries.

“As opposed to other countries where the infrastructure is well developed and you have to reverse that and make it green, Africa can leapfrog and develop green energy infrastructure from the start,” said Bilha Ndirangu, the chief executive of Great Carbon Valley, a project development company based in Kenya.

Efforts to make better financing options available for developing nations have been gathering steam. The World Bank is under pressure to lend more money for climate projects at more competitive rates, and the hope is that if development banks assume more risk, huge amounts of private capital will come off the sidelines. So far those reforms are proceeding slowly.

When the money appears, the energy transition can happen with startling speed. Just look at the United States.

Over the past year, the Inflation Reduction Act has kick-started a boom in wind, solar, battery and electric vehicle production that is reshaping the American economy and allowing one of the world’s largest polluters to say it is genuinely on a path to reducing emissions.

“This transition is underway,” said Peter Gardett, an executive director of climate and clean tech at S&P Global. “What has surprised us is the speed and scale of the investment.”

The formal negotiations at COP28 are likely to focus on renewed commitments to limit global temperature gains. Yet any reasonable chance of achieving those goals will be contingent on world leaders and business executives mustering the trillions of dollars needed for a wholesale remaking of the world’s energy infrastructure.

That could mean development banks taking on more risk, private lenders accepting lower returns, new public-private partnerships or more subsidies and tax breaks. But there’s no chance of solving the climate change problem without also solving the money problem. — David Gelles

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IN CASE YOU MISSED IT

Leaked documents suggest the host of COP28 is using the event to promote fossil fuels. The choice of the United Arab Emirates, a leading oil producer, to host the climate talks angered environmental activists. That anger intensified after the Centre for Climate Reporting and the BBC obtained documents showing that the country planned to lobby on oil and gas deals at the summit.

Nations pledge about $550 million to a new climate damage fund, which will help vulnerable countries hit by climate disasters. Some activists criticized the United States’s pledge of $17.5 million as being too low. And the total fund has a long way to go before it can significantly contribute to covering climate-related damages, which are expected to cost developing countries $280 billion to $580 billion per year by 2030.

An Emirati financial firm joins U.S. asset managers in a new climate fund. Lunate Capital, a new firm overseen by the Abu Dhabi royal family, plans to invest at least $30 billion in the fund alongside a handful of prominent asset managers including TPG, BlackRock and Brookfield Asset Management, according to people familiar with the plans. Lunate was started just months ago with at least $50 billion in assets.

Net what, again?

Hundreds of companies have raced to proclaim their climate commitments over the past few years, most often by setting net-zero targets: dates by which they intend to remove from the atmosphere the equivalent of all the carbon they emit.

Tracking that goal is more difficult than setting it. Despite years of COP talks, the world has yet to agree on a standard auditing method to measure progress toward reining in global warming. And that can make it hugely complicated to hold companies and countries accountable in the climate fight, writes Vivienne Walt for DealBook.

Only about 4 percent of companies with net-zero targets meet the minimum criteria set by top U.N.-appointed experts, said John Lang, the project lead in London for Net Zero Tracker, which uses about 40 indicators to assess the climate strategy of countries and companies. Companies rarely include end-use, or scope 3, carbon emissions in their calculations; indicate how much their progress depends on using offsets, like planting trees; or disclose their use of nascent technology, like carbon capture and storage. Until last year’s COP, the very definition of “net zero” was unclear. Now, U.N. criteria include disclosing scope 3 emissions, and using offsets only for residual carbon — laying bare the weakness in some companies’ plans. “All we are asking for is clarity,” Lang told DealBook.

Offsets are not measurable. Businesses increasingly offer customers ways to balance their polluting habits, like air travel, with environmental gestures, called offsets, that are then subtracted from companies’ carbon emissions; for a small added fee, the company will contribute to projects like planting new trees, or stopping existing forests from being cut down.

But there isn’t a good way to determine how well those initiatives work, or even whether those actions are ever taken. “No one knows if 10 people are counting the same forest, or if it is going to burn down in the next fire,” said Ian Goldin, professor of globalization and development at Oxford University. “There is no regulation or accountability.”

It’s too soon to count on carbon capture or storage, technologies that stop carbon from escaping into the atmosphere in the first place. Oil companies in particular have promoted the future use of the technology as a way of maintaining fossil-fuel output while sticking to their climate goals. Saudi Aramco, the world’s biggest oil company, says CCS technology will allow it to reuse carbon in its chemical production, and that it will bury other used carbon under forests of mangrove trees, which act as natural carbon sinks. Still, it is not yet clear how effective those techniques will be when deployed at scale. “It is really exaggerated as a solution, in terms of the volume of carbon you are taking off,” Goldin said.

A global hodgepodge of regulations has made tracking progress even more difficult. The United States remains deeply divided over climate action, with 11 states passing laws this year limiting how much investment funds use environmental indicators in financial decisions. That contrasts with the European Union, which from 2025 will require all companies — including some large American corporations doing business in Europe — to report the environmental impact of their operations.

“You probably have 500 different frameworks, ratings, number of stars, whatever,” said Emmanuel Faber, chair of the International Sustainability Standards Board, a multinational body formed after the 2021 COP talks to set climate accounting standards. Faber told DealBook that he had crisscrossed the world in recent months, securing agreements from countries to follow ISSB rules. “The work was created to end this alphabet soup,” he said.

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