Financial Reform Stands Out as Key Ingredient for Climate Transition

As this year’s COP28 summit wound down in Dubai with a first-ever reference to the transition off fossil fuels in the final declaration, delegates and advocates were already turning their gaze back to the tension that always underlies international climate negotiations: Money.

Despite the high-profile advances at this year’s conference, delegates left lots of work undone. Funding for climate change adaptation in developing countries is still up for technical debate. The loss and damage fund for countries facing the irreversible impacts of climate change, announced triumphantly on the first day of the conference, is still drastically underfunded. And the deep challenges and inequities in an international finance system that dates back to the 1940s remain to be solved—beginning with high interest rates that threaten to turn any local climate emergency in a developing country into a spiralling debt crisis.

That’s why Timothy N.J. Antoine, governor of the Eastern Caribbean Central Bank, is looking to Canada and other rich countries to embrace financial reforms to support countries on the front lines of climate change.

“The climate crisis, a stark and present danger for small island developing states like those in the Caribbean, is a clear warning to the world about the urgent need for action,” he writes for the Globe and Mail. “The need for innovative financial reforms in the face of this challenge cannot be overstated,” since “traditional financial mechanisms fall short in addressing the scale of the climate crisis.”

As just one example, Antoine says Hurricane María in 2017 caused damage equal to 226% of Dominica’s gross domestic product (GDP). The equivalent damage in Canada would have cost C$4 trillion.

But while Canada has been a “pioneer” in developing Climate Resilient Debt Clauses (CRDCs) that deliver debt relief in the event of a climate disaster, he says, there’s more to be done to de-risk private climate investment in developing countries.

“Canada, with its globally respected financial sector, is well-positioned to spearhead these efforts,” Antoine writes, and “this involvement is not just a matter of altruism; it aligns with Canada’s constructive self-interest. The unaddressed climate crisis will inevitably lead to global instability, affecting trade, migration, and even national security—concerns that directly impact Canada. Therefore, Canada’s investment in climate resilience is not merely an investment in the well-being of vulnerable nations such as those in the Caribbean, but also a strategic move to safeguard its own future.”

“There are many financial streams not contributing to solutions for avoiding the most catastrophic consequences of climate change,” agreed Laurence Tubiana, president of the European Climate Foundation, during a COP28 breakout session. As countries prepare for COP30 negotiations in Brazil in 2025, Le Monde says countries are looking at fossil fuel taxation as a key tool to finance the climate transition.

“We’re not asking for 1,000 billion, we’re asking for 2.5% of their profits, which is what we need for loss and damage in developing countries,” said Avinash Persaud, a special envoy for Barbados Prime Minister Mia Mottley. “As an ex-banker, I’m often faced with former colleagues who tell me ‘these are very good ideas, but it’s impossible to implement.’ There are already US$30 billion in taxes levied every year on financial transactions, we need to extend it to other sectors.”