How to Get More Bang for Your Climate-Change Buck

No matter where they come from, greenhouse gas emissions make climate change more dangerous for the entire planet. This signature characteristic of climate change makes it challenging for individual states to solve by themselves, as most of the benefits of domestic climate action flow elsewhere. When a country invests in renewable energy sources such as wind, for example, the drop in emissions is as likely to reduce the chances of a climate disaster halfway around the world as it is to prevent one at home. Confronted with demands for economic growth and unwilling to spend on clean energy programs or infrastructure, rich and poor countries alike may be tempted to free-ride off others’ mitigation efforts and hope that other states will solve the problem.

Yet the global nature of the fossil fuel challenge also offers many opportunities. Just as the location of greenhouse gas emissions is ultimately inconsequential for the planet, the same applies to climate mitigation efforts: they can take place anywhere. Currently, however, most climate funding is invested domestically by wealthy countries. But this so-called home bias is slowing global progress toward critical climate goals.

Wealthy countries, which account for 15 percent of the world’s population, are responsible for 35 percent of annual global emissions, and even more of the carbon dioxide that has accumulated in the atmosphere from past emissions. These countries should therefore bear most of the responsibility for financing mitigation efforts. But they would achieve a better return if they made more of their investments abroad. Climate bargains can be found in poorer countries for a number of reasons. Land and labor are cheap. Low-hanging fruit, such as transitioning away from coal, remains unpicked. And the kinds of vast new infrastructure projects that developing countries require can be built “green” from the get-go, which is cheaper than retrofitting old infrastructure.

Wealthy countries have neglected to take advantage of such high-return mitigation opportunities outside their borders. This is partly driven by a lack of imagination; it is natural to attempt to fix major problems at home first. Politicians may also feel hamstrung by their promises that climate action will create jobs at home. But tying climate action to domestic job creation comes at a cost not only to the planet but also to taxpayers, who end up paying more for climate efforts at home than they would for more efficient programs abroad. To be clear, overseas efforts must go hand in hand with climate efforts at home: there are still good domestic investments that can help to reduce fossil fuel use in wealthy countries. But with time running out to stave off the worst effects of the climate crisis, governments and policymakers must take action where it does the most good.

THINK GLOBALLY, ACT GLOBALLY

The world is far from meeting its climate change targets. The 2015 Paris agreement set the goal of keeping average global temperature rise below 1.5 degrees Celsius. According to the UN Environment Program, reaching this target will require the world to cut its current levels of greenhouse gas emissions by around 50 percent. The world is not on track to achieve this.

Geographically speaking, current efforts are starkly imbalanced. For instance, according to the Climate Policy Initiative, current financing for climate change mitigation totals $105 billion in western Europe compared with $30 billion in South Asia, despite the latter’s substantially higher population and land area. Although the Paris agreement includes provisions suggesting that countries meet their emission targets by funding mitigation activity abroad, most states continue to define their net-zero commitments or other targets exclusively within their borders. In the United States, for instance, the government is expected to spend about $1 trillion on climate mitigation over the next decade through the Inflation Reduction Act, almost all of which will be spent in the United States.

SPEND IT WHERE IT COUNTS

The best way to make the biggest possible dent in climate change, however, is by spending in places where green dollars will go the furthest. Mitigation activities in low- and middle-income countries tend to produce greater reductions in greenhouse gases for a number of reasons. Many mitigation opportunities such as forest preservation programs require land and unskilled labor, both of which are much cheaper in less wealthy countries. Consider, for example, a program funded by a consortium of wealthy countries that compensated landowners in Uganda for keeping the carbon-rich forests they own intact. Doing so saved about 20 times as many tons of emitted carbon per dollar spent as a similar program in the United States that encourages farmers to turn their farmland into conservation reserves, because farmland is more expensive in the United States than in Uganda.

Clean energy infrastructure, such as solar and wind farms, also uses a lot of land, which may be in short supply in wealthier countries. The United Kingdom, for instance, would reduce more emissions by funding a solar plant where land is cheap, sun plentiful, and the alternative fuel dirtier than by subsidizing solar energy at home. Emerging technologies that aim to remove carbon dioxide from the atmosphere, such as direct air capture, are energy intensive, so they make sense to pursue only if and where cheap clean energy is available. Other carbon capture methods require a wide range of resources. Enhanced rock weathering, for instance, entails spreading crushed rock, a mining byproduct, across farmland in order to increase crop yields and speed the natural process by which the rocks absorb carbon. This process requires land, labor, and access to mining residue, making middle-income countries with an abundance of these inputs, such as Brazil, Chile, and Peru, well positioned to implement it.

The second reason why overseas mitigation efforts are more efficient is that a lot of the low-hanging fruit of carbon mitigation has been plucked in high-income countries but not in low- and middle-income countries. One example is the shift away from coal in favor of cleaner power generation. Although the energy transition is well underway in high-income countries—in 2021, only 19 percent of their electricity came from coal—middle-income countries still rely on coal for nearly half their power. In the United States, renewable energy projects will mainly displace the cleaner alternative of gas, which has overtaken coal as the country’s main fossil fuel source of electricity. But a renewable energy plant built in India will be more likely to displace coal, a far dirtier source of energy that accounts for a whopping 74 percent of the country’s electricity. A solar or wind farm built in India would therefore be better for the planet than one built in the United States.

Officials must stop thinking about climate goals in national terms.

Poor countries lacking access to low-cost financing are often forced to forgo these easy wins because such projects require a lot of upfront capital. Rich countries could step in to fill the funding gaps. For instance, wealthy countries could provide capital to help reduce the release of methane from landfills, which accounts for between two percent and four percent of total greenhouse gas emissions worldwide. States could install methane capture systems capable of converting these emissions into electricity. Most untapped opportunities to fix high-emission landfills exist in low- and middle-income countries. Wealthy states could similarly help these countries upgrade the infrastructure at oil and gas production sites to reduce methane and natural gas emissions.

A third reason that green dollars go further in the developing world is that it is cheaper to build green than it is to retrofit green. Wealthy countries have already built a lot of their infrastructure, such as public transit systems and large buildings. Low- and middle-income countries, on the other hand, are going to experience huge infrastructure expansions in the coming decades because of their stage of economic development, their growing populations, and their expanding cities. According to a 2018 World Resources Institute report, three-quarters of the world’s urban infrastructure that will exist 30 years from now has yet to be built. According to UN estimates, China, India, and Nigeria alone will account for about 35 percent of projected urban growth by 2050. Whereas retrofitting old buildings to be energy efficient in countries with established built environments, such as the United States, is expensive and complicated, involving an extra step of disassembly, building green is relatively inexpensive. From the get-go, engineers can incorporate low-carbon-footprint building materials or reduce the need for air conditioning by using architectural designs that provide more natural ventilation. Ensuring that developing countries have the resources to build sustainably is an essential step in reducing greenhouse gas emissions over the long term.

Critics may point out that mitigation efforts are more cost effective when they target countries with high emission levels, which include high-income countries. This is indeed sometimes true. For example, in the United States, where a significant amount of energy is devoted to cooling office buildings during the summer, shifting to more energy-efficient cooling systems would reduce energy use. Likewise, mitigation projects that require highly skilled workers might be more cost effective in wealthy countries. Still, for many important types of carbon mitigation, the costs are likely to be lower in low- and middle-income countries.

Some may also point to the dysfunction of voluntary carbon offset markets to argue that projects in less wealthy countries do not deliver on the emission reductions that they claim. Carbon offsets involve activities such as reforestation or renewable energy projects that reduce greenhouse gas emissions to make up for fossil fuel use that occurs elsewhere. These programs often take place in poor countries that sometimes overestimate their impact and lack accountability mechanisms. Such flaws, however, are not intrinsic to all mitigation activities in poor countries or cross-border investments in fighting climate change. Rather, they reflect poor institutional design, whereby sellers of carbon credits hire their own monitors, who are incentivized to exaggerate the amount of carbon reduced to please their clients. Monitoring and regulation might be harder in less wealthy countries, where there are fewer resources for comprehensive oversight, but they are hardly impossible.

SPREAD THE WEALTH

Given the clear economic case for funneling climate change mitigation efforts toward less wealthy countries, there are a few first steps that policymakers must implement. Officials must stop thinking about climate goals in national terms; domestic targets such as net-zero emissions should take into account mitigation efforts outside a country’s borders. Defining targets and achievements within national borders reduces the incentive to pursue projects abroad, even if they would achieve more emission reductions.

To address the problems demonstrated by flawed carbon offset markets, governments and multilateral organizations need to develop rigorous protocols to verify the amount of mitigation that a project generates. States must ensure that there is oversight by requiring objective and accurate verification of all climate claims so that funders cannot exaggerate their results.

Wealthy countries must also work to make sure that their lower-income partners benefit from mitigation efforts. Policymakers must design and enact cross-border policies responsibly, with the consent of host communities, and not in a way that impoverishes or otherwise harms them. For instance, programs such as forest conservation projects must not involve forcible displacement and should include provisions that compensate communities that have been deprived of a potential source of income. Policymakers must also lay out the anticipated local co-benefits of mitigation projects and then commit to measuring the impacts to ensure that less wealthy countries receive their fair share of the benefits. Moreover, wealthy states must not divert capital from aid budgets to fund these climate mitigation projects. Foreign aid is meant to help low-income countries, whereas climate investments are designed to help the planet as a whole. The financing should come from existing or new funds allocated for addressing climate change.

Spending climate budgets almost exclusively at home is dramatically hampering global progress on reducing emissions and shifting to clean energy. Moving toward a model that transcends borders, as the crisis itself does, is the only way to avert the direst consequences of climate change.