OPINION:
As this year’s U.N. Climate Change Conference, known as COP29, convenes in Azerbaijan, the question of global finance for the green transition hangs over it like a darkening cloud.
This was supposed to be the “finance COP,” at which new arrangements for financing were to be made, with developing countries hoping for large sums from developed ones. Indeed, climate finance was the most contentious item at last year’s summit in Dubai and will likely be again this year. Yet discussions on intergovernmental financing have broken down, and the sums raised in this way have been quite limited.
But it doesn’t have to be this way. There is a better path to provide financing for developing countries’ green transitions and reduce global emissions. That path is private sector growth to provide increased funding for alternative energy tech and climate adaptation.
Without major donor financing, which remains unlikely, attracting domestic and foreign private investment is indispensable for developing countries’ sustainable growth. The materials, including strategic minerals, the world needs for the green transition will have to be mined and processed.
In the era of China’s domination of the rare earth and strategic minerals supply chain, this is also about diversification of the materials’ sources and diminishing the developed world’s high-tech and military industries’ dependence on China. The West has a national security interest in boosting the emerging markets’ private sector role in critical materials mining and processing.
Developing countries — the source of many of these materials — can also move up the value chain as part of their strategy involving extractive industries rather than enduring a boom-bust cycle. This, in turn, provides the revenue governments need for public investments in agriculture and other sectors to address the effects of climate change and for measures to boost education, gender equality and other sustainable development goals.
This is emphatically not the old debate over how many indirect jobs a specific project will add and for how long. Instead, it is a new paradigm focused on more sustainable extraction practices and how extraction contributes to overall sustainability and economic transformation.
It focuses on training workers for new jobs in the green transition, raising export complexity, expanding international trade and benefiting from extractive industries’ overall role in a growth strategy. This approach also rethinks the relationship between government and private investors.
An important part of this new paradigm is moving up the value chain. Indonesia is a prime example, developing processing capabilities for nickel, copper, aluminum and other minerals and diversifying into new products, including in clean energy and green technology. The Philippines is the world’s second-largest nickel producer but processes little domestically, missing an obvious opportunity for growth; it is accelerating efforts for new processing plants.
Kazakhstan is seeking investors in its copper, chromium and rare earth mineral deposits. African countries, too, are taking advantage of this new spirit to expand domestic value chains: Botswana is a center for diamond processing and sales, and Zambia has embarked on processing its abundant copper and cobalt for electric vehicle batteries.
Now, partnerships with investors must be institutionalized. In the past, administering and collecting taxes involved an aggressive, adversarial approach that frequently led to unnecessary disputes. This discouraged investors while depriving governments of the revenue they desperately needed.
It was past time to disrupt that system and replace it with something far better. The new approach relies on cooperation rather than suspicion and conflict. Investors and governments need open, candid relationships and a free flow of information. This leads to genuine partnerships between governments and investors that are built upon trust, mutual understanding and transparency.
What is the secret that makes these partnerships work?
It’s simple: These partnerships work when both sides recognize that achieving poverty reduction and funding for a sustainable transition requires economic growth. Win-win partnerships between investors and tax authorities improve revenue collection, reduce tax disputes and simplify compliance — all of which attract investment.
In an equation, investment + employment = taxes + development. The old model focused too often only on taxes and development, missing the key contributions of investment and employment. An important part of this partnership is capacity building, which is necessary to promote development and poverty reduction.
At Baku, Simon Stiell, executive secretary of the U.N. Framework for Climate Change, said that “incremental increases [in public funding] won’t lead to an exponential surge of investment and green growth. On climate finance, we have a need for speed.”
That’s exactly right, but only the private sector can deliver that exponential investment surge; Western governments clearly will not. Growth will also help countries address high levels of debt that slow investment in industries that rapidly add value to developing economies.
Whatever happens in Baku, governments must seize this opportunity in partnership with private investors. Developing countries must now promote the conditions for that investment and green growth without waiting for the West.
• Daniel A. Witt is president of the International Tax and Investment Center. Mark Moody-Stuart is a former chairman of the Global Compact Foundation, Royal Dutch Shell Group and Anglo American PLC.
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