As climate change causes seemingly endless weather disasters around the world, countries are struggling to adapt to the new reality. Preparing to better withstand hurricanes, floods, heat waves, droughts and wildfires will require hundreds of billions of dollars.

And then there is the need to confront the burning of fossil fuels such as coal, gasoline and oil, which is the root cause of climate change by switching to clean energies such as wind and solar.

This will cost trillions of dollars.

This is where climate finance comes into play, a general term that means different things to different people but boils down to this: paying for projects to adapt to and combat climate change. Climate change-related financing is particularly important for developing countries that do not have the same resources or access to credit as rich countries.

International megabanks financed by taxpayer dollars are the largest and fastest-growing source of climate finance for the developing world. There are only a few of these banks in the world, which are called multilateral development banks because they receive contributions from various countries, the largest of which is the World Bank.

How these banks allocate resources are some of the most important decisions made when defining how poor nations can respond to climate change. These were the main reasons why countries met the 2009 target of providing $100 billion annually to developing countries to combat climate change by 2022.

At the annual UN climate conference starting in Azerbaijan on Monday, global leaders are expected to discuss how to obtain trillions of dollars in climate finance in the coming years. nonprofit research group Climate Policy Initiative estimates world needs That’s nearly five times the amount of annual climate finance available to limit warming to 1.5 C (2.7 degrees F) since the late 1800s. currently global average temperatures about 1.3 degrees C (2.3 degrees F) higher.

Tim Hirschel-Burns, an expert at Boston University’s Center for Global Development Policy, said a new goal should reach higher and hold institutions and governments accountable for their promises.

“The essence of this is to achieve a goal that will catalyze actions that will fill the really significant climate finance gap facing developing countries, which is much larger than $100 billion,” he said.

Dharshan Wignarajah, director of the London-based office of the Climate Policy Initiative, said that as the international community accepts the reality of climate change, the debate has shifted to the question of where the money to finance the energy transition will come from.

“The question is ‘are we going to transition?'” said Wignarajah, who is leading the climate talks called the Conference of the Parties hosted by the UK in 2021. “This has brought finance to the forefront of COP discussions more than ever before, because ultimately it’s all about who will pay,” he said.

Developing countries rely much more on these banks than industrialized countries to finance climate projects.

In the US and Canada, commercial banks and companies financed more than half of climate-friendly projects in 2022, according to the Climate Policy Initiative. In sub-Saharan Africa, these private lenders accounted for only 7%.

This is because It is more difficult for developing countries to achieve low interest rates.

“If you are Kenyan and want to borrow money from private lenders, they might charge you 10% interest because your credit score is not very good,” Hirschel-Burns said.

However, credit ratings of multilateral banks are better than many countries. For example, the International Development Association – an arm of the World Bank and Kenya’s largest provider of international aid – Received the highest possible rating from Moody’s Investor Serviceduring Kenya itself has a scrap rating.

Banks borrow with better ratings, then lend to developing countries and offer a more reasonable interest rate than governments could get if they borrowed directly from private lenders.

The development goals of multilateral banks are wide-ranging. They aim to improve people’s health and the environment, expand energy access and end poverty. Addressing energy access means banks providing billions of dollars for fossil fuel power plants, according to the AP analysis; but banks’ policies have improved and less funding has been provided to such projects in recent years.

Investment in fossil fuels will continue to increase worldwide, reaching $1.1 trillion in 2024. According to the International Energy Agency. Multilateral banks continue to be among the largest funders of fossil fuel life-extending projects, helping to “lock in a high-carbon path” for countries. According to the report of the Clean Air FundLobbying for funding of projects to improve air quality.